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Methodology for the analysis of real estate investments. Mortgage investment analysis. Assessment of the attractiveness of investment projects. Methods of mortgage investment analysis Mortgage investment analysis of real estate

Investment and mortgage analysis is based on the idea of property value as a set of values equity capital and borrowed money... Accordingly, the maximum reasonable price of a property is determined as the sum of the present value of cash flows, including proceeds from reversal, attributable to the investor and the amount of the loan or its current balance.

Investment and mortgage analysis takes into account the opinion of the investor that he pays not the cost of real estate, but the cost of equity capital, and the loan is considered as an additional means to complete the transaction and increase equity capital. The analysis uses two methods (two techniques): the traditional method and the Ellwood technique. The traditional method explicitly reflects the logic of investment and mortgage analysis. Ellwood's method, reflecting the same logic, uses ratios of rates of return and equity ratios of investment components.

Traditional method. This method takes into account that the investor and the lender expect to receive a return on their investment and return it. These interests must be ensured total income for the entire amount of investment and the sale of assets at the end of the investment project. The amount of investment required is determined as the sum of the present value of the cash flow, which consists of the investor's equity capital and the current debt balance.

The present value of the investor's cash flow consists of the present value of recurring cash receipts, the increase in the value of equity assets as a result of loan amortization. The value of the current debt balance is equal to the present value of the loan servicing payments for the remaining term, discounted at the interest rate.

The cost calculation in the traditional technique is carried out in three stages.

Stage I. For the adopted forecast period, a statement of income and expenses is drawn up and the cash flow before tax is determined, that is, for equity. The stage ends with the determination of the current value of this flow in accordance with the forecast period and the final return on equity expected by the investor Y e .

Stage II. The revenue from the resale of property is determined by deducting the transaction costs and the balance of debt at the end of the forecast period from the resale price. The present value of the proceeds is estimated at the same rate.

Stage III. The present value of equity capital is determined by adding the results of the stages. The property is valued as a result of the sum of the cost of equity and the current balance of debt.

Let's apply the traditional technique to a specific investment project and use it as a basic one to illustrate all subsequent considerations of the elements of investment and mortgage analysis.

1. Initial data for the project.

The property will generate $ 70,000 in annual income over a forecast period of five years. At the end of this period, the property will be sold for $ 700,000 (net of selling costs). For the purchase of real estate, a self-depreciating mortgage loan in the amount of $ 300,000 is used, taken for twenty years, floor I 5% per annum with monthly payments. The investor requires a final return on equity of 20% (Table 8.1).

We will determine the price of real estate according to the traditional technique, using the initial data and assumptions. First, let's determine what is the possible maximum price for real estate acquired without borrowing (property free from debt obligations). In this case, all net income and all resale price falls entirely on the investor's equity capital (no interest payments and no debt amortization).

Table 8.1 Calculation of the present value

Thus, an investment of $ 490,660 (rounded off) without attracting a loan will provide the investor with a 20% final return. Although the current return is

70000/490660= 0,1427(14,27%),

it will increase to the value of the final return of 20% due to the increase in the value of real estate over the forecast period.

2. Now we will determine the reasonable price of real estate acquired with a loan. For the solution we use the traditional technique in algebraic form.

An algebraic expression for value is written in the same three-step logical sequence:

V = I + II + MR,

where MR- the current balance of the principal amount of the debt;

(pvaf Y e, n) - factor of the present value of a unit annuity with the final return on equity Y e and term n;

NOI- net operating income;

DS- annual debt service;

(pvfY e , n)--factor of the current unit value (reversion);

RP- real estate resale price (reversion);

OS- the remainder of the debt at the end of the term NS.

We substitute in this expression the initial data and the values of the factors defined above. The values DS and OS are calculated based on the known loan conditions:

V = 2,99 (70 000 - 47 404,4) + 0,4 (700 000 - 282 252,4) + 300 000,

V = $ 534,660 (rounded off).

The calculated reasonable price of $ 534,660 is higher than the price of the non-leveraged property. As mentioned earlier, the investor is primarily interested in the price and growth of equity capital. Investor is willing to pay large amount with positive leverage, as is the case in this case(return on equity is higher than interest rates on a loan), for the opportunity to significantly increase the final return on equity and reduce equity investment.

The algebraic form of the traditional technique is convenient when the values of the current debt and (or) resale are determined in fractions (percent) of the original property price. Let us write the general expression in algebraic form, when instead of the loan amount, the mortgage debt ratio is known T, a the cost is determined in fractions of D from the current price V.

V = (pvaf) (N0I-mVDS 1) + [(pvf) (l ± D) V-mVOS 1)] + mV,

where DS 1 - debt service for a single loan, or mortgage constant;

OS 1 - unpaid portion of the loan by the end of the forecast period, or the remainder of the debt with a single loan;

D - the share of increase or decrease in the value of real estate.

3. Suppose that instead of the size of the loan, the mortgage debt ratio m = 60% is given, and instead of the resale price - an increase in the value for the period of ownership by 25%.

Substitute numerical values:

V= 2.99 (70,000 - 0.6V 0.158) + 0.4 (1.25 V - 0.6V 0.938) + 0.6 V,

V= 512,236.91 = $ 512,237

4. Determine the price of real estate with an existing mortgage using traditional techniques. Suppose that the property in its current state is encumbered with a mortgage as security mortgage loan, received seven years ago in the amount of $ 300,000 for a period of twenty years with monthly payments of 15% per annum. The rest of the conditions are from the basic example.

The current debt balance is

MR= 270,519.95 dollars (from the loan condition).

Remaining debt at the time of the reversal:

OS = $ 166,052.17 (after 7+ 5 = 12 years).

Substitute the values:

V= 2,99 (70 000 - 47 404,4) + 0,4 (700 000 - 166 052,17) + 270 519,95,

V= $ 551,660

5. Determine the rate of final return on equity capital with the known parameters of the project to the current price of real estate. Such a problem may arise, for example, when an appraiser is trying to determine the requirements of investors in a particular market, relying on recently sold analogs with known investment parameters.

When using the algebraic form to solve this problem, it is necessary to determine the factors (pvaf) and (pvf) at different rates of return and substitute them into equality with a known current price SP until this equality turns into identity.

The problem is solved by the approximation method and much faster using a financial calculator, since the final return on equity with a known current value of equity capital is equal to the internal rate of return IRR for equity and related cash flow.

Let's use the data from the previous example.

Present value of equity: 551660-270520 = $ 281,140

Equity income: 70,000 - 47,404.4 = 22,595.6 dollars / year.

Sales revenue: 700,000 - 166,052 = $ 533,948

Calculation result: Y e = IRR 20%.

We get the value Y e , where the cost of the equity investment of $ 281,140 is in line with the projected cash flow.

The traditional technique of mortgage investment analysis makes it possible to draw certain conclusions regarding the influence of the size of the forecast period on the assessment results. An important factor limiting the holding period from an investor perspective is the decrease over time in depreciation (assets) and interest deductions from profits for tax purposes. Besides , more preferable investment options may appear (external factors). On the other hand, the current value of the mortgage debt ratio is gradually decreasing, which leads to a drop in the efficiency of financial leverage. Analysis using traditional techniques of options with different tenure periods shows an obvious effect of the forecast period on the value of the estimated value. At the same time, the dependence is such that with an increase in the predicted term of ownership, the value of the estimated value decreases in the absence of changes in value for the forecast periods.

Ellwood technique. It is used in investment and mortgage analysis and gives the same results as the traditional technique, since it is based on the same set of initial data and ideas about the relationship between the interests of equity and debt capital over the period of development of the investment project. An excellent technique of Ellwood is that it allows you to analyze property in relation to its price based on the profitability ratios of equity indicators in the structure of investments, changes in the value of all capital and quite clearly shows the mechanism of changes in equity capital over the investment period.

General view of the Ellwood formula:

R about = / (l + D n a),

where R 0 is the total capitalization ratio;

C - Ellwood mortgage ratio;

D - share change in the value of the property;

(sff, Y e) - factor of the compensation fund at the rate of return on equity;

D n - share change in income for the forecast period;

a is the stabilization factor.

Ellwood Mortgage Ratio:

С = Y e + p (sff, Y e ) -R m,

where R- the share of the current loan balance amortized over the forecast period,

R m- mortgage constant relative to the current debt balance.

