This article was written by Leanne Goff, proud REALTOR® University alumnus, and is Part 5 of a 12 Part Series.
For me personally, Advanced Analytics for Real Estate Investments was by far one of the most challenging classes of the REALTOR® University program. The focus of the course was commercial real estate investing and how to apply these concepts mathematically. The class helped me gain perspective on what analysis is required by an investment buyer to analyze risk and evaluate profitability for the potential purchase of a commercial building.
This course was a challenge because the motivations behind a commercial investment are very different than what I’m accustomed to, which is residential real estate sales. The concepts had been introduced in the prerequisite course, RE540_1 Real Estate Finance & Investments.
However, the Advanced Analytics course dives deeper into the calculations and expands upon them with additional points of consideration. For example, instead of being given the gross annual income we were asked to calculate it based on word problems where each tenant has a slightly different lease with the owner, which is a very realistic scenario. In these calculations we would have the income, vacancy rate, additional income and even bad credit to consider. These calculations became like moving targets where different variables had various impact on the transaction, much like a real world investment.
There were also calculations around the present value of a future payment. This number calculates the future value of a specific payment considering inflation. That would be weighed against the investment potential of the actual current value. That way the investor could decide if the value of the payments outweighs the current value of the entire sum of money. This was a complicated concept that illuminated the decisions of a seller. For example, these calculations would help a seller decide if they are willing to do an owner carry, receiving incremental payments over time or if is it a better investment to require a lump sum payment at the time of sale.
There were so many ways to slice and dice the information that goes into a commercial real estate transaction that it was often a very difficult class to tackle. Luckily, I found that Professor Nahigian was very responsive to questions. He also had meetings throughout the class that I would highly suggest students listen to. In these meetings he would often give very strong suggestions about the homework or elements of the final exam. Regardless, this was a difficult class that took great time and concentration, which is what one would expect from a masters level course. The benefit of this hard work is that I now have a high level idea about the goals of a commercial investor.
Leanne Goff is a managing broker with TrailRidge Realty, an independent real estate agency in Boulder, Colo. She has been licensed since 2008, and is active with the Boulder Area REALTOR® Association. Her work with BARA’s YPN led to achieving NAR’s Small Network of the Year Award in 2014. Connect with Leanne on Twitter: @leannegoff, or on LinkedIn.