The Complete Guide to Real Estate Finance for Investment Properties: How to Analyze Any Single-Family, Multifamily, or Commercial Property

286 Pages·2004·3.21 MB·English

by  Steve Berges

11532_Berges_ffirs.k.qxd7/6/0411:46AMPageiii
The Complete Guide to
REAL ESTATE
FINANCE
for
INVESTMENT
PROPERTIES
How to Analyze Any
Single-Family, Multifamily,
or Commercial Property
STEVE BERGES
John Wiley & Sons, Inc.
11532_Berges_ffirs.k.qxd 7/6/04 11:46AM Pagevi
11532_Berges_ffirs.k.qxd 7/6/04 11:46AM Pagei
The Complete Guide to
REAL ESTATE
FINANCE
for
INVESTMENT
PROPERTIES
11532_Berges_ffirs.k.qxd 7/6/04 11:46AM Pageii
11532_Berges_ffirs.k.qxd7/6/0411:46AMPageiii
The Complete Guide to
REAL ESTATE
FINANCE
for
INVESTMENT
PROPERTIES
How to Analyze Any
Single-Family, Multifamily,
or Commercial Property
STEVE BERGES
John Wiley & Sons, Inc.
11532_Berges_ffirs.k.qxd 7/6/04 11:46AM Pageiv
Copyright ©2004 by Steve Berges. All rights reserved.
Published by John Wiley & Sons,Inc.,Hoboken,New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced,stored in a retrieval system,or transmitted in any form
or by any means,electronic,mechanical,photocopying,recording,scanning,or otherwise,except as
permitted under Section 107 or 108 of the 1976 United States Copyright Act,without either the prior
written permission of the Publisher,or authorization through payment of the appropriate per-copy fee
to the Copyright Clearance Center,Inc.,222 Rosewood Drive,Danvers,MA 01923,[phone],
fax [phone],or on the web at www.copyright.com. Requests to the Publisher for permission
should be addressed to the Permissions Department,John Wiley & Sons,Inc.,111 River Street,Hobo-
ken,NJ 07030,[phone],fax [phone].
Limit of Liability/Disclaimer of Warranty:While the publisher and author have used their best efforts
in preparing this book,they make no representations or warranties with respect to the accuracy or com-
pleteness of the contents of this book and specifically disclaim any implied warranties of mer-
chantability or fitness for a particular purpose. No warranty may be created or extended by sales
representatives or written sales materials. The advice and strategies contained herein may not be suit-
able for your situation. The publisher is not engaged in rendering professional services,and you should
consult a professional where appropriate. Neither the publisher nor author shall be liable for any loss
of profit or any other commercial damages,including but not limited to special,incidental,conse-
quential,or other damages.
For general information on our other products and services please contact our Customer Care Depart-
ment within the United States at [phone],outside the United States at [phone] or fax
[phone].
Wiley also publishes its books in a variety of electronic formats. Some content that appears in print
may not be available in electronic books. For more information about Wiley products,visit our web
site at www.Wiley.com.
Library of Congress Cataloging-in-Publication Data:
Berges,Steve,1959–
The complete guide to real estate finance for investment properties :how to analyze any single-
family,multifamily,or commercial property/Steve Berges.
p. cm.
Includes index.
ISBN 0-471-64712-8 (cloth)
1. Real property—Valuation. 2. Real estate investment—Rate of return. 3. Real property—Finance.
4. Residential real estate—Finance. 5. Apartment houses—Finance. 6. Commercial real estate—
Finance. I. Title:Real estate finance for investment properties. II. Title.
HD1387.B397 2004
332.63'24—dc22
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
11532_Berges_ffirs.k.qxd 7/6/04 11:46AM Pagev
It has been said that there are angels here among us. This book
is dedicated to my sister, Melanie, who is one of them. Angels
are special messengers of God who have come to minister to the
needs of His children here upon the earth. I have observed my
sister’s unwavering devotion to her family, friends, and faith
throughout her entire life. Not once have I ever heard her com-
plain of the heavy burdens she bears. She has instead chosen to
take the high road by walking in faith and humility. She always
has a smile on her face and uplifting words of encouragement
for my family. I know that the light and joy that radiate from her
countenance are truly that of an angel. My heart cries out in
gratitude to her. My lips praise her name. My spirit is uplifted
because of her. Thank you, Melanie, for your example of love
and charity for all of us who are privileged to be a part of your
life. Thank you for being an angel here among us.
11532_Berges_ffirs.k.qxd 7/6/04 11:46AM Pagevi
11532_Berges_ftoc.k.qxd 7/6/04 11:46AM Pagevii
CONTENTS
Part 1 Real Estate Finance 1
Chapter 1 Introduction to Real Estate Finance 3
Finance as a Discipline 6
The Relevance of Finance as It Applies to Value 9
Chapter 2 Primary Investment Elements and Their Effect
on Financing Strategies 13
Time Horizon 13
Volume of Investment Activity 18
Type of Property 21
Chapter 3 Secondary Investment Elements and Their Effect
on Financing Strategies 27
Cost of Funds 28
Amortization Period 31
Amount of Funds Borrowed 35
Chapter 4 Additional Investment Elements and Their Effect
on Financing Strategies 43
Loan Duration 43
Loan Fees 46
Prepayment Penalties 54
Chapter 5 Structuring Financial Instruments 61
Leverage 61
Debt 64
Equity 67
Partnerships 69
Blended Financing and the Weighted Average Cost
of Capital 72
Options 76
■ vii ■