Expression 1 / (1 + D n a) in the equation is a stabilizing factor and is used when the income is not constant, but changes regularly. Usually, the law of change in income is set (for example, linear, exponential, according to the accumulation fund factor), in accordance with which the stabilization coefficient is determined a according to pre-calculated tables. The cost is determined by dividing the income for the year preceding the valuation date by the capitalization ratio taking into account income stabilization. In the future, we will consider the Ellwood technique only for constant income.

Let's write down Ellwood's expression without taking into account the change in property value and with a constant income:

R = Y e - t.

This expression is called the base capitalization ratio, which is equal to the final rate of return on equity, adjusted for financing and depreciation terms.

Let us consider the structure of the total capitalization ratio in the Ellwood formula without taking into account changes in the property value, for which we use the investment group technique for rates of return. This technique weighs the rates of return on equity and debt in the respective shares of the total invested capital:

Y 0 = mY m + (1-m) Y e.

For this expression to be equivalent to the base coefficient r , there are two more factors to consider. The first is that the investor must periodically deduct from his income to amortize the loan, reducing his equity. Therefore, it is necessary to adjust the value of Y 0 in the previous expression by adding a periodically paid share of the total capital at an interest equal to the interest rate on the loan. The expression for this adjustment is the share of debt T, multiplied by the factor of the compensation fund at the interest rate (sff, Y m). The value (sff,) Y m) is equal to the difference between the mortgage constant and the interest rate, i.e. R m -Y m . Thus, subject to this amendment:

Y 0 = mY m + (1 -m) Y e + m (R m -Y m).

The second adjusting term should take into account the fact that the investor's equity capital as a result of the reversion will increase by the amount of the part of the loan amortized during the holding period. To determine this adjustment, you need to multiply the amortized amount in shares of the total initial capital on the factor of the compensation fund at the rate of final return on equity (sale to equity occurs at the end of the holding period). Therefore, the second correcting term has the form: mp (sff, Y m), and with a minus sign, since this amendment increases the cost.

Thus:

Y 0 = mY m + (1-m) Y e + m (R m -Y m) -mp (sff, Y e),

and after combining similar terms and replacing Y 0 by r (we do not take into account the change in property value):

r = Y 0 -m.

Thus, we get the base capitalization ratio of Ellwood's expression. The consistent transition from the investment group technique through taking into account the necessary adjustments to Ellwood's expression shows that this expression really reflects all the elements of the transformation of equity and borrowed funds, combined in the invested capital, in particular, financial leverage, mortgage loan amortization and equity capital gains as a result of loan amortization.

1. Evaluate a debt-free rental property that generates a net annual income of $ 70,000 over a five-year tenure. By the end of that term, property value will have increased by 30%. The investor requires a 20% final return on equity.

In this case, the formula will look like this:

R = Y e + D (sff, Y e),

since m = 0 by the problem statement.

(sff, Y e 5 years) = 0.1344.

Substitute the values:

R = 0.2 -0.3 x 0.1344 = 0.1597;

V = NOI / R = 70,000 / 0.1597 = $ 438,360

2. The same real estate is purchased with a mortgage loan in the amount of 60% of the property value for twenty years with a monthly payment of 15% per annum. Determine the value of the property.

Ellwood's expression for the total capitalization rate:

R 0 = Y e -m + D (sff, Y e).

After substitution of values:

R 0 = 0.2-0.6 (0.2+ 0.0594x0.1344-0.158) -0.3x0.1344 = 0.1297;

V = NOI / R o = 70,000 / 0.1297 = $ 539,707

Ellwood's technique can be used if debt and property appreciation are given in monetary terms. In this case, the coefficients and share parameters are expressed through the cost V.

3. Real estate (previous example) is purchased with a loan of $ 300,000. Property value is expected to increase by $ 160,000 over five years. What is the reasonable maximum property price?

Let's write the Ellwood equation, substituting the known and calculated values and expressing the corresponding parameters in terms of cost:

V= $ 532 -195

In the case of real estate appraisal with an existing mortgage, it is necessary to take into account that the values p, R m and T in the Ellwood formula, they represent the part of the debt repaid over the forecast period relative to the current balance, the mortgage constant calculated on the basis of the current loan balance, and the current ratio of mortgage debt, respectively.

4. Determine the price of real estate with an existing mortgage on a mortgage loan issued seven years ago in the amount of 60% of the cost for twenty years at 15% per annum with monthly payments excluding changes in value.

R about = r = Y e - M.

Determine the current values of m, R m and p:

m = 0.5383; R m = 0.1761; p = 0.1957.

r = 0.2 - 0.53883 (0.2 + 0.1957 x 0.1344-0.1761) = 0.173;

V = 70,000 / 0.173 = $ 404,680

Ellwood equation expressed in terms of debt coverage ratio. Financing projects with significant risks in relation to generating stable income can change the orientation of lenders regarding the criterion that determines the amount of borrowed funds. The lender believes that in this situation it is more expedient to determine the size of the loan not on a price basis, but on the basis of the ratio of the annual net income the investor to the annual payments on the loan obligation, that is, the lender requires guarantees that the value of this ratio (naturally, more than one) will not be less than a certain minimum value determined by the lender. This ratio is called the debt coverage ratio: DCR = NOI / DS.

In this case, the mortgage debt ratio in the Ellwood equation should be expressed in terms of the debt coverage ratio DCR:

DCR = NOI / DS = RV / (R m Y m,) = R / (R m m), or m = R / (DCRR m).

After substituting this expression instead of m we get the Ellwood equation expressed in terms of the debt coverage ratio:

5. Evaluate a profitable property with a net annual income of $ 70,000, tenure of 5 years. It is assumed that after this period the value of the property will increase by 30%. Real estate is purchased with a mortgage loan at 15% per annum, with monthly payments, a 20-year period and a debt coverage ratio of 1.3. The investor requires a 20% final return on equity.

Substitute the values and determine the total capitalization ratio:

SP = 70,000 / 0.1283 = $ 545,800

Financial management is based on the following concepts: accounting for the time factor and the time value of monetary resources, cash flows, accounting for business and financial risk when calculating expected income, the price of capital, efficient market etc. Making a decision on investing in real estate is associated with various factors: an assessment of the company's own financial condition and the feasibility of investing, an assessment of future revenues from the project, a plurality of available projects, limited financial resources various sources of funding, etc.

Making decisions on capital investment, in particular, on the acquisition of real estate, land is one of the areas of financial management. The peculiarities of investing in real estate and the methods used for evaluating real estate as an asset for investment are associated with the peculiarities of the real estate object, the risks of investing in real estate, instruments for investing in real estate.

Investment decision-making is based on the use of various formalized and non-formalized methods. Market conditions for development and implementation investment projects make fundamental changes in the calculation of efficiency, in the assessment methodology. The methodology for assessing the effectiveness of investment in real estate is based on the development of domestic specialists, which, in turn, is based on the methodology for assessing the effectiveness of investment projects by UNIDO (United Nations Industrial Development Organization), which is widely used in world practice.

Methodological recommendations for assessing efficiency contain a system of indicators, criteria and methods for assessing the effectiveness of investment projects in the process of their development and implementation, used at various levels of management.

Modeling the flows of products, resources and Money;

Taking into account the results of market analysis, the financial condition of the enterprise, the degree of trust in the project managers, the impact of the project on environment;

Determination of the effect by comparing the upcoming investments and future cash flows, while observing the required rate of return on capital;

Bringing forthcoming expenses and incomes at different times to the conditions of their commensurability in terms of economic value in the initial period;

Accounting for inflation, delays in payments and other factors affecting the value of the funds used;

consideration of uncertainty and risks associated with the implementation of the project.

The main task in modeling the investment process, in order to assess its effectiveness, comes down to describing the flow of income that should be expected during its implementation.

During the implementation of the project, three main activities:

Operating (production);

Investment;

Financial.

The cash inflow from production activities is the difference between the proceeds from the sale of products (services) excluding value added tax and the cost of producing these products excluding depreciation charges... Depreciation deductions represent calculation costs, are calculated according to the established depreciation rates and, when determining profit, are referred to costs. In reality, the accrued amount of depreciation deductions remains on the company's account and is an internal source of funding. Therefore, the cash flow from operating activities includes net income and depreciation charges.

Cash flow from investment activities includes proceeds from the sale of assets of the entity less payments for newly acquired assets. The cost of acquiring assets in future periods of activity should be calculated taking into account inflation for fixed assets by their types and for intangible assets... Cash flow from financing activities takes into account the contributions of the owners of the enterprise, equity capital, long-term and short-term loans, interest on deposits minus amounts for repayment of loans and dividends.

