Real Estate Industry

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Real Estate Industry by Mind Map: Real Estate Industry

1. Absorption will increase with a slow path, reaching its peak, and decline.

2. Best time to buy/sell real estate

2.1. When is the best time to buy?

2.1.1. If you’re a smart investor, you should buy in the bottom or middle of the expansion cycle.

2.2. When is it the best time to sell?

2.2.1. The answer is at the peak phase, right at the top of the market

2.2.2. And the biggest problem with selling here is knowing exactly where the top is.

2.2.3. Here are two clues that have never failed us yet: Watch the rents and vacancy rates separately. After rents level off and become flat for three straight months or more, you’ve reached the top. Or for another indication you’ve reached the top: After vacancy rates are at a three- to five-year low, you’ve reached the top. It’s that simple.

2.3. When is it the best time to go bottom-fishing?

2.3.1. Maverick investors buy at the bottom phase or at the front end of the recovery phase. This is called “bottom-fishing” for deals.

3. Economy and Real Estate

3.1. The overall state of the economy is the most significant driver of real estate investments and the real estate business.

3.2. When the economy is strong and growing well, certain aspects of the housing market are expected to also see positive growth, but when the economy is in a downturn, the housing market forecast wouldn’t look too optimistic.

3.3. Housing prices largely depend on key economic factors like

3.3.1. GDP Demand and supply play an important role in the business cycle. They are fundamental factors that lead to construction of GDP components.

3.3.2. unemployment

3.3.3. income growth

4. The real estate cycles

4.1. Recovery

4.1.1. is the moment where the cycle is having a slow contraction, trough and upturn.

4.1.2. At this moment the real estate notably experiencing decrease in vacancy rate, low rental growth and lesser absorption rate as in the expansion period.

4.2. Expansion

4.2.1. During this period, occupancy and absorption rates is said to increase to its highest and reached its peak.

4.2.2. The employment rate also increases and reach optimum occupancy rate thus simultaneously increasing the demand for real estate.

4.2.3. As a result, prices on real estate bubble, and construction accelerating its pace.

4.3. Oversupply

4.3.1. In this period, the cycle is in peak position.

4.3.2. Once prices in real estate booming, less people will spend on real estate.

4.3.3. The employment rate starts to mellow down and causes the demand of real estate to slowly decrease.

4.4. Recession

4.4.1. Recession or contraction is a period where real estate starts declining, low absorption rates and decrease in occupancy rates.

4.4.2. The economic recession brings effect on employment rate as employment is low, demand for real estate low.

4.4.3. Hence, the real estate construction and development fall to bottom.

4.5. Real Estate Cycle Indicators

4.5.1. There are eight factors such as vacancy rates, absorption, occupancy rates, time lag, types of properties, property present value, government intervention and GDP should be considered in both of the cycles.

5. Financial Sector and Real Estate

5.1. The relationship between real estate indicators and the soundness of banks and the financial sector show their significant role in making monetary policy decisions.

5.2. Uncontrolled financial liberalization may lead to the emergence of new financial institutions that compete with existing lending institutions by offering loans on generous terms.

5.3. As the competition intensifies and more financial resources become available for financing real estate projects, the investors in the real estate sector rise and real estate prices will increase above their fundamental values.

5.4. Bank loans are the main source of real estate finance and therefore there is an interrelationship between the real estate prices and the bank lending.

5.5. In conclusion, the real estate sector boom and bust are expected to have far-reaching implications for the stability of a country's financial system. This is because of the impact of the real estate prices on the profits of the banks. The

5.6. Real estate prices are used as indicators of the financial system soundness and they play a significant role in making monetary policy decisions.

6. Primary fields

6.1. Brokerages

6.1.1. Real estate brokers bring together buyers and sellers of property, assist in price negotiations, and facilitate the work involved in deals from initial interest expressed through money being exchanged at closing.

6.1.2. Since commission is based on property value, brokers make more money for higher-priced deals.

6.2. Leasing

6.2.1. Leasing agents work with property owners to handle the complexity involved with finding, vetting and signing tenants for their properties - and handling all the paperwork!

6.3. Management

6.3.1. Management companies operate buildings and other properties, making sure they are running properly, paying utilities, hiring staff and performing maintenance.

6.3.2. Many management companies will also act as leasing agents for the property.

6.3.3. Since most property expenses are fixed, maintaining low vacancy rates is critical to management companies profitability.

7. Real Estate Industry Risks

7.1. Macroeconomic factors

7.1.1. The strength or weakness of the U.S. and global economy appears to influence both stock and home prices. a strong economy typically features high demand for products and services, including real estate and investments.

7.1.2. Economic Indicators The strength of the overall economy significantly impacts the real estate market as consumers’ ability to support housing prices largely depends on key factors like GDP, unemployment, and income growth. Bureau of Labor Statistics The US real estate market is a huge component of the nation’s economy. The US housing market is directly connected to the economy. As a component of GDP, CRE construction contributes 3% of U.S. economic output. Job growth creates growth in wages and salaries for the entire economy. Having a lower unemployment means more consumption, sales and services being provided. This creates increased wages for a portion of the population. Inflation Increasing inflation devalues the U.S. dollar, driving prices for assets upward.

