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Finance 436

FINC 436: Real Estate Finance

Prerequisite: FINC 331 and FINC 336

Credit Hours: (3)

Provides a study of the basic principles involved in financing transactions in real estate. Attention given to sources of funds, methods of financing, real estate investments analysis and tax consequences, of real estate transactions.

Detailed Description of Course

1. The Impact of Interest Rates on Real Estate Activity
    • The Factors Influencing Mortgage Interest Rates
    • The Real Estate Mortgage Contract
    • Qualifying for Real Estate Financing
2. Sources of Financing the Purchase of Real Estate
    • Conventional Financing
    • VA and FHA Financing
    • Land Contracts
    • Junior Financing Devises
3. Contract Considerations in Financing Homes and Real Estate Investment Properties
    • Understanding Mortgages and Deeds of Trust
    • Selecting Fixed Rate vs. Adjustable Rate Mortgages
    • Mortgage Insurance
    • Closing Costs
    • Leasing with the Option to Purchase
    • Selecting the Right Mortgage
    • Avoiding Mortgage Default
4. Creative and Innovative Financing:
    • Seller Financing
    • The Use of Balloon Mortgages
    • Variable Rate Mortgages
    • Graduated Payment Mortgages
    • Shared Appreciation Mortgages
    • The Use of Multiple Financing Devices
    • Tax Considerations When Financing Real Estate
5. Real Estate Refinancing Considerations
    • Refinancing Cost/Benefit Analysis
    • Hazards of Refinancing
    • Tax Considerations of Refinancing
6. Enhancing Real Estate Investment Returns
    • Investment Property Cash Flow Determination
    • Estimating After-Tax Cash Flow
    • Calculating the Return on Investment
    • When to Sell an Investment Property
    • Tax Considerations When Buying and Selling
    • Investment Real Estate
7. The Influence of Real Estate Financing on Investment Property Values and Rental Income Requirements:
    • Determining the Capitalization Rate
    • Estimating the Value of Investment Property
8. Tax Considerations of Home Ownership:
    • Tax Benefits of Home Ownership
    • Keeping Necessary Records
    • Tax Considerations in Selling Your Home
    • Tax Planning for Vacation Home Owners
    • Conversion of Personal Residence to Business Use
9. Real Estate Investment Considerations Under the Internal Revenue Code:
Forms of Ownership:
    • Sole Ownership
    • Multiple Ownership
    • Partnership
    • Corporation
    • Trust
    • Passive Loss Limitation Rules
    • At-Risk Rules
    • Type of Investment Property
    • Residential Rental
    • Low-Income Housing Tax Credits
    • Historic and Other Structures 50 years or older
    • Other Tax Factors to Consider

Detailed Description of Conduct of Course

This class consists of lectures, class discussion of current real estate finance topics, end of chapter questions, in-class projects, and computer usage of real estate related software.

Goals and Objectives of the Course

Having successfully completed the course the student will be able to:

• understand the impact of interest rates on real estate market activity
• understand the factors influencing mortgage interest rates
• identify the sources of financing available for the purchase of real estate
• understand the different types of mortgages used in financing real estate transactions
• understand how to qualify for real estate financing
• understand the tax benefits of homeownership and the tax considerations in selling a home
• understand how to conduct a real estate investment analysis
• understand the basics of the Real Estate Settlement and Procedures Act
• understand how to conduct a refinancing benefit/cost analysis

Assessment Measures

Graded assignments may include in-class tests, a final examination, quizzes, the assignment and presentation of problem exercises, papers, and class preparation and participation.

Other Course Information

Review and Approval
February 2010 Reviewed Dr. Dan Davidson, Chair