The amount of cash flow from each of the areas of activity in the implementation of the investment process will constitute the balance of liquidation funds in the corresponding period. In this case, the total cash flow at the end of the accounting period will be equal to the sum of the cash flow of the previous period with the balance of liquidation funds of the current period.

An enterprise cannot operate without capital. Sufficient can be considered such an amount of own and attracted (borrowed) capital, at which the total cash flow in all periods of the enterprise will be positive. The presence of a negative value in any of the periods of time means that the company is not able to cover its costs.

Thus, a necessary criterion for accepting an investment project is a positive balance of accumulated real money in any time interval where the enterprise incurs costs or receives income. The negative value of the balance indicates the need to attract additional own or borrowed funds.

Concept " investment project"involves an event, activities to achieve a specific goal (results), as well as a system of organizational and accounting and financial documents for the implementation of this activity.

Investment project- this is a technical measure (improvement of technology and technological process, modernization of the facility, organizational and technical measures to improve production, management decisions) and the movement of money (investments today and incomes in the future).

The analysis of the attractiveness of investment projects is based on the assessment and comparison of the volume of anticipated investments (IC) and future cash flows (S).

Since cash has a temporary value, it is necessary to solve the problem of comparability of the elements of the cash flow. The problem of comparability can be treated differently, depending on the existing objective and subjective conditions: the size of investments and income, the rate of inflation, the forecasting horizon, the level of qualification of the analyst, the purpose of the analysis.

The methods used in assessing the attractiveness of investment activities can be divided into two groups: based on discounted estimates, i.e. taking into account the factor of time, and on accounting estimates.

The investment process is an object of quantitative financial analysis, in which the investment project is treated as a cash flow. From a financial point of view, the investment process combines two opposite processes - the creation of a production or other facility for which certain funds are spent (IC) and the consistent receipt of income (S).

Both of these processes run sequentially or in parallel. The return on investment can begin before the investment process is completed. The time factor, the distribution of expenses IC and income S in time play a greater role than the size of the amounts, especially in long-term operations and in conditions of inflation.

The duration of the settlement period or the calculation horizon corresponds to the duration of the creation, operation of the facility or achievement of the specified profit characteristics, or other requirements of the investor.

It is recommended to compare various investment projects and choose the best one using the following indicators:

NPV is the net present value as the difference between the present stream of income and costs;

PI is the profitability index as the ratio of the reduced stream of income and costs;

IRR - rate of return or internal rate of return, which is understood as the calculated rate of return at which NPV = 0;

CC is the price of capital;

PP - payback period, an indicator characterizing the duration of the period during which the sum of the reduced net income is equal to the amount of investments;

ARR is the investment efficiency ratio as the ratio of the balance sheet profit to the average investment.

The investment and mortgage analysis is based on the idea of property value as the aggregate of the cost of equity and borrowed funds. Accordingly, the maximum reasonable price of a property is determined as the sum of the present value of cash flows, including proceeds from reversal attributable to the investor's funds, and the amount of the loan or its current balance.

Investment and mortgage analysis takes into account the opinion of the investor that he pays not the cost of real estate, but the cost of equity capital, and the loan is considered as an additional means to complete the transaction and increase equity capital. The analysis uses two methods (two techniques): the traditional method and the Elwood technique. The traditional method explicitly reflects the logic of investment and mortgage analysis. Elwood's method, reflecting the same logic, uses ratios of rates of return and equity ratios of investment components.

Traditional method. This method takes into account that the investor and the lender expect to receive income on their invested funds and return them. These interests must be secured by a general income for the entire amount of investment and the sale of assets at the end of the investment project. The amount of investment required is determined as the sum of the present value of the cash flow, which consists of the investor's equity capital and the current debt balance.

The cost calculation in the traditional technique is carried out in three stages.

StageI. For the adopted forecast period, a statement of income and expenses is drawn up and the cash flow before tax is determined, i.e. on equity. The stage ends with the determination of the current value of this stream in accordance with the forecast period and the final return on equity Ye expected by the investor.

StageII. The revenue from the resale of property is determined by deducting the transaction costs and the balance of debt at the end of the forecast period from the resale price. The present value of the proceeds is estimated at the same rate.

StageIII. The present value of equity capital is determined by adding the results of the stages. The cost of equity and current debt balance is estimated.

The traditional technique of mortgage investment analysis makes it possible to draw certain conclusions regarding the influence of the size of the forecast period on the assessment results. An important factor limiting the holding period from an investor perspective is the decrease over time in depreciation (assets) and interest deductions from pre-tax profits. In addition, more preferred investment options (external factors) may appear. On the other hand, the current value of the current debt ratio is gradually decreasing, which leads to the effectiveness of financial leverage. Analysis using traditional techniques of options with different tenure periods shows an obvious effect of the forecast period on the value of the estimated value. In this case, the dependence is such that with an increase in the projected period of ownership, the value of the assessed value decreases, subject to a decrease in the cost over the forecast periods.

Elwood's technique. It is used in investment and mortgage analysis and gives the same results as the traditional technique, since it is based on the same set of initial data and ideas about the relationship between the interests of equity and debt capital over the period of development of the investment project. The difference between Elwood's technique lies in the fact that it is based on the profitability ratios of equity indicators in the structure of investments, changes in the value of all capital and quite clearly shows the mechanism for changing equity capital over the investment period.

General view of Elwood's formula:

where R 0 is the total capitalization ratio

WITH- Ellwood mortgage ratio

- share change in the value of the property

(sff, Y e ) - factor of the compensation fund at the rate of return on equity

- share change in income for the forecast period

- stabilization coefficient

Elwood Mortgage Ratio:

C = Ye + p (sff, Ye) - Rm

Where p is the share of the current loan balance amortized over the forecast period

Rm - mortgage constant relative to the current debt balance.

Expression
in the equation - a stabilizing factor and is used when income is not constant, but changes regularly. Usually, the law of change in income is set (for example, linear, exponential, according to the accumulation fund factor), in accordance with which the stabilization coefficient is determined according to pre-calculated tables. The cost is determined by dividing the income for the year preceding the valuation date by the capitalization ratio taking into account income stabilization. In the future, we will consider Elwood's technique only for constant income.

Let's write down Elwood's expression without taking into account the change in the value of real estate with a constant income:

This expression is called the base capitalization ratio, which is equal to the final rate of return on equity, adjusted for financing and depreciation terms.

Consider the structure of the total capitalization ratio in the Elwood form without taking into account changes in property value, for which we use the investment group technique for rates of return. This technique weighs the rates of return on equity and debt in the respective shares of the total invested capital:

Yo = m * Ym + (1 - m) * Ye

In order for this expression to become equivalent to the base coefficient r, two more factors must be taken into account. The first is that the investor must periodically deduct from his income to amortize the loan, reducing his equity. Therefore, it is necessary to adjust the value of Yo in the previous expression by adding a periodically paid share of all capital at an interest equal to the interest rate on the loan. The expression for this adjustment is the share of borrowed capital m multiplied by the factor of the recovery fund at the interest rate (sff, Ym). The value (sff, Ym) is equal to the difference between the mortgage constant and the interest rate, i.e. Rm - Ym. Thus, subject to this amendment:

Yo = m * Ym + (1 - m) * Ye + m * (Rm - Ym)

The second adjusting term should take into account the fact that the investor's equity capital as a result of the reversion increases by the amount of the part of the loan amortized during the holding period. To determine this adjustment, multiply the amortized amount in shares of the total initial capital by the factor of the recovery fund at the rate of final return on equity (realization to equity occurs at the end of the holding period). Consequently, the second correcting term has the form: mp (sff, Ym), and with a minus sign, since this correction increases the cost.

Thus:

Yo = m * Ym + (1 - m) * Ye + m (Rm - Ym) - mp (sff, Ye)

And after combining similar members and replacing Yo with r (we do not take into account the change in property value):

R = Ye - m * (Ye + (p (sff) - Rm))

Thus, we get the base capitalization ratio of Elwood's expression. The consistent transition from the investment group technique through taking into account the necessary adjustments to Elwood's expression shows that this expression really reflects all the elements of the transformation of equity and borrowed funds, combined in the invested capital, in particular, financial leverage, mortgage loan amortization and equity capital gains as a result of loan amortization.

