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Lecture

Real Estate Economics

Description

This lecture covers topics such as inter-temporal calculations, landowner's arbitrage strategies, capitalization, and discounting in real estate economics. It also discusses the evaluation of profitability, errors in naive evaluations, and comparing real estate investments with financial placements.

In MOOC

Soil and Real Estate Economics I

Official source

Related concepts (32)

Discounted cash flow

The discounted cash flow (DCF) analysis, in finance, is a method used to value a security, project, company, or asset, that incorporates the time value of money. Discounted cash flow analysis is widely used in investment finance, real estate development, corporate financial management, and patent valuation. Used in industry as early as the 1700s or 1800s, it was widely discussed in financial economics in the 1960s, and U.S. courts began employing the concept in the 1980s and 1990s.

Discounting

In finance, discounting is a mechanism in which a debtor obtains the right to delay payments to a creditor, for a defined period of time, in exchange for a charge or fee. Essentially, the party that owes money in the present purchases the right to delay the payment until some future date. This transaction is based on the fact that most people prefer current interest to delayed interest because of mortality effects, impatience effects, and salience effects.

Hyperbolic discounting

In economics, hyperbolic discounting is a time-inconsistent model of delay discounting. It is one of the cornerstones of behavioral economics and its brain-basis is actively being studied by neuroeconomics researchers. According to the discounted utility approach, intertemporal choices are no different from other choices, except that some consequences are delayed and hence must be anticipated and discounted (i.e., reweighted to take into account the delay). Given two similar rewards, humans show a preference for one that arrives sooner rather than later.

Valuation using discounted cash flows

Valuation using discounted cash flows (DCF valuation) is a method of estimating the current value of a company based on projected future cash flows adjusted for the time value of money. The cash flows are made up of those within the “explicit” forecast period, together with a continuing or terminal value that represents the cash flow stream after the forecast period. In several contexts, DCF valuation is referred to as the "income approach".

Exponential discounting

In economics exponential discounting is a specific form of the discount function, used in the analysis of choice over time (with or without uncertainty). Formally, exponential discounting occurs when total utility is given by where ct is consumption at time t, is the exponential discount factor, and u is the instantaneous utility function. In continuous time, exponential discounting is given by Exponential discounting implies that the marginal rate of substitution between consumption at any pair of points in time depends only on how far apart those two points are.

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