Spring 2005 Real Estate Economics and Finance Real Estate Economics and Finance Starring Erik Hurst 2 In the Beginning, there was land … . Why Should We Study Real Estate? – Real estate is an asset – If we take finance classes, don’t we know how to price this or any asset? – The answer: Not Exactly Real Estate is different in many respects from stocks and bonds in regards to its: – Function – Size (which creates different financing options) – The asset structure itself (the real option) – Institutions 3 Differences in Function Real Estate has multiple functions 1. Consumption: Real Estate is Used as Shelter (a place to live) Real Estate is Used as “Great Outdoors” 2. Production: Real Estate is Used as a Direct Input into Production (vineyard) Real Estate is Used as an Indirect Input into Production (place to build the factory). 3. Asset: Real Estate gives expected returns to those who own the assets or liabilities. . 2005 Real Estate Economics and Finance Real Estate Economics and Finance Starring Erik Hurst 2 In the Beginning, there was land … . Why Should We Study Real. Real Estate? – Real estate is an asset – If we take finance classes, don’t we know how to price this or any asset? – The answer: Not Exactly Real Estate