Learning Objectives
         Understand the investment characteristics of owning real 
          property.
         Know the risks of income property.
         Be able to appraise real estate value.
         Utilize real estate securities in a portfolio.
         Learn how to invest in gold. 
                                                                                           20-2
        Real Property
         Financial Assets 
                Investment instrument issued by a corporation, government, or other 
                   organization which offers legal rights to debt or equity cash flow.
         Real Property
                Land and the buildings or other objects permanently affixed to the land. 
                U.S. Household Assets… 
                                                                      Year-end 2004         % of Total Assets
                                                                         (in billions)
         Tangible Assets                                                   $ 25,340.9            41.1%
         Real Estate                                                        21,579.7             35.0%
         Consumer durable goods                                              3,761.2               6.1%
         Financial Assets                                                 $ 29,564.1             48.0%
         Deposits                                                            5,887.6              9.6%
         Bonds                                                               2,733.4               4.4%
         Stocks and mutual funds                                            10,296.4             16.7%
         Pension funds                                                      10,646.7             17.3%
         Equity in noncorporate business                                  $   6,677.1            10.8%
                            Total Assets                                  $ 61,582.1             100.0%
                                                                                                                       20-3
     Real Estate Characteristics
      Income property
        Real estate bought for the purposes of generating 
           rental income.
      Raw land
        Unused land with no improvements 
      Improvements
        The buildings and structures constructed on a property.
      Buying and Selling
        Illiquid
        Real estate agent
             6% commission
                                                                    20-4
      Home Ownership
         House Price Index (HPI)
             US Office of Federal Housing Enterprise Oversight
             How do you create an index with heterogeneous assets that trade infrequently?
                Sale and refinance data bases of Fannie Mae and Freddie Mac
             US (5.97%), California (8.6%), Kansas (4.3%)
                                                                                                20-5
     Income Property
       Cash flow is important for income property 
        investing!
       Know the revenue determinants
         Rental income, vacancies, collection losses
       Know the cost determinants
         Expenses, utilities, insurance, property taxes
              Assessed value (% of market value)
              Tax rate 
                                                                20-6