There are a number of good real estate finance texts out there, but my favorite is by Norm Miller, David Geltner, Jim Clayton, and Piet Eichholtz. The reason I like it so much is that it puts front and center the fact that any increase in returns generated by leverage is offset by an increase in risk. That increase may be measured by the fact that property level return is not affected by financial structure, meaning that more reliance on relatively low-cost debt means that the required return to equity must rise. This required increase is just the market price of the added risk involved with leverage, and so the discount rate for equity must rise such that the net present value of a project does not change with its financial structure. At times like this, I wish that people who participate in the market would have internalized this insight. https://lnkd.in/gQJVrDwG
The positive relation between risk and return. Dates back to the 1960s CAPM of Sharpe-Lintner-Mossin. Any financial textbook that ignores this should be ignored. As should any market participant that ignores this relation.
That was capital markets 101 with Richard Green. Debt has a cost but so does equity.
My favorite textbook, as well.
Classic real estate finance textbook.
Helps Real Estate Investors Maximize Profits via Seller Financing, Note Investing & Private Money
2moThat book sounds like a valuable resource for understanding real estate finance dynamics. It's crucial to grasp the trade-off between leverage and risk in investment decisions. What other key takeaways have you found?