Short Introduction To Real Estate Finance

Introduction to Real
Estate Finance
Prof. M. Diangson, REC, REB, MBA

January 2024
What is Real Estate Finance?
Real estate finance describes,

Overview explains, and encompasses the
various methods in which individuals
intend to purchase a home, plot of
land, or other type of property
Real estate is a form of investment and
ownership that is sought by many. Whether it is
the purchase of a home, land, or commercial
property, the value of real estate and its
appreciation potential make it one of the most
RE Finance popular forms of investment. Purchasing real
estate is expensive, however, and many
investors and buyers do not have the full
amount of money needed to buy property
outright. This is where real estate finance
comes into play.
*Real estate Finance is a branch of finance,
which deals with investing money or wealth in
real estate.
*Deals with the allocation, generation and use

of monetary resources over time, which is
RE Finance invested in real estate business.
*Also has risks associated with it and the

effective management of assets, which will
maintain or increase in value over time, i.e. the
investment yield of the project.
*Monetary Policy is the monitoring
and control of money supply by a
central bank, such as the Federal
Reserve Board in the USA and the
Monetary Policy Bangko Sentral ng Pilipinas in the
Philippines.
*This is used by the government to

be able to control inflation, and
stabilize currency.
How does
Monetary Policy *Because of the impact monetary
policy has on financing conditions in
Impact the the economy (not just the costs but the
Economy? availability of credit and also because

of its influence on expectations about
economic activity and inflation),
monetary policy can affect the prices of
goods, asset prices, exchange rates as
well as consumption and investment.
How does *Interest rate cuts, for example,
lower the cost of borrowing, which
Monetary Policy results in higher investment activity
Impact the and the purchase of consumer

durables.
Economy? *The expectation that economic
activity will strengthen may also
prompt banks to ease lending policy,
which in turn enables businesses, and
households to boost spending.
How does
Monetary Policy *In a Low interest-rate environment,
shares become a more attractive buy,
Impact the raising households’ financial assets.
Economy? *Lower interest rates also tend to
cause currencies to depreciate.
Demand for domestic good rises
when imported goods become more
expensive.
How does
Monetary Policy
Impact the * All of these factors raise output and
employment as well as investment
Economy? and consumer spending. However,
this stepped-up demand may cause
prices and wages to rise if goods and
labor markets are fully utilized.
How does
Monetary Policy *The process through which
monetary policy decisions impact on
Impact the an economy in general and the price
Economy? level in particular is known as the

monetary policy transmission
mechanism. The individual links
through which monetary policy
impulses proceed are known as
transmission channels.
Monetary *Interest Rate Channel
Transmission *Credit Channel - 2 different channels
Channels 1. Bank lending channel

2. Balance Sheet channel
*Exchange rate channel
*Wealth channel
Leverage is a measure of the positive
or negative benefits of financing that
Leverage are obtained as a relation to the interest
gains (either through income or
appreciation) and the interest lost
through payment of debt.
While a mortgage is fundamentally a
Mortgages loan that is secured against a collateral,

there are many variations to the type of
mortgage that can be used for various
needs.
Basic Types of 2 Basic types of amortized loans:
Mortgages *Fixed rate mortgages (FRM)
*Adjustable rate mortgages (ARM)

*Open Mortgage
Basic Types of *Closed Mortgages
Mortgages *Bridge Financing
*Blanket Mortgage
*Wraparound Mortgage
Types of Real Estate Financing
Mortgage Loans
● Traditional or conventional mortgages are the most
common form of real estate loan available. Real estate
finance is the way in which funding is obtained to
purchase property. There are many ways in which this
could happen, but a mortgage is the most common. A
mortgage is a term loan that is repaid with interest, and a
conventional one requires a good credit score and a
decently large down payment
Government Loans
Government-backed financing was created in order to allow people who
may not have the resources for a traditional mortgage to obtain property.
These loans are characterized by their low down payments as well as lower
credit score requirement.
Secondary Financing Techniques
Leasehold Financing
Land Leases
Percent of Income
Joint ventures and Syndications

Creative Financing Techniques
Sliding Mortgage
Double Finance
The Glue Transaction
Discounted Paper
Shared Equity
Creative Financing Techniques
Zero-coupon Financing
Split funding
Future rent
Management Interest
Three Party Blankets

Thank you.

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Introduction to Real

Prof. M. Diangson, REC, REB, MBA

Real estate finance describes,

*Deals with the allocation, generation and use

*Also has risks associated with it and the

*This is used by the government to

Economy? availability of credit and also because

Impact the and the purchase of consumer

Economy? level in particular is known as the

Transmission *Credit Channel - 2 different channels

Channels 1. Bank lending channel

*Exchange rate channel

Mortgages loan that is secured against a collateral,

*Adjustable rate mortgages (ARM)

Joint ventures and Syndications

The Glue Transaction

Three Party Blankets

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