Marketing –Investor Analysis
Executive Summary
The investment analysis is a broad term that encompasses many different aspects for evaluating the financial assets, sectors and trends. It helps in analyzing the past returns to predict the future performance, selecting the type of the investment instrument that best suits an investor’s need and evaluating the securities such as stock and bonds and checking the categories of security for risk of the yield of the potential or price movement. The main objective of the investment analysis is to evaluate how the investment is likely to perform and how it is suitable for the given investor.The key factors that are considered are entryprice, expected time horizon for holding the investment and most importantly what role does the investment will play in the project.
Here in this report, the investment analysis for the Real Estate will be performed, like other sectors, the analysis of the real process yield is performed. It begins by understanding the net operating income. The analysis of the White House Business park will be performed in a structured manner and observed results will be presented at the end of the report.
Table of Contents
Introduction 4
Key benefits of Performing the Real Estate Investment Analysis 6
Real Estate venture for analysis is to be performed- White knights Business park 6
Action Plan for avoiding the conflict of interest 10
To provide the high standard service……10
To ensure the transparency regarding the professional fees 11
Measurement Explanation 11
Spreadsheet calculation…………………………………………………………………………………12
The Effect on calculation if the tenant had gone into the administration……………………..…13
Circumstances when we will suggest the client pay more than the market valuation……….14
1.0 Introduction
A real estate investment analysis is a process of analyzing the investment opportunities to decide whether or not they will give the profit expected through this business venture. Like other sectors, the investment analysis is the most critical task in the Real Estate business ventures too.The four key steps in investment analysis of the Real Estate business venture is as follows-
- Calculating the market value of the Real Estate Property
To perform these, the Real market investors find the real value of the property, a good investor will tend to purchase the property at the fair market price and avoiding the overpaying. To achieve this objective the investors, compare the prices of the similar property available in a similar area with same facilities in the property (Dawn’s, 2000).
- Calculating the operating cost
To calculate the operating cost the cash flow analysis is performed of the total investment in the market. To calculate these different costs are calculated, the key costs that are calculated are as follows-
- Property Taxes
- Insurance cost
- Utility cost
- Turn over cost
- Maintenance expenses
- Property Management Fees
- Marketing Fees
- Rental Fees
- Principal payment
The detail is collected through various bills and property return statements and maintenance record bill expenses.
- Finding the market trend
As technologies are changing, the real estate property also changes. The cost of the property is also evaluated through the current trends in terms of architectural designs and facilities available in the targeted property. It is also required to analytically study the facilities of similar properties such as architectural styles and other advance features than the latest trend in real estate can be determined, this will help to understand the real picture of the real estate market and then own required facilities in the prospective real estate companies.
- Calculating the return on the investment
To achieve this investors study requires to study the analytical cash flow, cap rate and cash on cash return of the investment is performed. Along with these other factors are also considered. The detail is as follows-
- Cash Flow-
This is the money that is left after all the expenses, principal payments and interest have been paid. For the real estate investmentanalysis, it is highly required to determine the future flow of the investment in the Real Estate market.
- Cap Rate
This is determined by calculating the Net operating income (NOI) over the property value,by calculating this value will help compare the multiple properties in a particular area. This also helps in determining the market trends and also helps in identifying the risks associated with it in investing in the property selected.
- Cash on Cash Return
Cash return is the total money returned after being an investment; it is done by comparing the obtained cash with the invested money. For calculating this firstly the invested down payment, closed cost, repair cost etc isconsidered (ZahraKhams Adela Khams, 2008).
2.0 Key benefits of Performing the Real Estate Investment Analysis
The main objective of performing the Real Estate Investment Analysis is to find out the real value of the concerned property in a particular region. The key benefits of performing the Real Estate Investment Analysis is as follows-
- Helps in determining the accurate data
The Pro-forma data of the observed values help in determining the real value of the property by collecting accurate data. The Pro-Forma data is the estimated data values about the property in a structured manner.
- Helps in determining the real value of the property
The analysis helps in determining the real value of the property by proper calculation of data that helps the investor from any problems that could arise in future.
