Preview of Chapter 1 | Introduction: Risks and Opportunities

Welcome to the sample lesson page for REFAI Certification Chapter 1 | Introduction: Risks and Opportunities. REFAI is delivered on a state of the art, mobile-friendly learning platform. On desktops and tablets, you can collapse the navigation at the left if you prefer to not see it while learning.

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Instructions are given for every lesson, ensuring you are progressing in the most efficient manner. The textbook is the backbone of the course, and chapter readings are required for more than 90% of the lessons.  There are graded quizzes for all of the lessons. Click the accordion below to see an example of lesson instructions.

  1. First read the hard copy textbook chapter, and/or listen to the audiobook version below
    1. In the Excel framework given in the Excel Figures section below, perform the hands-on exercises directed in the textbook
  2. Watch the lecture video
  3. Read the chapter overview and summary below
  4. Listen to the audio content and review the key term
  5. Take the graded quiz in a single timed sitting, noting your score and the group average score
  6. Review the quiz commentary on the correct answers
  7. Send us a note at to request any required clarifications on course content.

REFAI lessons are massively multimedia. Chapter 1 even includes a streaming audiobook recording of the chapter, with bonus animations of book figures.

Audiobook Recording* of Chapter 1 (sample)

  • The Risks | 06:42
  • The Opportunities | 11:02
  • Where You Should Focus Your Analysis | 15:39
  • Market Research | 17:04
  • Personal Decision | 23:33
  • Risk Parameterization | 28:50
  • Closing Thought | 34:40

* Available for Chapter 1 only.

Each lesson includes at least one streaming lecture video by book authors Dr. Linneman or Bruce Kirsch. Some videos are traditional whiteboard style, while others feature Dr. Linneman in a studio environment. Video speed controls are available, and there are topic-by-topic hyperlinks for easy navigation.

Lecture Video (sample)

  • Understanding Operating Risk vs Financial Risk | 04:54
  • Focusing on Fundamentals | 11:07
  • BPS | 17:05
  • Core Core-Plus and Value Add | 19:11

Each lesson page includes a chapter overview and summary to help reinforce your learning from the textbook. A narration is provided. Audio speed controls are available for this and all other audio content.


Listen to this narration if you prefer


This chapter discusses topics which a real estate investor must consider when analyzing an investment. While building a financial pro forma is a necessary step, many of the underlying assumptions built into it will be wrong. Many factors beyond financial modeling, such as personal risk tolerance, competitive landscape, the capital market environment, among others play into the decision-making process.


Operating costs can easily be incorrectly forecasted. An increase in expenses will reduce net operating income. Unexpected changes in vacancy can have a large effect on the accuracy of a financial model as well. In a weak or over-supplied market, buildings may have occupancy well below expectations for long periods of time. Liquidity is another underlying risk as it takes a long time to sell a property, and sometimes an investor needs cash quickly. However, real estate also offers unexpected opportunities for investors. Just as operating costs can increase, they can also fall, rents can rise, and property values can appreciate. This chapter lays out some of the risks and opportunities an investor must consider when underwriting an asset.

Conducting market research can help to clarify the supply and demand balance within the market and is the backbone for assumptions made in the pro forma. In this chapter, the importance of conducting such research is reviewed, and examples of sources for information, and what to look for when researching a market are provided.

Finally, this chapter reviews how personal decisions play a role in choosing investments. Investment decisions ultimately depend on who the investor is, how risk-averse they are, and what expertise they bring to the table.

Each lesson page features at least one short format audio interview recording of the book authors discussing key elements from the lesson.

Audio Interview (sample)

Each lesson page features a medium format audio interview recording of the book authors digging deeper into key insights from the lesson. A searchable audio transcript is also provided.

Chapter Insights (sample)

Chapter 1 Insights | Introduction: Risks and Opportunities (sample)

PETER LINNEMAN: So as I look at chapter 1, which really says it all– it’s about risk and opportunities– what would be the three things that you think are the most important things to take away for a young professional or a young professional to be?

BRUCE KIRSCH: Yeah. So just as a general comment on chapter 1, if you are looking to get into the real estate business, and you read this chapter, and it doesn’t blow your hair back and just get you so psyched for what is to come in the book, then it’s probably not the right path for you. I think you did an amazing job of setting the stage, setting the table for just a general macro understanding of opportunities and risks. And so I’d say that the three main things are number one, when we think about overlaying a framework of risk and opportunity, that is the right thrust.

