Welcome to BUSI 585 / Intro to RE
Due now:
 Read and turn in quizzes for Chapters
7&8
 Complete and submit Homework #3
9/22/14

Agenda for the session:
Guest speaker: Beth Harrelson
Break

Content Review: Chapter 7 and 8
Review: Homework #3
Something new
Preview of Session 5 (2/20/13)

Guest Speaker
Beth Harrelson, CCIM
Q 10 Professional Mortgage of North Carolina, LLC
Raleigh, NC

Let’s take a 10-minute break
 Discussion Board – please post
 Get some fresh air!

Appraisal: Part One
Chapter 7 key concepts
Real estate value: market vs. investors
Stock price vs. appraisal
Standardized appraisal process
Identify the problem >>> final value estimate

Three approaches to value
Sales comparison approach
Cost approach
Income approach – Chapter 8
Reconcile indications into a final value estimate

Appraisal: Part One
What is your 15-word elevator speech for the:
Sales Comparison Approach
Cost Approach

Appraisal: Part One
In what property “situations” would these approaches work best? Sales Comparison Approach
Cost Approach

Appraisal: Part One
Sales Comparison Approach
Based on the premise that you could buy a similar property
Cost Approach
Based on the premise that you could duplicate the subject property by building a similar one

Appraisal: Part Two
Income Approach
Based on the premise that the value of the subject property is a function of the expected income
Therefore,

it is all about NOI

Chapter 8 key concepts
Income approach:
Income converts to value estimate
Three primary methods for conversion
Direct capitalization (NOI) (cap rate)
Discounted cash flow analysis (NOI)
 Discount

rate = Internal Rate of Return (Chapter

19)
Gross income multiplier (EGIM)
 Typically,

small apartment properties

Chapter 8 key concepts
It’s all about Net Operating Income:
Potential Gross Income less Vacancy & Credit Loss plus Other (miscellaneous) Income
Effective Gross Income less Operating Expenses
Net Operating Income

Chapter 8 key concepts
It’s all about Net Operating Income:
Potential Gross Income less Vacancy & Credit Loss plus Other (miscellaneous) Income
Mortgage
Effective Gross Income payments less Operating Expenses
?
Net Operating Income

Chapter 8 key concepts

Taxes due on income?

It’s all about Net Operating Income:
Potential Gross Income less Vacancy & Credit Loss plus Other (miscellaneous) Income
Effective Gross Income less Operating Expenses
Net Operating Income

Chapter 8 key concepts
It’s all about Net Operating Income:
Potential Gross Income less Vacancy & Credit Loss plus Other (miscellaneous) Income
Effective Gross Income
Capital
expenditure less Operating Expenses s? Net Operating Income

Chapter 8 key concepts
Direct capitalization:

I
R

•
•
X

V

Chapter 8 key concepts
Direct capitalization:

Income (NOI)
•
•

Rate
(Cap Rate)

X

Value

Chapter 8 key concepts
Direct capitalization:

I=RxV

I
R

•
•
X

V

R=I/V
V=I/R

Chapter 8 key concepts
Direct