- Buyer’s Personalized data
The analysis helps in collecting the details of the Buyer’s personalized information. It is done by determining the value of the net operating income (NOI) and the capitalization rate. Further, it is calculated by evaluating the interest rate and mortgage cost. This is determined with the help of calculating the cash on cash return (Dawn’s, 2000)
3.0 Real Estate venture for analysis is to be performed- White knights Business Park
3.1 Investment summary
According to the analysis performed the initial description of the Business Park was given as follows-
- Building Description–
It is a three-storey self-contained open plan office
- Location
It is situated at the modern business park developed in 2008 and comprises of the 10 modern office buildings and is situated at the centre of the large regional city
- Accommodation detail
Approximately – 1,858 square meters (20,000 sq feet) with 20 car spaces
- Status
It is a freehold property and is let on rent to a single tenant through an International firm of solicitors
- Maintenance and Insurance
The building has been provided with the plan of 15 years full repairing and insurance starting from 1 October 2019. Along with this complete detail of the 5 years, rent review with no break up has been provided.
- Annual Income detail is given to be obtained through this property
The total rental income is ₤21,000 with the agreed rate of ₤500 per car space.
3.2 Detail of the property through local survey company (compare study)
According to various report provided by the local survey companies, the data given by them was completely different from these values and it created a lot of confusion among the investors. The data comparison is as follows-
- Building Description–
Initial Given– It is a three-storey self-contained open plan office
First Survey– Threestorey self-contained open-plan office.
Second Survey- Threestoreys self-contained open plan office
Third Survey- Threestoreys self-contained open plan office
- Location
Initial Given- It is situated at the modern business park developed in 2008 and comprises of the 10 modern office buildings and is situated at the centre of the large regional city
First Survey– same data
Second Survey- Same data
Third Survey- Same data
- Accommodation detail
Initial Given- Approximately – 1,858 square meters (20,000 sq feet) with 20 car spaces
First Survey- Approximately – 1,393 square meters (15,000 sq feet) with 15 car spaces
Second Survey-Approximately – 1,486 square meters (16,000 sq feet) with 16 car spaces
Third Survey- Approximately – 1,207 square meters (13,000 sq feet) with 10 car spaces
- Status
Initial detail– It is a freehold property and is let on rent to a single tenant through an International firm of solicitors
First Survey detail- It is a freehold property and is let on rent to a single tenant through a firm of Accountants
Second Survey detail- It is a freehold property and is let on rent to a single tenant through a firm of telecommunications
Third Survey detail- It is a freehold property and is let on rent to a single tenant through a firm of Insurance Brokers
- Maintenance and Insurance
Initial Detail- The building has been provided with the plan of 15 years full repairing and insurance starting from 1 October 2019. Along with this complete detail of the 5 years, rent review with no break up has been provided.
First Survey detail- 20 Years FRI lease from 1 October 2019 with 5-year rent review and no-break up option
Second Survey- 15Years FRI leases from 1 October 2014 with 5-year rent review and no-break up option.
Third Survey- 15 years FRI lease from 1 October 2019 with 5-year rent review and no-break up option.
- Annual Income detail is given to be obtained through this property
Initial Detail- The total rental income is ₤21,000 with the agreed rate of ₤500 per car space.
First Survey Detail- The total rental income is ₤232, 500 with an agreed rate of ₤500 per car space.
Second Survey Detail- The total rental income is ₤232, 500 with an agreed rate of ₤500 per car space.
Third Survey Detail– The total rental income is ₤20,000 with the agreed rate of ₤500 per car space.
The property was sold at the auction rate of the ₤2,856,000
4.0 Strategic Action Plan
- a) Action Plan for avoiding the conflict of interest
The conflict of interest is a situation in which a person or organization is involved in the multiple interests, financial and serving one interest over the other. In a broad sense, the Interest is the commitment, obligation, duty or goal associated with concerned property with considering social values. To avoid the conflict of the interest in a prospective property following an action plan is required to be followed-
- To avoid the conflict the first step will be giving complete details of all the activities to the client-side. The transparency is very important.
- The second step will be following the complete legalprocedure of purchasing the property so that there is no conflict shortly.
- Taking the view of the expert panel will also help in avoiding the conflict (Thomas’s, 2009)
- b) To provide the high standard service
Providing the high standard services is very important, the key actions to be taken in this respect is as follows-
- To make a proper plan with complete specification of long term and short-term goals here the long term goals are rental income andinsurance, the short term goals are maintenance.
