ELE 3736 Real Estate Finance

ELE 3736 Real Estate Finance

Course code: 
ELE 3736
Course coordinator: 
Costas Xiouros
Course name in Norwegian: 
Real Estate Finance
Product category: 
Bachelor - Electives
2024 Autumn
Active status: 
Level of study: 
Teaching language: 
Course type: 
One semester

More than 80% of Norwegian households own the flat or house in which they live. Similar statistics for the EU and the US are 60% and 50%, respectively. As such, real estate represents by far the largest asset of most households. A main focus of this course is understanding payment and amortization structures of different type of mortgage loans typically encountered when financing residential real estate. Understanding how fixed versus adjustable-rate mortgages affect both interest rate and default risk, is key when addressing this question. Valuation of income-generating real estate assets is another major issue highlighted in conjunction with an analysis of how choice of financing affect both expected return and risk. While leverage (use of debt) entails added risk for owners, it also offers the potential advantage of tax savings due to the allowance for interest deduction. Taking into account personal as well as corporate taxes, the task of valuing commercial real estate is inseparable from the financing decision.

Learning outcomes - Knowledge

Upon completion of the course, it is expected from students that they have gained knowledge of:

  • How basic financial mathematics is used to correctly find time value of money parameters
  • Distinguishing features of fixed and adjustable rate mortgages in terms of both interest rate and default risk
  • How valuation of long-term, income-generating real estate may be carried out under different assumptions on ownership and financing-mix
  • How a given mix of debt and equity used to finance commercial real estate affects owners' expected rates of return and risk.
Learning outcomes - Skills

Students having completed the course are required to master tasks such as:

  • Applying financial mathematics to arrive at correct measures of various time value of money parameters
  • Applying varying pricing provisions used with fixed rate and adjustable rate mortgages to derive correct estimates of periodic interest payments and amortization (loan balances).
  • Applying standard budgeting approaches to arrive at reasonable estimates of before and after-tax asset cash flows
  • Deriving appropriate risk-adjusted, required rates of return in order to estimate the value (present value) of real estate projects for given parameters of risk.
General Competence

To detail payment and amortization structures of various mortgage-loan contracts with an unwavering emphasis on integrity and quality. Also, to perform standard capital budgeting analysis of commercial real estate projects under different assumptions on taxation and financing mix. 

Course content
  1. Introduction and overview
  2. Financial mathematics of real estate finance
  3. Fixed versus adjustable rate mortgages: Interest rate and default risk
  4. Cash flow budgeting of income-generating real estate assets
  5. Real-option approach to valuing real estate investments 
  6. Valuation and risk of income-generating real estate assets
Teaching and learning activities

The course is taught over 15 weekly lectures, each of two (lecture) hours duration in addition to asynchronous materal (videos) summarizing subjects discussed in class and/or in home assignments.

Out of the 15 lectures, three are spent on reviewing and solving three comprehensive home-assignments. The assignments are announced, distributed, and made available to student well in advance of the date they are reviewed in class.

Excel software is used extensively in some problems. 

Software tools
Software defined under the section "Teaching and learning activities".
Additional information

For elective courses, a re-sit exam is normally offered after the next scheduled course offering. If an elective is discontinued or is not initiated in the semester it is offered, a re-sit will be offered in the elective's ordinary semester.


Higher Education Entrance Qualification


Deviations in teaching and exams may occur if external conditions or unforeseen events call for this.

Required prerequisite knowledge

BØK 1121 Finance I, BØK 3423 Finans, BØK 3411 Finance and Managerial Accounting I, BØK 3421 Finance and Managerial Accounting II, BØK 1113 Managerial Accounting or EXC 3442 Managerial Accounting, or equivalent courses.

Exam category: 
School Exam
Form of assessment: 
Written School Exam - pen and paper
Exam/hand-in semester: 
First Semester
Support materials: 
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
  • Interest table
3 Hour(s)
Exam code: 
Grading scale: 
Examination when next scheduled course
Type of Assessment: 
Ordinary examination
Total weight: 
Student workload
45 Hour(s)
45 lecture hours (15 weekly lectures)
Prepare for teaching
45 Hour(s)
Preparing for lectures (reading textbook chapter)
25 Hour(s)
Final exam preparation
Group work / Assignments
35 Hour(s)
Student group-work on home assignments
Student's own work with learning resources
50 Hour(s)
Individual work on lecture note examples, home assignments, etc.
Sum workload: 

A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 7,5 ECTS credit corresponds to a workload of at least 200 hours.