Real estate loan payment calculator

Real Estate Finance and Investments, Tenth Edition

Brueggeman, William B., and Jeffrey D. Fisher, Real Estate Finance and Investments, Tenth Edition. Chicago: Irwin, 1997, 760 pages.

Few textbooks make it to a tenth edition, so it is reasonable to conclude that the authors of Real Estate Finance and Investments must be doing something right. Through its many editions, it has become better integrated and more student friendly. Topical coverage is divided into five sections or parts: introduction, financing residential properties, financing income properties, financing proposed projects, and real estate capital markets and securities. This textbook is appealing for teaching graduate and upper-level undergraduate students, especially from a mathematical perspective. It has as its basis the field of finance and in many ways compares in rigor in the finance field with textbooks such as Brealey and Myer's Principles of Corporate Finance. But the text goes beyond theory to detail practices in real estate finance and offer plenty of real-world examples-a considerable improvement over its previous edition. The instructor who teaches real estate finance mainly as a descriptive subject probably would prefer a different textbook, but those who teach real estate finance by integrating mathematical problems regularly into the curriculum will be gratified by this textbook's approach. I would caution the instructor who chooses to adopt this textbook to not cover material too quickly: many chapters require slow and careful reading, and math problems often take a lot of time to work. Students will find this textbook interesting and challenging given sufficient time, with the text offering plenty of math problems that will help them do the end-of-chapter problems.

The three introductory chapters provide an overview of real estate finance and examine legal considerations and the interest factor in financing. For students who have never had a fundamentals course in real estate and time value of money (TVM), these chapters provide the necessary foundation for the remainder of the book. In my upper-level undergraduate course, I cover these chapters because not all students take a real estate fundamentals course prior to taking my real estate finance course, although all have had a basic finance course so they have been exposed to TVM. The basic coverage is meant to provide either a review or a primer. The discussion of legal terminology is enough to give students what they need to understand the other chapters in the book. Students who have never done TVM calculations before, however, would probably need more background and practice than the book provides unless they are exceptionally capable.

The financing of residential properties is described in Part II's four chapters: 4. FixedRate Mortgage Loans, 5. Adjustable-Rate and Variable-Payment Mortgages, 6. Underwriting and Financing Residential Properties, and 7. Residential Financial Analysis. The mortgage loan and financial analysis chapters require the use a good financial calculator or spreadsheet. The problems can get tedious, and it would be helpful to provide the students with some hints for solving some of the more difficult problems. However, one important improvement in the text is that there are more worked problems in the chapter with calculator solutions shown. Also, the use of graphical analysis in the chapters is especially beneficial to help students understand the payment and principal balance at various times in the life of the loans. In Chapter 6, students do not need a financial calculator, however, instructors may want to supplement the two large problems on borrower qualification and appraisal with more problems. Also, the rules on borrower qualification change rapidly, so the instructor should be sure to supplement the text with any changes.

The financing of income properties is detailed in Part III in seven chapters: 8. Introduction to Commercial Property Markets, 9. Valuation of Income Properties, 10. Investment and Risk Analysis, 11. Financial Leverage and Debt Structure, 12. Partnerships, Joint Ventures, and Syndications, 13. Disposition and Renovation of Income Properties, and 14. Financing Corporate Real Estate. Chapter 8 provides an excellent overview of the commercial property market, terminology used in commercial property analysis, and supply and demand conditions for rent and rental space. Chapter 9 provides a good overview of the approaches to valuation used for income-producing property and therefore complements the appraisal of residential property in Chapter 6. These two chapters form a good foundation for those instructors who want some coverage of commercial property but also want to cover residential property and capital markets. The following two chapters, Chapters 10 and 11, are quite detailed and parallel capital budgeting and capital structure chapters in a graduate corporate finance textbook. The remaining three chapters in this section provide detailed practical examples of finding after tax-tax cash flows and internal rates of return for various financing arrangements. While I do not include these chapters in my course because of time constraints and level of student taught, the detail provided is extraordinary, and graduate students working in the field would find these chapters beneficial.

In Part IV Chapters 15 and 16 discuss financing construction properties and land development projects. These chapters provides an overview of the phases of real estate project and land development and risk, financing, lender requirements, types of loan, and methods of loan proceed disbursement. A comprehensive project and land development are illustrated showing the how-to section of the process.

Finally, Part V concludes with 17. Institutional Sources of Real Estate Capital, 18. The Secondary Mortgage Market: Pass-Through Securities, 19. The Secondary Mortgage Market: CMOs and Derivative Securities, 20. Real Estate Investment Trusts (REITS), and 21. Real Estate Investment Performance and Portfolio Considerations. When teaching a course primarily devoted to residential real estate finance, the topics covered in the first three of these chapters are important. Because the discussion of CMOs and derivative securities is probably more detailed than necessary for a general understanding, I usually assign only part of this chapter due to time constraints. The last two chapters are devoted to different types of REITs and REIT investment performance and portfolio diversification. While the former provides important material to understand the nature of REITs and to be able to differentiate them, the latter provided in the last chapter is largely holding period return and portfolio theory applied to REITs. Therefore, students who have already taken a basic course in investments would find the last chapter somewhat duplicative. However, it provides a good summary for students without this background or for those who need a review.

I have used this textbook in my undergraduate course on real estate finance, and my impression is very favorable based on the readability and clarity of the text, the proficiency that students gain when solving the textbook problems (using a spreadsheet and financial calculator), the students' enthusiasm in class about discussing the topics, and the sheer enjoyment I receive from teaching a class that transcends rules and regulations to engage in problem solving and analysis of real estate finance problems.

Daniel T. Winkler

University of North Carolina at Greensboro