DO NOT READ If You Are a Real Estate or Econ/Finance Major!

Hey y'all, let's get started with this thing. As I said in my first post, the purpose of this blog is to document my progress throughout my semester learning goal, so I figured, what better way to show I'm learning than to try to teach what I am learning?

We need to have some real estate and finance principles under our belt before we dive into excel, though, so that's what the next couple of blogs are about. If you have taken a real estate finance or economics class, you probably don't need to read these... 

So first off, what is real estate? Real estate is tangible property, for example: a piece of land, a home, or an office building (like The Office office). It is broken up into two major categories, residential, and commercial. Residential real estate has been historically purchased for personal use, and not generally purchased to produce income, although there are exceptions. Commercial real estate has been historically purchased as an investment and produces income primarily through renting to tenants (e.g. individuals, companies, governments, etc.).

What is development? Development is the construction of real estate. If someone says they are a real estate developer, that means they oversee the process of building real estate assets (although another company, a contractor, actually constructs the buildings). These properties are either constructed from empty pieces of land, or land with existing structures on it which will be demolished or added onto to turn them into a new asset. 

Why develop or invest in real estate? There are many reasons why someone might invest in real estate, from tax deferment to hedging against inflation, but the main reasons are: To receive money, in the form of cash flows, from tenants. If your company is John Doe Architects and you need office space, you must rent space somewhere and pay rent to an owner to occupy that space. The collection of all rents in a property make up the majority of cash flows that investors seek when investing in real estate.

Another important reason to invest in real estate is for monetary gain through the appreciation (increase in value) of your property over time. Real estate generally appreciates over time, due to supply and demand, inflation, macroeconomic factors, and many other reasons, as opposed to assets such as cars, which generally depreciate in value over time. In short, investors expect to sell the property for more than than it was purchased. 

The last question, what is underwriting? Is a more complicated subject that needs its own special blog post to cover. The second edition of DO NOT READ If You Are a Real Estate or Econ/Finance Major! will follow soon. 

Summary: 

• Real Estate is tangible property, either commercial or residential
• Development is the construction of new real estate assets
• Investors generally allocate money to real estate in order to receive cash flows and take advantage of appreciation

Thank you for reading, please post any comments or questions you might have!