Elwood equation expressed in terms of debt coverage ratio. Financing projects with significant risks in relation to generating stable income can change the orientation of lenders regarding the criterion that determines the amount of borrowed funds. The lender believes that in this situation it is more expedient to determine the size of the loan not on a price basis, but on the basis of the ratio of the investor's annual net income to the annual payments on the loan obligation, i.e. the creditor requires guarantees that the value of this ratio (naturally, more than one) will not be less than a certain minimum value determined by the creditor. This ratio is called the debt coverage ratio:

In this case, the mortgage debt ratio in the Elwood equation should be expressed in terms of the debt coverage ratio DCR:

DCR = NOI / DS = RV / (Rm * Vm) = R / (Rm * m), or

After substituting this expression for m, we get the Elwood equation, expressed in terms of the debt coverage ratio:

These loans are issued in an amount that is part of the value of the property, mainly depending on the creditor's perception of the liquidity of the asset being invested. Joint participation - in this case, the lender participates in the distribution of profits from income and or an increase in the value of assets in addition to interest payments by providing a loan at a more preferential interest. Analysis of mortgage circumstances as an integral part of the investment project creates the necessary basis for determining the cash flows of the current value of assets and ...

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Topic 8. Fundamentals of investment and mortgage analysis.

Plan:

Types of loans and collateral legislation.
Investment and mortgage analysis methods.
Impact of a mortgage loan on the price-value ratio.

The impact of financial leverage.

With the development of financing institutions and an increase in the availability of loans, an increasing number of investors are attracting borrowed funds for the development of investment projects related to real estate. If the security of a long-term debt obligation is a pledge of the borrower's invested asset, then such a loan is called a mortgage. It is this form of lending that is most typical for transactions involving the transfer of rights to real estate, and is most preferable to minimize risks for lenders. The interest in the use of borrowed capital, along with a decrease in investment risk, is caused by a number of other economic reasons.

The main one is that, under certain conditions, the use of a loan increases the income of its recipient, since the profit earned with the help of these funds, in an amount exceeding the interest paid, increases the investor's equity capital if the return on all invested capital exceeds the cost of borrowed funds ... This is the effect of financial leverage (leverage), which is usually defined as the use of borrowed funds to implement an investment project.

2. Types of loans and collateral legislation.

There are many schemes nowadays mortgage lending which differ mainly in terms of the terms of obtaining loans, interest payment schemes and amortization of the principal amount of debt. In Russia, mortgage lending is currently very limited, loans themselves are very expensive, and long-term loans are practically non-existent. This is mainly due to the significant risks that it is burdened with Russian market real estate, and the lack of private ownership of land, which is the main component of real estate collateral. In addition, there is still no law on mortgage lending.

However, there is no doubt that in the near future the institution of mortgage lending will inevitably acquire civilized forms. Consequently, analysts working in the field of evaluating investment projects related to real estate should be well versed in the forms of mortgage lending, schemes for fulfilling investors' debt obligations and the influence of these factors on the price of invested objects.

Most common the following types credits:

With ball payment
Self-cushioning
Variable interest rate
Canadian roll over
Final mortgage
Joint participation
Loan with discount points.

Ball Payment Loansprovides for payment and interest to the principal amount of the debt at the end of the loan term. There are intermediate options, such as periodic interest payments and repayment of the amount owed at the end of the loan period. Ball loans are most typical for investors who seek to minimize costs during the development of the project and at the end of this period perform debentures after the sale of their assets.

Self-amortizing loanprovides for equal periodic payments, including interest payments falling as the debt is amortized and increasing loan amortization payments. These loans are issued in an amount that is part of the value of the property, mainly depending on the lender's perception of the liquidity of the asset being invested. Self-amortizing mortgage loan is most convenient when analyzing the structure of investments and economic characteristics profitable real estate, therefore, in the future, when considering the methods of mortgage investment analysis, we will use a loan of this type.

Variable rate loanit is usually used when investors and lenders are trying to take into account the rapidly changing price situation in the capital and resource market. In this case, the interest rate can be changed either directly, or through a change in the size of payments or the terms of amortization.

Canadian roll over- a form of a loan with a variable rate, when the interest rate is adjusted at predetermined time intervals (usually several years).

Final mortgageis presented by a third party or the owner of the first mortgage, forming a junior mortgage. The owner of the final pledge right is liable for the remainder of the first loan, demanding higher payments from the final loan amount, which includes the remainder of the old loan and its own loan. Thus, the new lender uses the financial leverage for his own loan.

Joint participation- in this case, the lender participates in the distribution of profit from income and (or) the increase in the value of assets in addition to interest payments, providing a loan at a more favorable interest rate.

Loan with discount pointsmeans that the borrower actually receives an amount less than that specified in the loan agreement. However, interest and depreciation payments must be paid on the entire debt amount. The investor agrees to a discount on the loan amount in return for a low interest rate, while the lender, by providing a loan at a discount, increases the final return relative to the real loan. The discount on the negotiated amount is measured in discount points. One discount point is equal to one percent of the contractual debt amount.

In practice, several more types of mortgage loans are used, but all of them are modifications of the above.

Analysis of mortgage circumstances as an integral part of the investment project creates the necessary basis for determining cash flows, the current value of assets and equity. The appraiser needs to know the current interests and preferences of owners and creditors, as well as the prevailing conditions in the capital market in order to correctly adjust par value debt obligations as an integral part of the current value of the owner.

Analyzing real estate as an object of financing, the appraiser should be well versed in the legislation, in particular, know whether this property is subject to the impact of such rights as the right of alienation, the right of turnover and the right to be the subject of mortgage lending.

Consider the main provisions of the draft Federal Law "On Mortgages (Real Estate Pledge)", which it is advisable to focus on for a practicing real estate appraiser.

The basis for the occurrence of a mortgage is an agreement on pledging real estate (mortgage agreement), according to which the pledgee, who is a creditor for a loan obligation secured by a mortgage, has the right to secure his monetary claims from the value of the pledged property of the pledger.
The right of pledge extends to land plots, enterprises, buildings, structures, apartments and more. real estate within the limits established by federal laws.
The subject of a mortgage may be real estate, the rights to which are subject to state registration:

land
enterprises, as well as buildings, structures and other real estate used in business
residential buildings, apartments and parts of residential buildings and apartments, consisting of one or more isolated rooms
summer cottages, garden houses, garages and other consumer buildings
air and sea vessels of inland navigation and space objects.

Property that belongs to the mortgagor on the basis of property rights or on the basis of the right of economic management may be encumbered by the right of pledge.
Immovable property cannot become the subject of a mortgage agreement, in respect of which, according to federal law, foreclosure is prohibited, mandatory privatization or privatization of prohibition is not provided.
The mortgage agreement must contain the result of property valuation, which is determined by agreement between the pledger and the pledgee.
The value of a land plot cannot be determined below its regulatory base.
The subjects of the mortgage agreement, when evaluating the object of pledge, can use the services of an independent professional organization.
Mortgages are subject to state registration by the justice authorities in the unified state register of rights to real estate and transactions with it.
Possible alienation of real estate pledged under a mortgage agreement by the pledgor to another person as a result of “sale, donation, deception, making it as a contribution to a business partnership or society, or a contribution to a production cooperative or otherwise only with the consent of the pledgee, unless otherwise provided by the agreement on mortgage ".
It is possible to conclude another mortgage obligation (subsequent mortgage) in relation to property already intended under the mortgage agreement to secure the previous obligation (previous mortgage), if this is not prohibited by the previous mortgage. Subsequent mortgage is not allowed if the previous mortgage is certified.
Satisfaction of the pledgee's claims for a previous mortgage has priority over the satisfaction of the pledgee's claims for a subsequent mortgage.
Rights under a mortgage agreement, if it is not certified by a mortgage, can be sold by the pledgee to another person, if this is not prohibited by the agreement. The person to whom the rights under the mortgage agreement are transferred also receives the rights under the main obligation secured by the mortgage.
The mortgage bond can be transferred to another person with the transfer of rights under the obligation secured by the mortgage, and also pledged to another person in accordance with the obligation under the loan agreement between this person and the mortgagee.
The court's decision on the foreclosure on the property pledged under the mortgage must indicate the initial sale price of the property for its sale at public auction.
Under a mortgage agreement, land plots owned by citizens and legal entities can be mortgaged.
Land plots that are in state or municipal ownership, except for land, can be mortgaged under a mortgage agreement common use, protected areas, areas where construction is prohibited, areas with special conditions of use and areas where mortgages are not allowed by federal law.
A mortgage agreement regarding an enterprise, building or structure is possible only in conjunction with the land plot on which these objects are located, or with a functionally necessary part of this plot or the right to lease this plot. The right to permanent use of a land plot is not subject to pledge, but is transferred when foreclosure is applied to real estate located on this plot.
Assessment of the company's assets is mandatory and is an appendix to the mortgage agreement of the company or part of its property complex.
Mortgages of individual and multi-apartment residential buildings and apartments are allowed if they are privately owned, and not allowed if these objects are in state or municipal ownership.

