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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
© OnCourse Learning. All Rights Reserved.
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
© OnCourse Learning. All Rights Reserved.
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