- To do a detailed study of the market by comparing similar properties.
- To be honest and giving complete details to customers this will help in increasing the goodwill of the company.
- To develop the niche in a particular domain in the real estate market.
- Encouraging referrals will also help in providing high-quality service.
- c) To ensure the transparency regarding the professional fees
To ensure the transparency regarding the professional fees, it suggested to perform the market survey and according to the specifications and fees of other Investment Analyst the professional fees should be set and the customers should be displayed the fees of other professionals so that transparency regarding fees structure can be displayed (M. C. Cant, J. W. Stardom, C. J. Jousted, P. J. du Plessis, 2009)
d.) Measurement Explanation
In the analysis, the standard methods and techniques have used that help to find the values that are uniformly accepted worldwide. Some of the key methods are Net Operating Income (NOI), metrics in generating the income through the property,build-up method; Market extraction method, Band of Investment method, Comparable equity valuations, valuation models and various other techniques are utilized to determine the value of the property. It is also required to analytically study the facilities of similar properties such as architectural styles and other advance features than the latest trend in real estate can be determined, this will help to understand the real picture of the real estate market and then own required facilities in the prospective real estate companies. These standard methods help the analyst to determine the measurement approach of the prospective property in the standard manner(AlainJoliet, Hans Mühlbacher, Laurent Flores, Pierre-Louis Dubois, 2008).
Net Operating Income (NOI)= Real Estate Revenue (RR) – Operating Expenses (0E)
Return on Investment (ROI) = Gain on Investment – Cost of Investment/ Cost of Investment
Cash flow –The cash flow will present the detailed expenses on investment
Other expenses to be calculated as discussed in the Introduction section will be applicable here too. The key costs that are calculated are as follows-
- Property Taxes
- Insurance cost
- Utility cost
- Turn over cost
- Maintenance expenses
- Property Management Fees
- Marketing Fees
- Rental Fees
- Principal payment
- e) Spreadsheet demonstration of the Analysis
Term and Reversion method
The Term and reversion method is used to analyze the investment at the Real estate; it helps in valuing the real estate projects with specific lease structure.
The above calculation based on the Term and reversion method depicts the Total value of the concerned property is $ 3,025072.9
- d) The Effect on calculation if the tenant had gone into the administration
The administration is a process that provides the framework for solving the conflict in the real estate properties. In this process, the Administrator takes over the running of the company from the board of directors. The main objective of this process is to save the company and its business so that it continues its trading without any hassles. When the company is in administration than a “Moratorium” is issued to the company, it is a protective financial and legal cloak that is placed around the company, in such situation landlord cannot perform following activities-
- Disdain for non-payment of the rent (seize the goods of the tenant )
- Forfeit a lease for peaceful re-entry
- Beginning any legal proceedings
- To enforce any security
It is suggested to go through all the legal processing before taking any action against the tenant and follow the guidelines(G.VSatyrShepherd, 2008).
- E) Circumstances when we will suggest the client pay more than the market valuation
1) There are certain economic periods when the rate of the property is comparatively down but when the property rate blooms than automatically the rate of property gets higher so in case the customer is purchasing the property for reselling in near future than advising him/her to purchase in higher rate is appropriate.
2) In some cases it is found that certain properties are in the region where the government is planning to construct some good facility near to it such as Master plan road, bridge, hospital, school, market place etc, the higher rate can be demanded.
3) Similarly, if a property is in a region where a private company is planning to open a big venture than the demand of higher rate can be expected.
Referencing
Dawn’s, (2000), Marketing Management, Engage Learning
- C. Cant, J. W. Stardom, C. J. Jooste, P. J. du Plessis, (2009), Marketing Management, Juta and Company Publication
Alain Jolibert, Hans Mühlbacher, Laurent Flores, Pierre-Louis Dubois, (2008),Marketing Management-A value-creating process, Palgrave Macmillan Publication
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G.V Satya Shekhar, (2008), Business Policy and Strategic Mangement, K.International Publication
Thomas.L, (2009), Strategic Mangement and policies, Pearson Publication
Azhar Kazmi Adela Khazmi, (2008), Strategic Mangement, Mc Grew Hill
P.Subha Rao, (2007), Business Policy and Strategic Mangement, Himalaya Publication