3. Methods of investment and mortgage analysis.

Investment and mortgage analysis is based on the idea of property value as the aggregate of the cost of equity and borrowed funds. Accordingly, the maximum reasonable price of a property is determined as the sum of the present value of cash flows, including proceeds from reversal attributable to the investor's funds, and the amount of the loan or its current balance.

Investment and mortgage analysis takes into account the opinion of the investor that he pays not the cost of real estate, but the cost of equity capital, and the loan is considered as an additional means to complete the transaction and increase equity capital. The analysis uses two methods (two techniques): the traditional method and the Elwood technique. The traditional method explicitly reflects the logic of investment and mortgage analysis. Elwood's method, reflecting the same logic, uses ratios of rates of return and equity ratios of investment components.

Traditional method.This method takes into account that the investor and the lender expect to receive income on their invested funds and return them. These interests must be secured by a general income for the entire amount of investment and the sale of assets at the end of the investment project. The amount of investment required is determined as the sum of the present value of the cash flow, which consists of the investor's equity capital and the current debt balance.

The cost calculation in the traditional technique is carried out in three stages.

Stage I. For the adopted forecast period, a statement of income and expenses is drawn up and the cash flow before tax is determined, i.e. on equity. The stage ends with the determination of the current value of this flow in accordance with the forecast period and the final return on equity expected by the investor Ye.

Stage III. The present value of equity capital is determined by adding the results of the stages. The cost of equity and current debt balance is estimated.

The traditional technique of mortgage investment analysis makes it possible to draw certain conclusions regarding the influence of the size of the forecast period on the assessment results. An important factor limiting the holding period from an investor perspective is the decrease over time in depreciation (assets) and interest deductions from pre-tax profits. In addition, more preferred investment options (external factors) may appear. On the other hand, the current value of the current debt ratio is gradually decreasing, which leads to the effectiveness of financial leverage. Analysis using traditional techniques of options with different tenure periods shows an obvious effect of the forecast period on the value of the estimated value. In this case, the dependence is such that with an increase in the projected period of ownership, the value of the assessed value decreases, subject to a decrease in the cost over the forecast periods.

Elwood's technique. It is used in investment and mortgage analysis and gives the same results as the traditional technique, since it is based on the same set of initial data and ideas about the relationship between the interests of equity and debt capital over the period of development of the investment project. The difference between Elwood's technique lies in the fact that it is based on the profitability ratios of equity indicators in the structure of investments, changes in the value of all capital and quite clearly shows the mechanism for changing equity capital over the investment period.

General view of Elwood's formula:

where R 0 - total capitalization ratio

WITH - Ellwood mortgage ratio

Fractional change in property value

(sff, Y e) - recovery fund factor at the rate of return on equity

Share change in income for the forecast period

Stabilization factor

Elwood Mortgage Ratio:

C = Ye + p (sff, Ye) - Rm

Where p is the share of the current loan balance amortized over the forecast period

Rm - mortgage constant relative to the current debt balance.

The expression in the equation is a stabilizing factor and is used when income is not constant, but changes regularly. Usually, the law of change in income is set (for example, linear, exponential, according to the accumulation fund factor), in accordance with which the stabilization coefficient is determined according to pre-calculated tables. The cost is determined by dividing the income for the year preceding the valuation date by the capitalization ratio taking into account income stabilization. In the future, we will consider Elwood's technique only for constant income.

Let's write down Elwood's expression without taking into account the change in the value of real estate with a constant income:

This expression is called the base capitalization ratio, which is equal to the final rate of return on equity, adjusted for financing and depreciation terms.

Yo = m * Ym + (1 - m) * Ye

For this expression to become equivalent to the base coefficient r , it is necessary to take into account two more factors. The first is that the investor must periodically deduct from his income to amortize the loan, reducing his equity. Therefore, it is necessary to correct the value Yo in the previous expression by adding the periodically paid share of all capital at an interest equal to the interest rate on the loan. The expression for this adjustment is the share of debt m multiplied by the factor of the compensation fund at the interest rate(sff, Ym). The quantity (sff, Ym) is equal to the difference between the mortgage constant and the interest rate, i.e. Rm - Ym ... Thus, subject to this amendment:

Yo = m * Ym + (1 - m) * Ye + m * (Rm - Ym)

The second adjusting term should take into account the fact that the investor's equity capital as a result of the reversion increases by the amount of the part of the loan amortized during the holding period. To determine this adjustment, multiply the amortized amount in shares of the total initial capital by the factor of the recovery fund at the rate of final return on equity (realization to equity occurs at the end of the holding period). Therefore, the second correcting term is: mp (sff, Ym) , and with a minus sign, since this amendment increases the cost.

Thus:

Yo = m * Ym + (1 - m) * Ye + m (Rm - Ym) - mp (sff, Ye)

And after combining similar members and replacing Yo on r (we do not take into account the change in property value):

R = Ye - m * (Ye + (p (sff) - Rm))

Elwood equation expressed in terms of debt coverage ratio.Financing projects with significant risks in relation to generating stable income can change the orientation of lenders regarding the criterion that determines the amount of borrowed funds. The lender believes that in this situation it is more expedient to determine the size of the loan not on a price basis, but on the basis of the ratio of the investor's annual net income to the annual payments on the loan obligation, i.e. the creditor requires guarantees that the value of this ratio (naturally, more than one) will not be less than a certain minimum value determined by the creditor. This ratio is called the debt coverage ratio:

DCR = NOI / DS

In this case, the mortgage debt ratio in the Elwood equation should be expressed in terms of the debt coverage ratio DCR:

DCR = NOI / DS = RV / (Rm * Vm) = R / (Rm * m), or

M = R / (DCR * Rm)

After substituting this expression instead of m we get the Elwood equation expressed in terms of the debt coverage ratio:

4 ... Impact of a mortgage loan on the price-value ratio.

As already mentioned, the main interest of the investor is to increase equity capital as a result of the implementation of the investment project. The owner must optimize the capital structure by weighing all costs, risk and debt service costs and comparing them with the future efficiency of using equity and borrowed funds. The investor believes that a project using a cheap loan with the desired debt ratio, long amortization period and a rate of return on equity that meets his requirements is considered a successful project. For the implementation of these conditions, the investor is ready to pay a price higher than the market value of the property. Thus, the specific terms of financing affect the amount of money paid for real estate as a result of a particular sale and purchase transaction, but not its value. Financing terms do not affect the physical nature of the property and rent payments. To translate price into value (sometimes the term “monetary market value” is used), the appraiser must be well versed in the typical preferences of lenders and investors.

In order to determine the value of real estate, which, in accordance with the basic meaning of the investment and mortgage analysis, is the sum of the current market interests of the financial components, it is necessary to determine the market value of the debt obligation and add it to the buyer's equity capital (payment).

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Moscow Automobile and Highway Institute

(State Technical University)

DEPARTMENT OF AUTOMOTIVE TRANSPORT ECONOMY

Discipline "Economics of Real Estate"

"Fundamentals of Investment and Mortgage Analysis"

Moscow 2009

Introduction

3. Terms of financing

Literature

Introduction

direct, strong connection of the property with the land;

the real estate object cannot be moved apart from the land plot without significant damage to its purpose;

real estate is classified as financial assets;

real estate transactions are carried out in the real estate market - a specific segment (sector) of the financial market;

real estate market - the sphere of capital investment (investment sphere), as well as the system of economic relations between financial market participants regarding real estate transactions; the purchase and sale of real estate objects is associated with the movement of capital or value that generates income;

the acquisition of a real estate object means an investment in this object, which generates income for its owner during operation or leasing it, as well as after its resale at a higher price;

due to the specificity of real estate as financial category and its high cost, the state makes high demands on the observance of the legality of real estate transactions, therefore, almost all transactions in the real estate market must undergo state registration;

demand for real estate objects is not interchangeable, therefore, even if supply exceeds demand, it (demand) often remains unsatisfied;

the amount of demand for real estate objects is determined by geographic and historical factors, as well as the state of the infrastructure in the area where the property is located.

It should be noted that the main element or attribute of real estate is land.

