Value Investment The Investment Decision

2048 days ago, 585 views
PowerPoint PPT Presentation

Presentation Transcript

Slide 1

Value Investment & The Investment Decision

Slide 2

Real Estate Investment Advantages Pride in Ownership Personal control Self-utilize & Occupancy Estate Building Security of Capital Operating Cash Flows Leverage Tax Shelter components Capital Appreciation & Inflation Protection

Slide 3

Real Estate Disadvantages Illiquidity Required value capital Management load Depreciation of significant worth Government controls Real domain cycles Legal many-sided quality Lack of data & instruction

Slide 4

Trade-Offs: Risk/Return

Slide 5

Risks Legal : Zoning, general assessment, public administrations, and so forth. Advertise dangers : Marketability study Will it lease? Will it offer? Showcase ponder: S&D, Competition Absorption rates: How quick is space being used

Slide 6

Risks Cost dangers: Interest rates Estimates poor Labor Weather Possible Solutions: Guaranteed cost contracts Watch out for pad General temporary workers: Reputable & reinforced Completion security (Lenders may require) Guarantees Cost in addition to contracts: Developer pays costs + charge

Slide 7

Return Measures Cash Flow ( Net Spendable ) Pro Forma: Cash on Cash= Net Spendable/Down installment =1100/10000=11%

Slide 8

Return Measures Rate of profit for aggregate capital: = NOI/Total Capital = 14/120 = 11.7% Return on Equity (ROE) = CF Before Tax/Equity = 1.1/20 = 5.5% Favorable influence: If ROE > ROR If unfavorable influence: Don't purchase Reduce Price Try to lower APR or increment term Raise NOI or lower costs Restructure (ie., more value)

Slide 9

Return Measures Equity top rate: = CF before Tax/Equity (ie., required ROE) For instance: Your fancied top rate is 14% CF before expense is $1,100 Equity esteem = 1.1/.14 = $7,857 Plus credit of $100K Therefore property estimation = $107,857 Risk measures: BEP & Debt Coverage Ratio

Slide 10

Discounted CF Analysis Income Cap Rate: NOI/Market Value Compare to different open doors Do Cash Flow Spread sheet: Ratio Analysis Sensitivity Analysis: What on the off chance that we change the estimation of a variable? Situation Analysis: Worst versus Best? Monte Carlo Analysis: Randomly relegate values & check main concern

Slide 11

Investment Analysis Process Strategy: Determine First!! Return/Risk Objectives Ownership Form Market Analysis Screening Criteria Location/Property Analysis Generate Alternatives: Those that pass screen Use Basic Financial Feasibility Model Develop Finance Screens (APRs, CapRates, NOI) Examine Finance Alternatives (Loans, Equity, and so on)

Slide 12

Investment Analysis Process Negotiate Basic Terms with Seller Price Financing Covenants Escape Clause Do Detailed Feasibility Research Market: Supply & Demand, Competition, Absorption, Vacancy Marketability: Property Condition Legal, Political, Environmental Management & Operations

Slide 13

Investment Analysis Process Structure Tax Benefits Cost Recovery Useful Life Passive Loss Limitations Discounted CF Analysis After-Tax CF, DCF, Adjust for Risk Final Negotiations & Closing Management of Property Termination Sell, merger, IPO

Slide 14

Control Purchase Price & Terms Form of Ownership Financing sums, rates, terms Tax structure & Planning Property administration Property area Tenants & Lease rates & terms

Slide 15

Negotiation Maximize learning position First! Set your underlying requests a long way from conclusive target Probe for main concern Raise your desire level/collapse your rival's Buyer: Start with lower cost than merchant needs Lukewarm state of mind Point out imperfections Mention focused offers Seller: Mention different offers you have rejected Price is presumably going up Negotiate most basic things first and

