Property Investment Report: Comparing Investment Options for Jane Doe

This report provides a comprehensive analysis of property investment options for Mrs. Jane Doe, focusing on a five-year investment period. It evaluates two primary alternatives: investing in a single-family home at 8 Vimmy Street, Bankston, NSW, and investing in the Drum Silos Apartments in Summer Hill for rental income. The report employs various investment analysis techniques, including future value calculations, discounted cash flow analysis, and internal rate of return to assess the profitability and risks associated with each option. Market analysis considers supply and demand, property cycle conditions, and rental value trends in the Australian housing market. The report calculates capital gains tax implications for the single-family home and presents discounted cash flow analysis for the condominium. Based on the financial analysis, the report recommends investing in the Drum Silos Apartments, concluding that it offers a more viable financial gain compared to the single-family home. The report provides detailed calculations and references to support its findings, offering valuable insights for making informed investment decisions.

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Report to Jane Doe about the Ideal Property Investment Option
Students Name
Course
Instructor’s Name
Institutional Affiliation
City and State
Date

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INTRODUCTION
The report addressed to Mrs Jane Doe is an insight into the possible and most ideal
property of investment that can be undertaken for the five investment period. Within the report,
several investment analysis procedures and techniques were used to come up with a conclusive
decision. Among such techniques included the net value performance measure, the internal rate
of return, the return on real property (ROI) investment and so many other techniques. Since Mrs
Jane Doe is most interested in investing in rental property, the two selected alternatives that were
analyzed included the drum silos apartments of summer hill and a single-family home at 8
vimmy street, Bankston NSW 2200. According to the two choices available, investing in a
single-family home at vimmy street implies that Mrs Jane would hold it until maturity as it
increases in value. The other alternative, however, would require the client to invest in the drum
silos apartments and rent out some of the rooms to earn monthly or annual rental revenues. For
purposes of determining and calculating the value of the single-family home, the future value
technique of investment analysis will be applied and discounted cash flows for the condominium
property.
Market analysis
This section provides a detailed discussion of the market dynamics that are occurring in
the property investment market. It, therefore, brings forward prevailing market information
regarding the supply and demand level, property cycle conditions, and the current yields. The
market average rental rates are further discussed in this particular section of the paper together
with the rental value trends.

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Supply and demand level and property cycle conditions
The market forces of demand and supply significantly impact the level of underlying
activities that are carried out within any given market setting. When the market supply is low,
and demand is high, the resulting impact is an increase in prices. A higher supply with low
demand results in lower prices within the market. With such an explanation, the real estate
market in Australia has been categorized with numerous uncertainties. For instance, (Orton,
2019) presents a threatening outlook of the Australian housing market. According to him, the
new tax law is most likely resulting in a declining housing market. Restrictions on the mortgage
– interests compiled with tax- deductions are not making any significant negative impacts within
the market. The economic volatilities from global trade tensions, the financial market are as well
not providing any assistance to the market condition. Additionally, Sydney and Melbourne
which are among the country's largest residential markets are also undergoing a downward trend.
As a result of such prevailing constraints in the country's strong residential markets, other cities
Brisbane and Adelaide are starting to follow suit. (Yardney, 2019) continues to note that the
national dwelling values have fallen for their 19th consecutive month in May 2019. The decline
was estimated to be at around 0.4% and at the same time the combined market capacity is also
registering a decline of 0.4 %.
On the contrary, however, regions such as Sydney are experiencing a relative housing
market performance. This is unsurprisingly resulting out of the downfall of housing property
value as compared to the apartments. The decline in the value of the residential property has
made it much easier and affordable for individuals intending to rent a household property. As a

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result of the surging property values, first home- buyer activities are becoming increased thereby
increasing the level of demand in the housing market of Sydney in particular (Yardney, M.
2019). Despite the worrying trends in the housing market, there is an ongoing trend in
population increases. The point to note is that a high population consequently means a high-level
of demand for houses and rental property. Such population growth fuelled by a strong economic
growth is most likely to increase the demand on the housing market in the nearby future. The
chart below represents the housing market outlook in Sydney:
Fig.1 quarterly annual change in housing dwelling
Source: yardney, 2019
Housing market current yields
Out of the strong market performance of the Australian housing market that has existed
for the last six r mare years, there is a significant decline and downfall in the level of returns. The
introduction of market- cooling control measures such as more stringent lending guidelines and

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the implementation of higher tax rates on foreign investors are some of the reasons for the
cooling market conditions. For instance, housing prices in most of Australia’s major cities have
fallen by around 7.7% during the first quarter of 2019 alone (Consibee, 2019). Such price cuts
can have two major impacts on the rates of returns due to the fact a reduction in the prices could
lead to an increase n demand thereby generating more revenues. On the other hand, however,
when the price cuts do not increase demand levels, the outcome is a reduced level of return. The
slow growth rate of the Australian economy, however, implies low returns in the market. With a
slow-growing economic rate of just 1% in 2019 implies that people cannot purchase or
effectively pay rental prices. With weak consumer power and demand, supply becomes greater
thereby leading to rental house price cuts. It is such cuts that eventually result in much lower
returns in the Australian housing market. The illustration below shows the dropping housing
market prices in Australia.
Fig. 2 housing price trends in Australia