Due to the high dynamics of prices for all financial objects, as well as all other markets, as well as the absence of a more or less efficient information base on real estate objects, the real real estate market cannot exist without an appraisal of its objects. Real estate appraisal means, first of all, the appraisal of property rights to real estate and the real estate itself.

Almost all transactions for the purchase of real estate are carried out with the attraction of mortgage loans, or loans secured by real estate. Under such conditions, the value of real estate is defined as the sum of the mortgage loan, the present value of income from the use of real estate and proceeds from the resale of real estate. In general, the assessment of the value of real estate encumbered or acquired with a mortgage loan is carried out using mortgage investment analysis. This paper will consider issues related to mortgage lending and the basics of investment and mortgage analysis.

1. The concept of mortgage lending

Mortgage - mortgage of real estate as a way of securing obligations. The presence of a mortgage lending system is an integral part of any developed system of private law. The role of mortgages increases especially when the state of the economy is unsatisfactory. In this case, a well-thought-out and effective mortgage system, on the one hand, helps to reduce inflation, drawing on temporarily free funds of citizens and enterprises, on the other hand, it helps to solve social and economic problems.

Often, the term "mortgage" means mortgage lending, but "mortgage" has an independent meaning - real estate pledge as a way to secure obligations.

Real estate is an integral part of most economic processes... However, due to its peculiarities, it belongs to the objects that are optimal for lending. To the most important features include the following.

1. The cost of real estate as a unit of goods is very high and requires significant capital from the investor.

2. Real estate, first of all, is a land plot on which some improvements are being built to ensure its profitability; the process of using income-generating real estate can only be carried out at the place of its initial creation, since it is not subject to transportation.

3. The right to real estate as a commodity is subject to mandatory registration in the unified state register of rights to real estate in the manner prescribed by federal law.

4. Real estate has a fairly large physical size, physical and economic aging of real estate takes place for a long time.

5. During the economic life of real estate, it is possible to carry out capital measures that affect the amount of income, and, therefore, it can be stable, decrease and grow over time.

6. Investments in real estate are less depreciated, since changes in the value of real estate usually offset inflationary processes.

The expediency of using borrowed funds in real estate transactions exists for both the borrower and the lender.

The advantages of attracting borrowed funds for the purchase of real estate allows the investor (borrower):

1. Acquire a more expensive object in comparison with its own capital, which it possesses at the time of the transaction.

2. Diversify the real estate portfolio by investing the released own funds for lending in other objects.

3. Buying income-generating real estate in installments allows the owner to pay off the debt to the creditor with interest from the income generated by the same property.

4. Increase the rate of return on equity capital by choosing the optimal financing conditions.

Considering the positive aspects of the use of borrowed funds by the investor, it is necessary to note the drawbacks.

1. The amount returned to the lender is higher than the loan received, since the investor must pay interest.

2. A mortgage loan is a borrowed source that requires timely and full repayment.

3. Changes in the terms of the loan stipulated in the original loan agreement, a drop in the process of real estate operation in the value of the net operating income of the real estate may lead to negative financial leverage.

4. Violation of the loan repayment schedule gives the creditor the right to foreclose on the pledged property. In this case, the property is sold and the debt is paid from the sale price. The balance of the proceeds from the sale of real estate due to the owner may be less than the amount of the repaid loan.

The lender makes a decision on the provision of borrowed funds on a long-term basis secured by real estate based on the analysis of the following factors:

1. The credited object due to physical, economic and legal features during the entire period of debt repayment can be controlled by the lender.

2. Obligatory state registration of rights to real estate, as well as transactions with it, including mortgages, serves as a legal guarantee of the fulfillment of contractual obligations by the borrower.

3. Long-term physical and economic life real estate is the basis for the return not only of the principal amount, but also of the interest due.

4. Flexible drafting system loan agreement, the possibility of including special conditions in it makes it possible for the lender to take into account the change in the market yield of credit resources, financial sustainability the borrower, to influence the process of resale of the loaned property during the debt repayment period.

5. Registration of a "mortgage" on granted mortgage loans allows mortgage bank put mortgages into circulation and replenish their credit resources.

The considered features of real estate have led to the fact that in countries with developed market economy real estate objects are purchased with the participation of a mortgage loan. A mortgage loan is a type of loan, which is characterized by: providing funds for a long time, lending a transaction for the acquisition of real estate, the acquired real estate acts as collateral.

Thus, a distinctive feature of a mortgage loan is the combination of the collateral object and the purchased object.

During the entire loan period, the borrower (pledger) and the lender (pledgee) do not have full rights to the pledged property. While retaining the rights of ownership and use, they cannot dispose of the property. At the same time, the borrower must operate the property in such a way that the income received will allow to pay off the main debt, pay the accrued interest, taxes, insurance premiums, carry out timely repairs to maintain the facility in good condition, as well as receive income on the invested equity capital.

2. Types of loans and collateral legislation

Currently, there are many mortgage lending schemes, which differ mainly in terms of obtaining loans, interest payment schemes and amortization of the principal amount of debt. The following types of loans are most common:

With ball payment;

Self-cushioning;

With a variable interest rate;

Canadian roll over;

Final mortgage;

Joint participation;

Loan with discount points.

Ball Payment Loans provide for payment and interest to the principal amount of the debt at the end of the loan term. There are intermediate options, such as periodic interest payments and repayment of the amount owed at the end of the loan period. Ball loans are most typical for investors who seek to minimize costs during the development of the project and at the end of this period fulfill their debt obligations after the sale of their assets.

Self-amortizing loan provides for equal periodic payments, including interest payments falling as the debt is amortized and increasing loan amortization payments. These loans are issued in an amount that is part of the value of the property, mainly depending on the lender's perception of the liquidity of the asset being invested. Self-amortizing mortgage loan is most convenient for analyzing the structure of investments and economic characteristics of profitable real estate, therefore, in the future, when considering the methods of mortgage-investment analysis, we will use a loan of this type.

Variable rate loan it is usually used when investors and lenders are trying to take into account the rapidly changing price situation in the capital and resource market. In this case, the interest rate can be changed either directly, or through a change in the size of payments or the terms of amortization.

Canadian roll over - a form of a loan with a variable rate, when the interest rate is adjusted at predetermined time intervals (usually several years).

Final mortgage provided by a third party or by the owner of the first mortgage, thus forming a junior mortgage. The owner of the final pledge right assumes obligations on the balance of the first loan, demanding higher interest payments on the amount of the final loan, which includes the remainder of the old loan and its own loan. Thus, the new lender uses the financial leverage for his own loan.

Joint participation - in this case, the lender participates in the distribution of profit from income and (or) the increase in the value of assets in addition to interest payments, providing a loan at a more preferential interest.

Loan with discount points means that the borrower actually receives an amount less than that specified in the loan agreement. However, interest and depreciation payments must be paid on the entire debt amount. The investor agrees to a discount on the loan amount in return for a low interest rate, while the lender, providing a loan at a discount, increases the final return relative to the real loan. The discount on the negotiated amount is measured in discount points. One discount point is equal to one percent of the contractual debt amount.

In practice, several more types of mortgage loans are used, but all of them are modifications of the above.

Analysis of mortgage liabilities as an integral part of an investment project creates the necessary basis for determining cash flows, the present value of assets and equity. The appraiser needs to know the current interests and preferences of owners and creditors, as well as the prevailing conditions in the capital market, in order to correctly adjust the nominal value of debt obligations as an integral part of the current value of the property.

In Russia, mortgages are used relatively recently (Federal Law Russian Federation"On Mortgage (Real Estate Pledge)" No. 102-FZ adopted on July 16, 1998) However, we can already say that the institution of mortgage lending in Russia (before the world financial crisis) developed quickly enough. Below are some of the provisions of the Federal Law "On Mortgages (Real Estate Pledge)", which it is advisable to focus on a practicing real estate appraiser.

The basis for the occurrence of the mortgage. The basis for the occurrence of a mortgage can be a law or an agreement. Under the agreement, the pledgor (including those who are not the debtor) voluntarily pledges any immovable property belonging to him, thereby guaranteeing the satisfaction of the creditor's claims in the event of failure to fulfill the obligation secured by the pledge. The contract is the main form of mortgage origination. In some cases, a mortgage may arise on the basis of the law.

Obligation secured by a mortgage. A mortgage may be established as security for an obligation under a credit agreement, under a loan agreement or other obligation, including an obligation based on the sale and purchase, lease, contract, other agreement, causing harm, unless otherwise provided by federal law.