Slide 16

Negotiation (Cont) Concentrate on things that impact benefits Down installment, value, contract period Employ preservationist concession approach Don't give in or respond/No sportsmanship/Never surrender first Never acknowledge a radical counteroffer without investigation Use middle people when further bolstering your good fortune With operator, more opportunity to break down Advisor: Openly talk about concerns Try for better arrangement for both sides: Place verification trouble & fulfillment on them Prove to you that it is an appealing open door

Slide 17

Negotiation (Tactics) Standard Practice: Terms are "standard practice" Bogey: "I just can bear the cost of $7,500 in cash" Good person/Bad guy: One makes solid requests ... Rival is more vulnerable to great person's weaker requests Deadline: Always utilize them! Nibbling: Get extra minor concessions after significant assention The tie-up: Get the property off the market while you're settling on choice

Slide 18

Property Types Land Most Risky Low wage Interest, charges, protection Interest deduct pay just No devaluation 20-30% ROR for hazard Consider Access/Slope Zoning Public administrations & Utilities Return=capital thankfulness

Slide 19

Property Types Residential Rental (Houses,Apts,MHs) Management Intensive Good financing Tax shield High gratefulness Know area & physical condition Check neighborhood & vicinity to administrations Good initial step for land Some salary - generally capital gratefulness

Slide 20

Property Types Office Buildings More wage/less thankfulness Appreciation can be enhanced w/upkeep Needs more information for renting & Property administration Types: Downtown versus Suburban Medium versus HiRise versus Garden (Low) Locations: Highways/Shopping Centers Better development Low occupant turnover proportions Prestigious customers

Slide 21

Property Types : Shopping Centers Most refined Investment & Management Expertise Much more wage than gratefulness/Few Foreclosed! Claimed by well off financial specialists (TIAA/CREF=Mall of Amer) Types: Neighborhood focus: ( Strip): Food, drugs, and so forth, Built around general store/drugstore: 50K Gross leaseable range Community focus: + Clothing, furniture, bank, prof: 150K GLA Regional focus : Full-line Dept store (Anchor): Reit & Insur=Ownership; 400K GLA Super Regional Centers : Major metro zone: 2 grapples, 100-200 stores, Usually % of benefits

Slide 22

Property Types : Industrial & Special Industrial Warehouses, processing plants, indust stops Almost all wage Not effortlessly changed over … expands hazard Low hazard by and large on the off chance that you have a customer Near expressways Special Use Need skill: RE + the application Risky: Be prepared to substitute Loans are difficult to get … banks ?? Requires time duty

Slide 23

Development Overview Combine arrive, work, capital & Entrepreneurial capacity Good designers can "picture " great employments of space Creation of space for play, living & working LT Motive =Income, Mgt, Community/ST Motive =Cap Gain Redevelopment: Restoration of more seasoned structure

Slide 24

Development Types: Land Prep: Lots of various types Sell land to different engineers Erect upgrades ashore Who Develops? Low maintenance Proprietorship Corporation, and so forth. Joint endeavors (ie., 2 engineers)

Slide 25

Development Process: Be prepared to rescue Stages might be done at the same time Idea: Can create over existence of venture Preliminary Feasibility: Rough cut examination Are PC programs: Go if benefit looks great GainControl: Ground lease(ties you up), choice, vender blade Feasibility Analysis & Design : Detailed investigation, Check site, showcase, legitimate, budgetary Finance: Need money ASAP, ought to have as of now talked Construction: Problems: cost overwhelms & temporary worker comes up short Marketing: Lease (don't rent too soon rates change) versus Sale: When … recollect exchange offs

Slide 26

Redevelopment & patterns Redevelopment: Costs are high, structures - out of date ITCs, stipends Popular pattern Trends: Mixed utilize improvement: One structure Planned unit advancement (PUD) New towns/Village idea: Integrated approach: work, shop, play, live

Slide 27

Professional Help Real Estate Brokers: Get a pro! Has entry to data Appraisers & specialists: Can do DCF Property directors: Has rental & opportunity rates, operation. costs, and so on Morgage investors: Arrange bargains & financing choices Tax counsels and lawyers Others: Comm banks, Engineers, Architects, Contractors