presentation3.pptx real stae

8/2/2019 Presentation3.Pptx Real Stae

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Chapter V

REAL ESTATE


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People come and

go but the land isalways there


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Definition:

Real Estate refers to land andall permanent improvements

thereon including buildings. It maybe Agricultural, Industrial,Commercial, Residential or in theform of rental units.


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Advantages:

It is a hedge against inflation. The price ofland in the Philippines in general increasessteadily.

It is one of the few finite investments.Land available for development is limited.

It is one of the basic necessities of man.

It is a tangible asset and can be directlycontrolled by the owner.

It can be used in financing.


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Real estate is an investment that can give you

income for the rest of your life. You can use a lot of leverage to acquire them.

There are many ways you can buy properties

without using your own money. One way ofdoing this is seller financing. Seller financing iswhen you agree to pay the seller over time thedown payment and the rest you get from thebank.


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Real estate is real estate has intrinsic value to

it. Real estate values tend to rise with inflation.

In fact, much real estate often rises fasterthan inflation


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Tax Advantages: The first is interest costs.Interest costs can be fully tax deductible for your

personal residence (up to a limit) or for anycommercial real estate investment. This meansthe cost of funds is reduced by your marginal taxrate.

The second important tax advantage to owningreal estate is the ability to depreciate anyproperty being rented. Depreciation is alegitimate (non cash) deduction used to offsetrevenue that would otherwise be subject totaxes. This means you can show a loss on yourreal estate investment, use that loss to reduceyour personal income, and thus lower your taxes.


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Many individuals want to gain more "control"

over their lives. It is not uncommon for such

individuals to want to "start their own

business" to gain more control over their lives.

Commercial real estate is an activity you

control entirely. You find the opportunities,arrange the financing, bring all the elements

together, and create something where there

was nothing before.


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Example:

Real property costing P500,000 is sold forP1,250,000 or 250% after eight(8) years. The gainmust be P750,000 or P93,750 per annum arrivedat as follow:

Annual gain = (P1,250.000-500,000)/8yrs= P93,750Rate gain = P93,750/P500,000= 18.76%

With an annual earnings rate of 18.75% , the

investment may be considered as very attractiveconsidering the prevailing interest rates on timedeposits.


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Disadvantages:

It requires a number of years to realize profiton the investment.

It is immovable so that it is not easily

transferred from one party to another party. Mortgaging real property requires certain

procedures adopted by lending institution

such as credit investigation, propertyappraisal and maintenance of requireddeposits ( in the case of banks)


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Upon death of the investor, real property

automatically forms part of his estate which issubject to inheritance tax.

It involves big amount so that it is impractical

to dispose of it in case the investors is in needof small amount of additional capital.

Its price is adversely affected in times of crisis.

In case of chaos or war, it cannot easily bedisposed of.


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Real Estate is a non- liquid investment thatrequires maintenance and taxes to be paid. An

optimal investment portfolio would have someliquid assets that can be quickly converted tocash in order to sustain real estate. Investmentwhen their returns are not sufficient enough topay recurring costs.

High transactions costs, such as brokerage andcommissions and closing expenses. These costs

eat up short term profits. Limited marketability. Lack of central market or

exchange to real estate investment more liquid.


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Management headache, such as unreliabletenants, or otherwise high professionalmanagement fees.

The balloon payment is the unpaid balance ofa mortgage loan that is paid off in a lump sumof the end of the loan term.

Is if you buy a property and can't make themortgage payments you can lose the propertyand damage your credit.


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Factors Considered in Real EstateAcquisition

Location Frontage and shape of the land Drainage and sewerage system Width of streets Elevation Possible expropriation Clean title

Encumbrances Improvements Financing Prospects


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Market Condition for Real Property

The market conditions for real propertyvary depending on the demand andsupply. It may either be a buyers

market or a sellers market depending

on who has the greater advantage.


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Buyers Market

This exists when buyers are at an advantage.Demand is low so that buyers are able to avail ofdiscounts and deferred payment plans forextended periods.

Sellers Market

This exists when sellers are at an advantages.

Demand exceeds supply so that sellers cancharge high prices often on cash basis or forshorter terms.


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Buyers or Seller Markets

In determining market conditions, aninvestors may considered the trend inconstruction, occupancy rates, loan availments

for real property acquisitions and interest rates.It is always advisable to invest in real property ina buyers and sell during times of prosperity.


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Thank you forListening!!!

God bless,.

GROUP: 5

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