Property that can be mortgaged. Under a mortgage agreement, immovable property specified in paragraph 1 of Article 130 can be mortgaged Civil Code Of the Russian Federation, the rights to which are registered in accordance with the procedure established for state registration of rights to real estate and transactions with it, including:

1) land plots, except land plots specified in Article 63 of this Federal Law;

2) enterprises, as well as buildings, structures and other immovable property used in entrepreneurial activity;

3) residential buildings, apartments and parts of residential buildings and apartments, consisting of one or more isolated rooms;

4) summer cottages, garden houses, garages and other consumer buildings;

5) air and sea vessels, inland navigation vessels and space objects.

The right of pledge property that belongs to the mortgagor on the basis of property rights or on the basis of the right of economic management may be encumbered.

In the mortgage agreement the subject of the mortgage, its assessment, the nature, the amount and the term for the fulfillment of the obligation secured by the mortgage must be indicated. The subject of the mortgage is determined in the agreement by indicating its name, location and a description sufficient to identify this subject. The assessment of the subject of the mortgage is determined in accordance with the legislation of the Russian Federation by agreement of the pledgor with the pledgee and is indicated in the mortgage agreement in monetary terms. The obligation secured by the mortgage must be named in the mortgage agreement with an indication of its amount, the basis for its occurrence and the term of performance. In cases where this obligation is based on any agreement, the parties to this agreement, the date and place of its conclusion must be indicated.

Mortgages are subject to state registration by the justice authorities in the unified state register of rights to real estate and transactions with it. The mortgage agreement is considered concluded and enters into force from the moment of its state registration.

Alienation of mortgaged property. The property pledged under a mortgage agreement may be alienated by the pledger to another person by sale, donation, exchange, making it as a contribution to the property of a business partnership or company, or a share contribution to the property of a production cooperative, or in any other way only with the consent of the pledgee, unless otherwise provided by the mortgage agreement. In the event of a mortgage, alienation of the mortgaged property is allowed if the mortgagor's right to do so is provided for in the mortgage, subject to the conditions that are established therein.

The pledgor has the right to bequeath the pledged property. The terms of the mortgage agreement or other agreement limiting this right of the pledgor are null and void.

Subsequent mortgage. It is possible to conclude another mortgage obligation (subsequent mortgage) in relation to property already intended under the mortgage agreement to secure the previous obligation (previous mortgage), if this is not prohibited by the previous mortgage. Subsequent mortgage is not allowed if the previous mortgage is certified. Satisfaction of the pledgee's claims for a previous mortgage has priority over the satisfaction of the pledgee's claims for a subsequent mortgage. The order of the pledgees is established on the basis of the data of the Single state register rights to real estate and transactions with it about the moment of occurrence of the mortgage.

Mortgage rights, if he is not certified by a mortgage, may be sold by the pledgee to another person, if this is not prohibited by the contract. The person to whom the rights under the mortgage agreement are transferred also receives the rights under the main obligation secured by the mortgage.

Mortgage can be transferred to another person with the transfer of rights under the obligation secured by the mortgage, and also pledged to another person in accordance with the obligation under the loan agreement between this person and the pledgee. When transferring the rights to a mortgage, a transaction is made in a simple written form. When transferring rights to a mortgage, the person transferring the right makes a mark on the mortgage about the new owner, unless otherwise provided by Federal Law. The transfer of rights to a mortgage to another person means the transfer of all rights certified by it to this person in the aggregate.

Judicial procedure for foreclosure on mortgaged property. Execution according to the claims of the pledgee is applied to the property pledged under the mortgage agreement, by a court decision, except for cases when, in accordance with Article 55 of the Federal Law, it is allowed to satisfy such claims without going to court.

The court's decision on the foreclosure on the property pledged under the mortgage must indicate the initial sale price of the property for its sale at public auction.

Land mortgage. The subject of pledge under a mortgage agreement may be land plots that are in municipal ownership and land plots for which state ownership is not delimited, if such land plots are intended for housing construction or for integrated development for housing construction and are transferred to secure loan repayment, provided credit institution for the arrangement of these land plots through the construction of engineering infrastructure facilities.

Decisions on the mortgage of land plots in municipal ownership are made by the authorities local government... Decisions on the mortgage of land plots, the state ownership of which is not delimited and which are specified in paragraph 1 of Art. 130 of the Civil Code of the Russian Federation, are adopted by state authorities of the constituent entities of the Russian Federation or local self-government bodies vested with the authority to dispose of the specified land plots in accordance with the legislation of the Russian Federation.

Mortgage of individual and multi-apartment residential buildings and apartments allowed if they are in private ownership, and not allowed if these objects are in state or municipal ownership

3. Terms of financing

The variety of forms of relationship between the borrower and the lender leads to the existence of different conditions of financing. The terms of financing usually include the method of debt repayment, interest payments, the procedure for changing interest rates, loan terms, the possibility of including additional clauses in the loan agreement that affect the risk of the parties to the loan agreement.

Special conditions imply the inclusion in the loan agreement of clauses concerning the rights of the lender and the borrower to early repayment of the loan, the existence of justifying obligations, the possibility of selling the object before the expiration of the loan term, and the definition of the principle of subordination. The presence or absence of these conditions, as well as their specific content, affect the results of assessing the market value of real estate.

1. Justifying circumstance. The presence of this clause in the loan agreement means that in case of violation by the borrower of the terms of the loan agreement, the bank can count on debt reimbursement only at the expense of the pledged object. Other property owned by the borrower cannot be used for these purposes. If this item is absent, the borrower must answer with all the property belonging to him.

2. The right to early debt collection. In accordance with this condition, the borrower receives the right to repay the debt before the expiration of the loan term. The presence of such a right is important if the investor does not exclude the possibility of resale of the object before the debt is repaid. Western practice provides for the payment of fines by the borrower in favor of the bank in such cases. The level of the fine decreases as the date of the final repayment of the debt approaches. In some cases, loans are "locked" for a certain period, prohibiting early repayment.

3. The creditor's right to early return debt. The existence of such a right provides for the early repayment of the remaining debt ("ball" payment), regardless of whether the borrower violated the terms of the loan agreement. Possible date early repayment is set at the time of the conclusion of the loan agreement. When it occurs, the lender can expect to receive the balance of the debt or to revise such positions as the interest rate, the remaining maturity of the debt. The presence of such a right is beneficial to the bank.

4. The right to sell real estate together with debt. This right allows the borrower to sell the property before the loan is repaid, and the remaining debt will be repaid by the new owner, the lender remains the same. The presence of such a right increases the risk of the lender, therefore the bank reserves the right to give permission for the sale of real estate to a specific buyer or the right to increase the interest rate. It should be noted that in this case the seller is solely responsible if the new owner has received an exculpatory circumstance.

5. The principle of subordination. This item assumes the possibility of changing the priority of the mortgage loan. If an investor buys real estate with a mortgage loan and at the same time intends to subsequently use it as part of an investment project that will be financed by borrowed funds, then he needs to negotiate in advance the possibility of reducing the priority of the first loan. The absence of this item will complicate obtaining a new loan secured by the same property.

The specific terms of financing must be taken into account by the appraiser, who compares them with the so-called typical financing. Typical financing is the amount of the loan that can be provided to the investor, and the established interest rate.

The classical theory of appraisal distinguishes between the concepts of "price" and "value" of a property. The value reflects the hypothetical amount of money for which the appraised object can be exchanged, taking into account specific conditions. The value is determined by the potential return on the property. The cost depends on the amount of income generated by the property, as well as on the possible change in its value during the period of ownership. Net operating income depends on:

physical parameters of the object;

market rental rates;

demand for this property;

quality of management;

the value of operating costs.

All of these factors relate to the scope of use of the assessed object. Since debt service costs are attributed to financing costs, their size, presence or absence does not affect the amount of net operating income.

Price is the amount of money that will be paid for the property in the actual transaction. The price is often the result of negotiations between the seller and the buyer.

The investor will be willing to pay a higher price for the acquired property if he receives a loan at a rate below market rate, or has positive financial leverage due to an increase in the loan term, or the seller pays discount points on the mortgage loan received by the buyer. The evaluator, comparing specific financing terms with typical financing, especially if the loan is not provided by a third party, but directly by the seller, may evaluate them as favorable. This factor can be factored into the price as a corresponding premium to the cost.

Thus, the terms of financing do not change the value of the property, but they do affect its price. Mortgage- investment analysis represents a set of calculations and analytical activities that allow real estate appraisal taking into account specific financing conditions.