But there is no place to verify that whatever conclusion you come to is correct, right? For instance we, can’t go to and put in our particulars. And yes, lo and behold, my discount rate is 7.2% for year one.

PETER LINNEMAN: That’s exactly right.

BRUCE KIRSCH: And for year two, it’s 7.38%. Nobody is going to send you a letter saying you made the right assumptions.

PETER LINNEMAN: And even more so, the discount rate for any analysis, not just real estate, is reflective of the risks that you’re taking. The risk you may be taking in buying a hotel might be very different than the risk I’m taking in buying the same hotel. It might be my first hotel. I may have never done one before.

I may be a foreigner coming in, and I don’t know the market. It may be my first deal. You may be the 37th hotel you’ve done. Your risk might be very different than my risk. Therefore your discount rate should be different than mine. There’s no metaphysically correct. It’s reflective of.

BRUCE KIRSCH: Right. And it’s all case specific. So if you’re going to look at an apartment building, OK, I’m going to do development of an apartment building. You may have a connection with a university that wants to master lease it because they have a major housing shortage. And I know nothing about that.

So I’m going to go, and I’m going to lease it up at 10 units a month for the next 20 months. And you’re going to sign one master lease. And your risk is gone, effectively.

PETER LINNEMAN: Yeah, two points you make in that, one is that, quote, “old fashioned” real estate was I buy or build an empty building, quote, “knowing” I’ve got a tenant in my pocket. And big part of the value add I got as a real estate person was I knew something the market didn’t know. I knew I had a tenant.

The people I was bidding against thought they could get tenants. Big difference, right, from the risk point of view. Not to mention the cash flow may start sooner. Second thing is your comment about I might have connections with the university. It underscores why the commercial part of real estate, in particular, relationships matter a lot. That if I know that president at the university, and you don’t, I get a hearing, and you don’t.

If I know the head of Walmart’s real estate or the CEO of Walmart, I get a hearing for why I should be the developer for them. You’re still scrambling around trying to figure out how to get a hearing. And people say, well, why are relationships so important?

It’s not like Walmart’s going to do something just because they know the person. But the opposite may be true, that if they don’t know them, they’re definitely not going to do, or you’re up against the– and that one little example drives home why it is a relationship business. Multifamily, a little less so, right, because your example is one where it matters, if you’re doing a master lease.

But if all I’m doing is running into a bunch of 23-year-olds, I don’t have a necessarily a better connection with a bunch of 23-year-olds than you do. You may understand them better. But the relationship is a little less on the residential side than it is on the commercial side, I think. So that was one comment. What other?

BRUCE KIRSCH: You don’t know what you don’t know. And that is very dangerous.

PETER LINNEMAN: It’s hard to know the future.


PETER LINNEMAN: It’s easy to speculate about the future. You try to study so you have better speculation. But I always like to point out to people that if you sit here today, literally, as you sit here today, Barack Obama, 10 years ago, was just taking office. And you think of all the things at that level that happened in the country, in the world, many of which you would have never dreamed, good and bad.

Yet in our little pro forma, our nice rows and columns that we make up today, it all looks real obvious.

In more than 90% of the lessons, the lesson page has at least one downloadable Excel file in which you will perform hands-on exercises by following detailed instructions given in the textbook.

Excel Figures

Figure 1.1 Hands-On Exercise Video

All lessons include a section for key terms from the subject chapter.

Key Term

Spoken Glossary Available On Amazon Alexa

Already using Alexa? Just say “Alexa, Open Commercial Real Estate Glossary”

If not, download the free Alexa app below and then add the “Commercial Real Estate Glossary” skill by clicking here, and then say “Alexa, Open Commercial Real Estate Glossary”


Discounted Cash Flow (DCF) – analysis framework that postulates that the value of a property is equal to its expected future cash flows discounted to present dollars; premised upon two basic concepts: 1) the only source of value for a property is its ability to generate future cash flows, 2) a dollar received today is more valuable than a dollar received tomorrow.

All written online course content can be translated using Google Translate.

All lessons give a set of traditional lecture slides for your use.

Chapter Slides


There are graded quizzes for all of the lessons. Quizzes have a minimum of 10 questions. This is where the link to the graded quiz would sit. All quiz question solutions are given after you complete a quiz.