NOTE ON

REAL ESTAT
E
INVESTMENT

SYNDICATE 2

Rozean Wijaya

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Raditya Dwi A

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Randy

- 29115685

Nadya Rizkita

SYNDICATE
2

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Wulan C. Lestari

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Rais Kandar

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M Iqbal F Syamlan

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OUR BEST TEAM

01
TYPES OF REAL ESTATE

02
REAL ESTATE PROFITABILITY

03
REAL ESTATE VALUATION

04
REAL ESTATE IRR & NPV

CONTENTS

01
TYPES
OF
REAL
ESTATE

Real estate Investing, even on a

very small scale, remains a tried
and true means of building an
individuals cash flow and wealth
- ROBERT KIYOSAKI-

TYPES OF
REAL ESTAT
E

RESIDENTIAL

COMMERCIAL

INDUSTRIAL

INFRASTRUCTURE

RESIDENTIAL
REAL ESTATE IS
FAMILIAR TO MOST
ADULTS BECAUSE AVERAGE
PEOPLE WILL OWN AT LEAST
ONE HOME OVER THE COURSE
OF THEIR LIFETIME

RESIDENTIAL

PRICE ELEMENTS
FOR RESIDENTIAL
- Quality and condition of the building
- Amenities
- Proximity to malls, schools,
transportation arteries
- Safety of the neighborhood
- Condition of the other properties in the
neighborhood
- The trendiness of the neighborhood
- Shortage or surplus of similar properties
- Mortgage rates

PROPERTIES
DESIGN TO HOUSE A
BUSINESS
- PRIMARILY : OFFICES & STORE
- BOUGHT WITH INVESTMENT
MINDSET
- VALUED BASED UPON CAP
RATES

COMMERCIAL

PRICE ELEMENTS

FOR COMMERCI
AL
- Foot traffic in front of the location
- Proximity to major transportation
arteries
- Quality of the other business nearby
- Condition and styling of the building
- Parking available
- Prestige level of building

- CONSISTS
OF
FACTORIES & OTHER
(OIL TANK FARMS)

INDUSTRIAL

- DIFFERS FROM
THE
OTHER 2 REAL ESTATE
CLASSES ABOVE

INFRASTRUCTURE

- CONSISTS
OF
UTILITIES,
TOLL ROADS, AIRPORTS, ETC
- NOT
VERY
PREVALENT
UNTIL RECENT YEARS
- FOUND TO BE STABLE &
PROFITABLE INVESTMENT

02
REAL
ESTATE
PROFITABILITY

SOURCE O
F
PROFITABILITIES

Property value
appreciation
Cash Flow
Paying down debts
(debt depreciation)

ANNUAL
PROFIT

Property Value
$100,000
Mortgage (25 years amortization)
$80,000
Equity
$ 20,000

ANNUAL
PROFIT

Cash Flow
$1,000
Mortgage Amortization
$2,000
Appreciation
$3,000
TOTAL

$6,000

NUMERIC
EXAMPLES

Return On Assets (ROA)

(modest)
Return On Equity (ROE)
(excellent)

6%
30%

 Typical leverage uses ranges

between 50%-70% to reduce
the debt burden & the risk of
negative cash flow in the event
of rising interes rate or
unexpected vacancy.

A regular warehouse
Cash Flow (/month)

$5,000

OR
MAXIMIZING

REAL
ESTATE
RETURN

100 personal storage areas

Cash Flow (/month for 1 area)

$200
Total Cash Flow
$20,000

OPTIMIZIN
G
Renovation
PROPERTY USE

Changing property
functions
Selling or renting the
property off by spliting it
to smaller sections

03
REAL
ESTATE
VALUATION

VALUATION METHO
D
REAL ESTATE

Comparables -> Comparing with other similar properties

Cap Rates -> a discount rate determined by market, used only to a

property which generate income. Use net operating income not
cashflow.

DCF -> using discount rate for cashflow each year added by terminal
value at the end of asset lifetime. Also reflect the effect of debt etc.
due it being a cashflow.

Replacement cost -> estimating the cost rebuilding the property from
scratch which can yield a higher value than the market in cases of
old building. Usually used in insurance.

CAUSE OF

REAL ESTATE
VALUE

APPRECIATE

Renovations
A disappearance of a perceive
problem in the area
A major increase of real
estate price
Transition of an area
Property converted to a more
valuable function
Increase in overall housing
demand
A considerable speculative
investment in the area
Strong
political
encouragement to growth

 Major
improvement

transportation

There
have
been
recent
increases in labor or material
cost in the area (replacement
cost)
CAUSE OF

REAL ESTATE
VALUE
APPRECIATE

Interest rates decrease

Average income increase
The
area
has
become
attractive
to
a
large
demographic wave

04
REAL
ESTATE
IRR & NPV

Value should be described only on

a single point of time but also the
forecasted future return of some
period

INFLOW

Revenue from operations (rents, deposits, vending,

parking, ad space, etc)
The sales of some teresterial units
Operating expenses (utilities, maintenance, insurance,
property, managers, etc)
Construction costs (consultant, plans, land, building,
etc).
Marketing costs
Depreciation
Taxes
Partner (developer or joint venture) fees

OUTFLOW

 The return by
assuming zero NPV
The bigger the IRR
means the required
REAL ESTATE

IRR

return to BEP the NPV

is bigger, means the
project has high return

 Discounted with
investors target
minimum return
Positive NPV means
REAL ESTATE

NPV

investment
exceeds investors
hurdle rate

EQUITY INVESTO
R
AND DEVELOPER
Different for each project: depends on the manager
Common manager interest: net profit after tax and
leverage (with or without debt).
Equity investor contribute the majority of the funds
Developer doesnt or contribute small funds
Investor relies on the developer to make the project
succeessful that developer will be provided by incentives

CALCULATION

REAL ESTATE

Create pessimistic, most likely, and optimistic scenario

Create each scenarios IRR

Create incentive percentage level for each level of IRR for developer

Calculate the remaining cash for profit distribution for investor

Calculate the terminal value of project

Combine the terminal value and profit for investor, so that we get IRR
of equity partner

Terima
Kasih