# Real Estate Finance Basics - PowerPoint PPT Presentation

Real Estate Finance Basics

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Real Estate Finance Basics

## Real Estate Finance Basics

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1. Real Estate Finance Basics Dr. Arthur C. Nelson, FAICP January 2009

2. Not Rocket Science • Future Value • Present Value • Future Value of an Annuity • Future value of cash flow stream • Present Value of an Annuity • Present value of cash flow stream • Mortgage Constant • Loan Amortization

3. Future & Present Value • i = annual interest rate • n = number of years • FVi,n = PV(1+i)n \$1,000,000 today @ 2% interest, 10 years = • PVi,n = FV / (1+i)n \$1,000,000 in 10 years @ 2%discount =

4. Trust Fund Proceeds • \$100,000 received at end of each year for being “good.” How much is it worth after 20 years @ 5% interest? • “Future Value of Regular Annuity” • FVAi,n = ANN x {[ (1+i)n – 1] / i} =

5. Lottery Winnings • You win \$1,000,000 annually for 20 years, what is the present worth @ 5% discount rate? • Present Value of Annuity • PVAi,n = ANN x {1- [1 / (1+i)n ] / I } =

6. The Hairy Monster • \$1,000,000 mortgage (first house after graduate school). What are the monthly payments @ 6% interest (jumbo loan) 30 years? • Mortgage Constant, Monthly • MCi,n = PV x { i/12 / 1- [(1/1 + i/12)n x 12]}

7. Loan Amortization Schedule Vinnie lends you \$1,000,000 @ 12%, 5 years. What are your annual payments? EOY Amount Annual Year Outstanding DS Interest Principal 0 \$1,000,000 1 \$ 842,590 \$277,410 \$120,000 \$157,410 2 \$ 666,291 \$277,410 \$101,111 \$176,299 3 \$ 468,837 \$277,410 \$ 79,955 \$197,455 4 \$ 247,687 \$277,410 \$ 56,260 \$221,149 5 \$ 0 \$277,410 \$ 29,722 \$247,687