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Chapter 19Basic Real Estate Investment

Learning Objectives

Define and be able to calculate equity, leverage, cash flow, and appreciation Use a capitalization rate to evaluate a potential investment Use an equity dividend rate to evaluate to potential investment Identify and describe different forms of business ownership

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Chapter 19Basic Real Estate Investment

Investing vs. Speculation

Investing in Real Estate:• Appreciation• Leverage• Cash flow• Liquidity

Basic Concepts:• Cash flow• Equity/Equity Build-up• Appreciation• Tax-related benefits

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Chapter 19Basic Real Estate Investment

Investing vs. Speculation

Evaluation of a Potential Investment:• Return on Investment (ROI)

Capitalization Method:• The process of converting net operating income (NOI) into an indication

of value• Covered previously in Chapter 13

Equity Dividend Rate (Cash on Cash):• Relationship between the amount of before tax cash flow and the amount

of case invested

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Chapter 19Basic Real Estate Investment

© OnCourse Learning. All Rights Reserved.

Chapter 19Basic Real Estate Investment

Forms of Business Ownership

Sole Proprietorship General and Limited Partnership Limited Liability Company (LLC) Corporation