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Ch 14 Property Investment Analysis
Capital BudgetingTechniques Applied to Investments In Land And Buildings
1
Analytical Ideas in Property Investment
The standard concepts and techniques of capital budgeting analysis can be applied to property investment.
Private investors may find it desirable to evaluate the equity cash flows separately from the property cash flows within an investment analysis.
2
Cash Flow Concepts for Private Investors
Private investors may need to isolate their cash flows to debt , usually only a single mortgage, from the cash flows to equity, usually their savings.
Private investors may need this information to record any shortfall between rent received and loan interest, for personal income tax measurement.
3
Two Styles of Property Investment Analysis
1. Property cash flows - the standard concepts from previous chapters are applied- the property cash flows do not include financing flows. These flows are accounted for in the discount rate.
2. Equity cash flows – financing cash flows are explicitly included in the cash flows. These flows are not accounted for in the discount rate.
Both styles can employ cash flows on either a before, or, after-tax basis.
4
Types of Property Decisions
Slide 4 showed two types of property analysis: there are also three distinct types of property decisions:-
1. Acquisition of an income-producing property (or an industrial property).
2. Evaluation of premises to be used by business.
3. Property development-- purchase and development of sites. 5
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