[Verse 1]
When you want to own some real estate today
There's a direct and indirect way
Buy the building, hold the deed so tight
That's direct ownership, clear as night
But if you want exposure without the stress
REITs and funds can help you invest
Commercial mortgage backed securities too
Indirect paths are calling you
[Chorus]
Cap rate, NOI, that's the way we go
Divide your income by the value flow
FFO, AFFO, cash that REITs show
Income, cost, and sales comparison
Three approaches, sing along
Real estate valuation song
[Verse 2]
Income approach is where we start
Direct cap rate, that's the art
Take your NOI, divide it clean
By cap rate for the value seen
Or build a DCF model strong
Cash flows discounted all along
Cost approach says what's it worth
To build this property from earth
[Chorus]
Cap rate, NOI, that's the way we go
Divide your income by the value flow
FFO, AFFO, cash that REITs show
Income, cost, and sales comparison
Three approaches, sing along
Real estate valuation song
[Bridge]
Sales comparison looks around
At similar properties that sold in town
Adjust for size and location too
Market value shining through
[Verse 3]
Due diligence, check it all
Lease analysis, don't let standards fall
Vacancy rates and CapEx plans
Money flowing through your hands
LTV and DSCR
Loan to value, how far
Debt service coverage ratio tight
Keep your financing just right
[Chorus]
Cap rate, NOI, that's the way we go
Divide your income by the value flow
FFO, AFFO, cash that REITs show
Income, cost, and sales comparison
Three approaches, sing along
Real estate valuation song
[Outro]
Index construction has its limits true
Appraisal lag and liquidity too
But now you know the real estate way
CFA knowledge saves the day