Investments in the Real Estate Management - Essay Sample

Investments in the real estate management do not include a lot of liquidity and as such the investors need to understand the operational issues of the business (Illichmann, 2013)

Position

The place at which the property is situated matters to the rate at which the rent would be determined. For the case of the investors need to consider the position of the property before investing to make an excellent and favorable level of income.

Real estate Investments is one of the categories of investments that are concerned with real estate management and property management. Managers of real estate investors need to have the knowledge of and the understanding of the property management including controlling, allocating and analyzing the market trends. Marketing in real estate is different in the sense that the property involves its use for a longer time. The freeholder-leaseholder relationship is the one of such a kind as a long term relationship, and as such the customers are very keen to select the optimal place or property to lease. For the investors in this field, real estate, they must be able to comprehend how operations need to be conducted to amass the maximum out of business.

There are several classes in the property management which include but not limited to the following; bonds, stocks, property, and cash. Categorically the classes can be subdivided into fixed and liquid; where the fixed could include real property, bonds en masse whereas liquid could include cash. The assertions above are unequivocal to the characteristics of the real estate management (Rackley, 2015)

Economic cycles

Economic cycles infer the economic changing times regarding how the business and economy in general operates. In this case, there are two main stages of an economic life cycle that exists-Recession and depression. During the depression, the economic growth is evident by the growth of the GDP. The rate of unemployment and the inflation regains its normalcy, and therefore the effects of the economy on the business is favorable. On the other hand, during the depression, the economy faces challenges, and the GDP of the country is falling. Unemployment and inflation levels destabilize hence unfavorable business environment.

Investors of the real estate management (Reed, 2015) face difficult times from time to time especially in occasions where the only one class of property is held in their portfolio. Having a single class of the property, the investor faces a risk of having poor returns during the depression. During a recession, a singular class in a portfolio is favorable for the profits.

Investors with multiple classes in the portfolio, is essential since it allows for a smooth and consistent returns unlike for a single portfolio where turbulences in the economy could lead to inconsistent returns even though the returns could be high (Reed, 2015)

Two

Laurel court has a bigger space of 1000 square meters and has let the office for five years. The office is a brand new office and has attracted 500 per square meter. The court has let a one-year rent-free period to draw the client for the next five years. Secondly, for the case of Oak House, the office is old and requires modernization. The Oak House has a proximity to the one that is close to the Cedar house. Additionally, the oak house let their office at a price of 450 per square meter. The house provides a one-year rent-free to the tenant as what happened to the Laurel Court. The term of the contract is also five years meaning that the client would be in the building for the next five years. The attraction of the client to the office could be the time consideration.

Similarly to Laurel and Oak house, Sycamore courts was built for a specification like the Cedar House. For this case, however, the price of the office was 350 per square meter, but this value is to be reviewed since it was on a historic basis (Rackley, 2015)

Deductions

Cedar House should give their clients a one-year rent-free. Secondly, the rental charges per month should be 400 for any contracts entered subject to reviews on the years stated earlier.

Evaluation of the property using the return to investment

Income Expenses Cash flow ROI

Ground floor 80,000

Maintenance 2,000 Income 185000 1st floor 105,000 Taxes 18500 Expenditure 20500 Down payment 5,250,000

Total 185,000 20500 164500 Renovation 400,000

Total 5,650,000

Calculations

Annual /total investment

Return to investment

1974000/5650000= 0.376

The return on investment for the property is small meaning that the investor could yield less for his investment. This is however for the first few years because of the renovations and the vacant rooms upstairs. 0.376% seems a small percentage consider but for the first period of investment, the investor can rely on the return on investment since it is a positive value and the investor was making some sorts of returns. For Cedar investments, the investor would need to spend more money on the renovations and on the down payments for the investment. This investments affects the returns to investment and should not worry the investor because the returns on investment have to take into account time being a factor.

Since real estate investment is a long term investment, the prospective investor should buy the cedar house and improve on it. The returns on investment could increase consistently and ultimately there could be an increase in the return to investment.

References

Illichmann, S., 2013. Real Estate Development. In Vie Metamorphosis (pp. 252-279). Springer Vienna.

Reed, R.G., 2015. India: real estate development in the fastest growing free market democracy. International approaches to real estate development, pp.150-166.

Wiewel, W. and Perry, D.C., 2015. Global universities and urban development: Case studies and analysis. Routledge.

Caldarola, E.G., Di Pinto, V. and Rinaldi, A.M., 2017, September. The Use of Configurational Analysis in the Evaluation of Real Estate Dynamics. In International Conference on Optimization and Decision Science (pp. 83-92). Springer, Cham.

Pengyan, Z. and Chao, W., 2016. Application of group criteria evaluation method in the evaluation of real estate investment environment in Handan City. Shanxi Architecture, 24, p.113.

Cao, X.J. and Porter-Nelson, D., 2016. Real estate development in anticipation of the Green Line light rail transit in St. Paul. Transport Policy, 51, pp.24-32.

Rackley, J., 2015. Return on Investment. In Marketing Analytics Roadmap (pp. 71-85). Apress.

Frost, J.J., Sonfield, A., Zolna, M.R. and Finer, L.B., 2014. Return on investment: a fuller assessment of the benefits and cost savings of the US publicly funded family planning program. The Milbank Quarterly, 92(4), pp.696-749.

Leamer, E.E., 2015. Housing really is the business cycle: what survives the lessons of 200809?. Journal of Money, Credit and Banking, 47(S1), pp.43-50.

Jorda, O., Schularick, M. and Taylor, A.M., 2016. The great mortgaging: housing finance, crises and business cycles. Economic Policy, 31(85), pp.107-152.