Investment properties

Published by : dl
29Jan2015

Investment properties

In real estate investment, as in most other types of investment, an investor often finds himself confronted with two questions: How to put a value on the property and how to measure the profitability of the investment?

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29Jan2015

Depreciating cost or intrinsic value method

Calculating the intrinsic value of a real estate property goes back to finding an adjusted value of the originally constructed property, to which the value of the land is added.

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29Jan2015

Discounting by capitalisation or return

This method provides the first indications of how much an investment property is worth. It is based on the relationship between the annual rent and the value of the real estate, thus showing a discounted return for the buyer.

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29Jan2015

Discounting of future cash flows or Discounted Cash Flow (DCF)

Unlike the capitalisation or return method, the discounting of future cash flows offers significant advantages, as it permits the use of parameters such as financing, administration, and maintenance or renovation costs, as well as the development of rental status and risks. All of this is offered on a 5 to 10 year horizon based on projected cash flows that will allow you to determine the future value of the property.

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22Jan2015

Direct return on equity

Another type of calculation, direct return on equity, can also be used to assess the profitability of an investment such as that proposed. Its formula is as follows:

Direct return = (rent – charges – interest) / equity

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22Jan2015

Gross & Net Returns

The investor's task is to judge the estimated profitability of their property investment by assuming that they will pay the price requested by the buyer.

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