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Source: Delmedo, 2015.
Vacancy rates and rental value
The Australian housing market is significantly influenced by the economic trend of
growth. However, the growth of an economy is also highly determined by factors such as
financial market fluctuations and exchange rate volatilities. A stable domestic currency that is
constantly appreciating on the market implies that the economy is improving (Delmedo, L.
2015). The economic improvements likewise imply that the housing market is gaining value as
well. It is a worrying trend for the market because of the continued performance of the
Australian dollar on the market. For instance, the GBP/AUD rate has been on the decline and it
was estimated that an increase of about 0.70 AUD would be required to purchase a single pound
which was trading at 1.8700. The AUD /USD had also increased to about 1. 8624 AUD per $.
This recurrent depreciation In the Australian dollar represented a poor market outlook for the
economy and the entire housing market (Hart, M. 2019). Therefore, with a weakening domestic
currency, the housing market value is likely to fall consequently.
Investment analysis
Investment analysis refers to the process of assessing and evaluating alternative
investment alternatives to ascertain profitability and risks. The selected residential investment
opportunities available to Mrs Jane Doe include owning a single-family home at vimmy street
bankston NSW 2200 and the future value technique of investment analysis was used to calculate
the future value of the property (Jagerson, 2019). The discounted cash flow method of
investment analysis was on the other hand used for estimating the net present value together with

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the internal rate of return for the second alternative (The Drum Silos Apartments) after five
years. By holding single family house at vimmy street until maturity, Mrs Jane would be
subjected to 50% capital gains tax on the profits of the sale (Burman, 2009). If Mrs Jane Doe
invested in a rental asset such as the condominium, she would be required to incur a tax liability
as per the different tax brackets required by the Australian tax law as shown below:
Source:Jolly,2019
A 10% discount factor was used for both alternatives and the relevant calculations are
provided below:
i). Calculating the future value of a single-family house at vimmy street, Bankston
NSW 2200
The following formula below will be used to determine the future value of a single-
family house.

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Where; fv is the future value of the house at maturity
C0 as the present value of an investment
r Is the rate of return
n is the number of years
For investment, an initial value of $ 800,000 will be used as the initial investment amount
and the period is five years.
FV = 800,000(1+0.01) ^5
=800,000* 1.0510
=$ 840,808
Capital gains tax deduction
In Australia, capital gains tax would be deducted at 50% of the revenue and it is
calculated as follows: CGT = (Sales Revenue –Cost)*50%
=$(840,808-800,000)*50%
= 40,808*0.5
= $20,404

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Therefore, from the calculations obtained, investing in a single-family house would
generate a profit of $20,404 at maturity.
ii). Condominium property (the drum silos apartments of summer hill)
Alternatively, If Mrs Jane Doe opted for the second alternative; she would obtain a net
present value of $1,664,016 and an internal rate of return of 14%. The discounted cash flows
obtained from tax incentives and tax deductions for revenues as per the Australian tax policy.
Further calculations regarding the discounted cash flows are provided in the excel file attached.
Recommendations
Therefore from the information collected and analysis made, investing in the drum silos
apartments of summer hill would provide a more viable financial gain. The positive net present
value obtained as a result of the discounted cash flows provides better investment opportunities
and returns as compared to the end value that would be obtained at maturity if the single family
house was sold off after five years.
Conclusions
Several aspects of investment are vital towards assessing the type and period on
investment to undertake. Factors such as financial risks and market information significantly

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influence an investor's decision. Therefore, it is always an important practice and habit for an
intending investor to carry out an analysis to make the right decisions.

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References
Burman, L., L., 2009. Taxing Capital Gains In Australia: Assessment And Recommendations;
Tax Policy. Retrieved from file:///C:/Users/CLIENT/Downloads/Documents/411857-Taxing-
Capital-Gains-in-Australia-Assessment-and-Recommendations.pdf
Consibee, N. (2019). Property Outlook; Australian Property Market. retrieved from
https://www.realestate.com.au/australian-property-market/property-report-april-2019/
Delmedo, L. 2015. Australia’s House Prices Are Now in Free Fall. Retrieved from
https://www.globalpropertyguide.com/Pacific/Australia/Price-History
Hart, M. 2019. Net Present Value (Npv), Explained In 400 Words or Less. Retrieved from
https://blog.hubspot.com/sales/net-present-value
Jagerson, J. 2019. What Is The Formula For Calculating Net Present Value (NPV)? Retrieved
from https://www.investopedia.com/ask/answers/032615/what-formula-calculating-net-present-
value-npv.asp
Orton, K. 2019. Experts Weigh In On What The 2019 Housing Market Will Bring: The
Washington Post. Retrieved from
https://www.washingtonpost.com/business/2019/01/07/experts-weigh-what-housing-market-will-
bring/?noredirect=on
Yardney, M. 2019. State by State: A March Update On Australia’s Property Markets. Retrieved
from https://www.smartcompany.com.au/industries/property/march-update-property-markets/

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