4. Mortgage Investment Analysis

Mortgage investment analysis consists in determining the value of property as the sum of the values of equity and debt capital. This takes into account the opinion of the investor that he pays not the cost of real estate, but the cost of capital. The loan is viewed as a means of increasing the investment funds required to complete the transaction. The cost of equity is calculated by discounting the cash flows to the equity investor from regular income and from the reversal, the cost of debt - discounting the debt service payments.

The present value of the property is determined based on discount rates and cash flow characteristics. That is, the present value depends on the duration of the project, the ratio of equity and borrowed capital, the economic characteristics of the property and the corresponding discount rates.

Mortgage Investment Analysis Methods

The analysis uses two methods (two techniques): the traditional method and the Ellwood technique. The traditional method explicitly reflects the logic of investment and mortgage analysis. Ellwood's method, reflecting the same logic, uses ratios of rates of return and equity ratios of investment components.

Traditional method. This method takes into account that the investor and the lender expect to receive a return on their investment and return it. These interests must be secured by a general income for the entire amount of investment and the sale of assets at the end of the investment project. The amount of investment required is determined as the sum of the present value of the cash flow, which consists of the investor's equity capital and the current debt balance.

The cost calculation in the traditional technique is carried out in three stages.

Stage 1. Determining the present value of recurring income streams:

- a statement of income and expenses is drawn up for the forecast period, while the amounts for servicing the debt are calculated based on the characteristics of the loan - the interest rate, the full amortization period and repayment terms, the amount of the loan and the frequency of payments to repay the loan;

- cash flows of own funds are determined;

- the rate of return on invested capital is calculated;

- at the calculated rate of return on equity, the present value of the regular cash flows before tax is determined.

Stage 2. Determination of the present value of the reversion income minus the outstanding loan balance:

- the income from the reversion is determined;

- the balance of the debt at the end of the period of ownership of the object is deducted from the income from the reversion;

- according to the rate of return on equity calculated at stage 1, the present value of this cash flow is determined.

Stage 3. Determination of the property value by summing the current values of the analyzed cash flows.

Mathematically, the definition of the value of an asset can be represented in the form of a formula

where NOI is the net operating income of the n year of the project;

DS is the amount of debt service in year n of the project;

TG - the amount of the reversion without taking into account the costs of selling;

UM - unpaid loan balance at the end of the project term NS;

i – return on equity;

M – the original loan amount or the current balance of the principal amount of the debt.

This formula can be applied as an equation in the following cases:

- if the amount of property reversion is difficult to predict, but it is possible to determine the tendencies of its change in relation to the initial value, then in the calculations it is possible to use the reversion value, expressed in shares of the initial value;

- if the condition of the problem does not define the amount of the loan, but only the share of the loan.

Consider the main criteria for the effectiveness of investment projects.

Net present value – criterion measuring the excess of benefits from a project over costs, taking into account the current value of money

where NPV is the net present value of the investment project; Co - initial investment; C i - cash flow of period t; i, is the discount rate for the period t.

A positive NPV means that cash receipts from the project exceed the costs of its implementation.

Stages of applying the NPV rule:

- forecasting cash flows from the project throughout the expected period of ownership, including income from resale at the end of this period;

- determination of the opportunity cost of capital for financial market;

- determination of the present value of cash flows from the project by discounting at the rate corresponding to the opportunity cost of capital and deducting the amount of the initial investment;

- selection of a project with the maximum NPV value from several options.

The more NPV, the more income the investor receives from capital investment.

Consider the basic rules for making investment decisions.

1) The project should be invested if the NPV is positive. The considered efficiency criterion (NPV) allows us to take into account the change in the value of money over time, depending only on the projected cash flow and the alternative cost of capital. The net present values of several investment projects are expressed in today's money, which allows them to be correctly compared and added.

2) The discount rate used in calculating NPV is determined by the alternative cost of capital, i.e. the profitability of the project is taken into account when investing money with equal risk. In practice, the profitability of a project may be higher than that of an alternative risk project. Therefore, the project should be invested if the rate of return is higher than the opportunity cost of capital.

The considered rules for making investment decisions may conflict if there are cash flows in more than two periods.

Payback period – the time it takes for the amount of cash flows from the project to become equal to the amount of the initial investment. This investment performance meter is used by investors who want to know when a full return on investment will occur.

Disadvantage: Payments following the payback period are not taken into account.

Ellwood Technique... It is used in investment and mortgage analysis and gives the same results as the traditional technique, since it is based on the same set of initial data and ideas about the relationship between the interests of equity and debt capital over the period of development of the investment project. An excellent technique of Ellwood is that it allows you to analyze property in relation to its price based on the profitability ratios of equity indicators in the structure of investments, changes in the value of all capital and quite clearly shows the mechanism of changes in equity capital over the investment period.

General view of Ellwood's formula:

R about = / (l + Δ n a),

where R 0 is the total capitalization ratio;

C - Ellwood mortgage ratio;

Δ is the share change in the value of the property;

(sff, Y e) - factor of the compensation fund at the rate of return on equity;

Δ n - share change in income for the forecast period;

a- the coefficient of stabilization.

Ellwood Mortgage Ratio:

С = Y e + p (sff, Y e ) -R m,

where p - the share of the current loan balance, amortized over the forecast period,

Expression 1 / (1 + Δ n a) in the equation is a stabilizing factor and is used when the income is not constant, but changes regularly. Usually, the law of change in income is set (for example, linear, exponential, according to the accumulation fund factor), in accordance with which the stabilization coefficient a is determined according to pre-calculated tables. The cost is determined by dividing the income for the year preceding the valuation date by the capitalization ratio taking into account income stabilization. In the future, we will consider the Ellwood technique only for constant income.

Let's write down Ellwood's expression without taking into account the change in property value and with a constant income:

R = Y e - t.

This expression is called the base capitalization ratio, which is equal to the final rate of return on equity, adjusted for financing and depreciation terms.

Y 0 = mY m + (1-m) Y e.

For this expression to be equivalent to the base coefficient r , there are two more factors to consider. The first is that the investor must periodically deduct from his income to amortize the loan, reducing his equity. Therefore, it is necessary to adjust the value of Y 0 in the previous expression by adding the periodically paid share of the total capital at an interest equal to the interest rate on the loan. The expression for this adjustment is the share of debt T, multiplied by the factor of the compensation fund at the interest rate (sff, Y m). The value (sff,) Y m) is equal to the difference between the mortgage constant and the interest rate, i.e. R m -Y m . Thus, subject to this amendment:

Y 0 = mY m + (1 -m) Y e + m (R m -Y m).

The second adjusting term should take into account the fact that the investor's equity capital as a result of the reversion will increase by the amount of the part of the loan amortized during the holding period. To determine this adjustment, multiply the amortized amount in shares of the total initial capital by the factor of the recovery fund at the rate of final return on equity (realization to equity occurs at the end of the holding period). Therefore, the second correcting term has the form: mp (sff, Y m), and with a minus sign, since this amendment increases the cost.

Thus:

Y 0 = mY m + (1-m) Y e + m (R m -Y m) -mp (sff, Y e),

and after combining similar terms and replacing Y 0 by r (we do not take into account the change in property value):

r = Y 0 -m.

Literature

1. A.V. Tatarova. Real estate appraisal and property management Tutorial... Taganrog: Publishing house TRTU, 2003

2. S.V. Grinenko Economics of real estate. Lecture notes. Taganrog: Publishing house of TRTU, 2004.

3. A.V. Ponukalin MORTGAGE AND INVESTMENT ANALYSIS. Methodical instructions to the implementation of practical exercises. Penza Publishing House state university PENZA 2004

4. FEDERAL LAW ON MORTGAGES (MORTGAGE OF REAL ESTATE) (as amended by Federal laws dated 09.11.2001 No. 143-FZ, dated 11.02.2002 No. 18-FZ, dated 24.12.2002 No. 179-FZ, dated 05.02.2004 No. 1-FZ, dated 29.06.2004 No. 58-FZ, dated 02.11.2004 No. 127-FZ, dated 30.12.2004 No. 214-FZ, dated 30.12.2004 No. 216-FZ, dated 04.12.2006 No. 201-FZ, dated 18.12.2006 No. 232-FZ, dated 26.06.2007 No. 118-FZ, dated 04.12.2007 No. 324-FZ, dated 13.05.2008 No. 66-FZ, dated 22.12.2008 No. 264-FZ, dated 30.12.2008 No. 306-FZ).

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