Real Estate Investment Risks
2 Types of Real Estate Risks
| Business Risk |
Impacts the Cash Flows from Operations
|Financial Risk |
a) Internal: Obtaining a Fixed Rate Mortgage in which investor knows that what he/she will pay.
b) External: Getting a Variable Rate Mortgage that is amortized in 30 years but due in 5 years with a balloon payment
3 Approaches to Manage Risks
5 Measures of Remaining Real Estate Risk
Controlled Variable: Square Footage
Stated Variable: Rents, Vacancies, Growth Rate. Each one has a probability distribution.
Evaluating expense growth rate.
Revenue - Gross Schedule Income (GSI) growth rate
Vacancy rate to generate an Internal Rate of Return (IRR)