Investment Analysis for Real Estate Decisions

Citation

Ooi, J.T.L. (2006), "Investment Analysis for Real Estate Decisions", Journal of Property Investment & Finance, Vol. 24 No. 3, pp. 268-269. https://doi.org/10.1108/jpif.2006.24.3.268.1

Real estate investment analysis is more than number crunching. A real estate analyst needs to appreciate that the extensive market research and sophisticated financial modeling leads to one goal, and that is to make a sound decision on the particular real estate investment proposal. Indeed, decisions abound in the realm of real estate investment, such as which property to acquire?; what price to pay?; when is it a good time to enter and exit a market?

Investment Analysis for Real Estate Decisions is an appropriately titled textbook on real estate investment analysis. Gaylon Greer and Phillip T. Kolbe are both experienced real estate consultants and outstanding educators at the University of Memphis, USA. Personally, I have used the book and find it particularly helpful to prepare a real estate investment analysis module I recently conducted for the MBA class at the National University of Singapore. The 489‐page book is organized into eight parts, as follows:

1. 1.

   Part One sets the stage with a discussion on the usual real estate fundamentals and investment concepts.

2. 2.

   Part Two, which emphasizes the essential nature of market research, shows how market research is used to estimate future benefits from real estate ownership.

3. 3.

   Part Three introduces the financing environment covering financial leverage and commonly used credit instruments and borrowing arrangements.

4. 4.

   Part Four outlines major tax opportunities and tax traps associated with real estate investing.

5. 5.

   Part Five introduces the usual methods used for measuring investment performance such as ratio analysis and DCF analysis as well as the choice of discount rate in investment analysis.

6. 6.

   Part Six highlights the major risks in real estate investment and how they can be measured and managed. Both traditional and contemporary risk measures are discussed together with risk diversification strategies.

7. 7.

   Part Seven brings together the procedures covered in the previous sections by illustrating the use of DCF analysis to make investment decisions regarding several major categories of real estate, namely analyzing investment feasibility, subdivision proposals, development and rehabilitation.

8. 8.

   Part Eight provides a brief coverage on Real Estate Investment Trust as an alternative vehicle to invest in real estate.

The sequencing and organization of the book is systematic, starting with the fundamental building blocks and ending with applications in specific real estate investment decision scenarios. It can be easily adopted for a real estate investment course at both the graduate and undergraduate level. The book, which is currently into its fifth edition, has benefited for the previous revisions and updating. It is well written and the illustrations used are clear and concise. Although the topics are quite standard, they are comprehensive in their coverage. Whilst the examples and illustrations are based on the US context, the principles covered are universal and applicable anywhere, perhaps with the exception of the part on taxation that may need to be adapted to the tax regime of specific countries.

Another interesting feature of the book is the case problems at the end of each part which will provide the opportunity to apply the principles covered in the module. The case problems are based on real situation and coordinated as a continuing case running throughout the text. It also comes with a Student Study Guide CD, which the students can use to work through the case problems. In addition, a spreadsheet template is available via Dearborn's web site, www.dearbornRE.com This is a book I will recommend to be added to the list of reference readings for a course on real estate investment analysis. Overall, it complements other good texts on this popular topic, such as Fundamentals of Real Estate Investment by Jaffe and Sirmans, Real Estate Investment – A Capital Market Approach by Brown and Matysiak, Commercial Real Estate Analysis and Investments by Geltner and Miller, and the more recent Real Estate Finance & Investments: Risks and Opportunities by Linneman.