Private Real Estate Investment - Part II: Risk AnalysisInstructor: Roger Brown Course ID: RE7036
This the second in a 3 part series of courses intended to develop a rigorous understanding of the acquisition and operation of individually held parcels of real property. Emphasis will be on the owner's position, his motives, incentives, risk and reward. While students whose goal is to obtain employment with a major real estate firm will benefit from these courses, the orientation is toward the individual entrepreneur. This course is designed for the student who wishes to acquire property in his own name or in the name of a small controlled entity. This course examines the way owners may measure risk. Classical risk measures are compared and contrasted to the special character of real estate risk.
This course covers basic probability theory, conventional (finance) risk measures and how they are inappropriate for real estate. The common rubric of separation of ownership and control found in securities is contrasted with the inverse in privately held real estate where ownership and control are combined. Utility theory, labor theory and spectral risk measures are introduced as methods to think about real estate risk differently. The special character of real estate taxation is considered as a cost center with risk attributes.
- Describe the difference between objective and subjective risk through the utility paradigm.
- Demonstrate their understanding of how games of chance and related mathematics lead to conventional (finance) risk measures.
- Explain how the normal distribution fits into risk analysis.
- Discuss the roles of determinism, risk and uncertainty in measuring risk.
- Describe how labour-added control features assist in managing risk.
- Understand how spectral risk measures may be useful in dealing with real estate risk.
- Use data to implement risk management.
- Understand the taxation regime associated with Real Estate and how it fits into the regulatory environment.
Lecture 1 - Classical risk measurement
Lecture 2 - Certainty equivalent method of measuring risk aversion
Lecture 3 - Risk as part of the pricing mechanism (relating return to risk)
Lecture 4 - Relieving the assumption of normality – the fat tail story
Lecture 5 - Determinism and probability; risk and uncertainty; finance and real estate
Lecture 6 - Labour, control and influencing probabilistic outcomes
Lecture 7 - Time as a factor in risk analysis
Lecture 8 - Spectral risk measure as a compromise in the finance-real estate war over risk
Lecture 9 - Data approaches to risk analysis.
Lecture 10 - Tax strategy as a risk management technique
Pre-requisite courses or specified entry requirements
RE6062 or RE7035