7.1.3. Interest Rates This is a key factor in how mortgage rates are established because it sets the cost for banks to borrow money. The smaller the monthly payment, the more “affordable” a loan is to prospective homebuyers

7.1.4. Investors The housing crisis created an appealing environment for investors with an appetite for residential real estate. The increased volume of foreclosures and short sales provided both domestic and foreign investors with the opportunity to snatch up inexpensive properties to either rent out or renovate and resell at a profit.

7.2. Micro-Factors Affecting Real Estate Prices

7.2.1. Property Location Economists encapsulate “location” in something called “hedonic pricing” – for most homes, this translates to some key factors that impact your life and your lifestyle: Quality of local schools is frequently the single most important factor for buyers with children of school-going age Proximity to local employment opportunities is a very high priority for most employment-age buyers Proximity to social, shopping and recreational centers is valued most by younger buyers but plays an important role in pricing for all homebuyers

7.2.2. Updates and Upgrades According to the National Association of Realtors, upgraded kitchens and bathrooms are among the most important upgrades cited by homebuyers

7.2.3. Inspection Report

7.2.4. Neighborhood Comps Appraisers and real estate agents look at recent sales of homes with similar features to use as a benchmark against your home’s potential price. Foreclosures and short sales often complicate things because they tend to sell at lower prices, decreasing the neighborhood’s overall average sales price. Comps (along with offer details) are usually the key driver for the appraisal process: most appraisers will rely heavily on recent nearby transactions on homes of a similar size to yours.

7.2.5. Appraisal Value The appraisal is the real estate industry’s formal process for pricing a property. Most lenders won’t approve a loan for more than the appraised amount, so if the assessed value falls short the seller either needs to lower the price or the buyer needs to put extra money down to decrease the loan amount. Appraisers follow a structured process for evaluating the property by looking at recent comparable sales (see above) to establish a benchmark price and then adjusting the price up or down according to the upgrades and improvements you have or have not made relative to the comparable properties.

7.3. Changing demand

7.3.1. a location once coveted can change quickly and properties can become less desirable.

7.3.2. Demand for rental properties leads to less vacancies, more competition and more profit for owners of rental properties.

7.4. Increased supply

7.4.1. building of new properties, and/or newly for sale properties in the area can drive rental or property prices down as well.

7.5. Changing priorities or requirements for building management companies

7.5.1. particularly for aging properties

7.6. Other factors

7.6.1. the mortgage interest tax credit has an enormous impact on home values – it’s free money for homeowners and drives up property prices by as much as 25% by altering the perceived affordability of home prices;

7.6.2. local builder activity, zoning restrictions, and local regulations dictate new home supply and prices react to too much or too little supply;

7.6.3. proximity to parks and playgrounds, noise pollution, light pollution, crime, zoning laws, air quality, internet connection quality, traffic volume, road quality…. most prospective buyers have customized lists of features and services that are personally important to them.

8. Real Estate Market Analysis

8.1. The first section defines the area under consideration.

8.2. The second section contains a thorough analysis of the physical and environmental factors impacting the real estate.

8.3. In addition to these physical factors, the market analysis may also include more information about the neighborhood features.

8.4. After addressing the physical factors of the location, the market analysis evaluates the economic characteristics and trends in the area.

8.4.1. The purpose of this economic analysis is to provide an understanding of the underlying population, business conditions, and the future demand for a particular type of real estate.

8.4.2. Trends in demographic data provide some insight into the future economic health of a region.

8.4.3. For example, a growing population is generally a good sign of economic prosperity in a region as long as there are growing job opportunities for the residents.

8.4.4. Population age distribution, education, and income are also important indicators of regional growth patterns.

8.5. Investigating other new construction in the area should also be part of a market analysis

8.5.1. New construction is a signal that a neighborhood is considered desirable, but it can also be a source of competition for tenants or buyers.

8.5.2. Other issues related to construction are zoning and development requirements for a new construction.

8.6. Overall, the market analysis should provide a comprehensive picture of the subject property, location, neighborhood, and the larger market economic drivers.

9. Stock Market and Real Estate

9.1. Although many people assume a direct relationship exists between the stock market and real estate values, statistics indicate little direct or causal relationship.

9.2. Both stock and property markets are parts of a larger economy. The performance of stock market in the economy reflects underlying corporate performance. The performance of real estate, on the other hand, reflects property market performance

9.3. The hardest kind of economic relationship to identify is a causal relationship -- one, for example, in which a rise in the stock market causes a rise in real estate prices.

9.3.1. In general, economists content themselves with establishing a correlation -- that a rise in one market correlates with a rise in the other.

9.3.2. Most economists agree that a bursting U.S. real estate bubble directly triggered a collapse of the stock market.