Property Investment and Risk Management | Report

Running head: PROPERTY INVESTMENT AND RISK MANAGEMENT
Property Investment and Risk Management
Name of the Student:
Name of the University:
Authors Note:

PROPERTY INVESTMENT AND RISK MANAGEMENT
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Contents
Introduction:....................................................................................................................................2
Investment analysis:.........................................................................................................................2
Leverage, risk and taxation analysis:.............................................................................................28
Conclusion:....................................................................................................................................35
References:....................................................................................................................................37

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Introduction:
Considering the immense demand of office building in Westmead, New South Wales, the 5/17
Lydbrook Street property situated in Westmead NSW can be used to give at rent for official
purposes to small and medium sized organization. Considering that the property in total has 95
square meter in floor area thus, it can definitely be used as an office for small proprietorship or
partnership business. Considering the huge demand of property in the area it is expected that the
property will fetched significant renal to provide the buyer stable return over a long period of
time. A detailed discussion on the credibility of the proposal by ascertaining the net present value
and IRR of the property shall be helpful for the investor to take an appropriate decision in this
matter.
Investment analysis:
Investment analysis is the process of assessing an investment option from the point of view of
the investor to assess whether it would be financially beneficial for the investor to invest in it. In
case an investor has number of different proposals in front of him to invest however, due to lack
of funds he can only make investment in one of those proposals then investment analysis helps in
identifying the most profitable and financially beneficial proposal to make investment (Adler,
2016).
There are number of different techniques and methods that can be used to conduct investment
analysis. Investment appraisal technique is one of the most effective techniques used by the
investors to analyze the potential of different investment proposals. Net present value,
accounting rate of return, pack back period method and internal rate of return are different
techniques used to apprise the potential of investment proposals.

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In this document a detailed discussion shall be provided by calculating expected net present
value and IRR of the investment property. In order to calculate NPV and IRR of the property the
following inputs shall be used. The data provided below in the table has been accumulated after
considering the market situation for similar properties in the region, i.e. Westmead, NSW. In
addition certain assumptions have been made to conduct the investment analysis as these are
essential to the calculation of NPV and IRR for a project (Danazimi Jibril, Toyin J and ., 2018).
Input table 1:
Inputs to calculate projected cash flows
Name of the property: 5/17 Lydbrook Street Westmead
Address of the property: 5/17 Lydbrook Street Westmead New South Wales
2145
Purchase value 480,000.00
Type of property: Office building
Total Building Area (Sq.Ft.): 1,022 95 Square meter
Date of rent period starting: 01 July, 2020
Number of years for the analysis 10

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Rate of general inflation 3%
Vacancy rate 0%
Collection loss 0%
Expenses to be reimbursed by the tenant
Maintenance expenses $1.50 per sq. ft. /yr.
Ad Valorem Tax $1,500 per yr.
Insurance on property $0.50 per sq. ft. /yr.
Provision for utilities $1.50 per sq. ft. /yr.
Administrative purpose expenses $0.25 per sq. ft. /yr.
Expenses not to be reimbursed by the tenant
Management expenses 3% of Annual gross rent
Assumptions for Market Leasing
Market Rent $80.00 per sq. ft. /yr.
Allowance for tenancy improvement $2.50 Per s. ft. Per sq. ft.
Length of tenancy agreement 10 Years Years

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Resale Assumptions:
Cap rate for terminal value 15%
Commission to be paid on resale value 5%
Valuation Assumptions:
Rate of discount 10.00%
Input table 2:
Information about tenancy agreement
Tenant
Name of the tenant Damien Haggard
Rent per square foot $80.00
Area of the property 1,022
Term beginning 01 July, 2020
Number of years in the tenancy agreement 10
Discounted cash flows:

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Discounted cash inflow for first five years are provided below:
Year 1 Year 2 Year 3 Year 4 Year 5
Year ending Jun-21 Jun-22 Jun-23 Jun-24 Jun-25
Gross revenue (Expected)
Revenue from rental $81,760 $84,213 $86,739 $89,341 $92,022
Less: Loss in rent due to
vacancy
$0 $0 $0 $0 $0
Total Reimbursement Revenue $5,333 $5,447 $5,566 $5,688 $5,814
Effective Gross Revenue
receivable
$87,093 $89,660 $92,305 $95,029 $97,835
Operating Expenses
Reimbursable Expenses
Maintenance expenses $1,533 $1,579 $1,626 $1,675 $1,725
Ad Valorem Tax (Fixed) $1,500 $1,500 $1,500 $1,500 $1,500

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Property Insurance (Fixed) $511 $526 $542 $558 $575
Utilities $1,533 $1,579 $1,626 $1,675 $1,725
Administrative Expense $256 $263 $271 $279 $288
Non-reimbursable Expenses
Management $2,452.80 $2,526.38 $2,602.18 $2,680.24 $2,760.65
Total Operating Expenses $7,785 $7,974 $8,168 $8,368 $8,574
Net Operating Income $79,307 $81,686 $84,137 $86,661 $89,261
Capital cost
Tenant Improvements $1,533 $1,594 $1,658 $1,724 $1,793
Total Capital Costs $1,533 $1,594 $1,658 $1,724 $1,793
Net cash flow after meeting all
expenditures
$77,774 $80,092 $82,479 $84,937 $87,468