201010 Property Investment and Risk Management Analysis Report

This report is a detailed analysis of a property investment opportunity located at 11 Stanton Road, Seven Hills, New South Wales. It begins with an introduction identifying the property and its key features. The report then provides a comprehensive overview of the property market in Seven Hills, including an assessment of property values, capital appreciation, and market trends. It then delves into the mortgage requirements for the property, calculating potential loan amounts and repayment schedules based on both the 2011 and current property values. Furthermore, the report conducts a thorough ratio analysis, examining income, financial, and profitability ratios. It includes tenancy schedules, income calculations, and ratio analysis to assess the investment's performance. Finally, the report concludes by summarizing key findings and offering insights into the investment's potential for operating return and capital appreciation.

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

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PROPERTY INVESTMENT AND RISK MANAGEMENT
Contents
Introduction:....................................................................................................................................2
Property market:..............................................................................................................................2
Mortgage requirements:...................................................................................................................5
Ratio analysis:..................................................................................................................................6
Conclusion:......................................................................................................................................9
References:....................................................................................................................................10

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PROPERTY INVESTMENT AND RISK MANAGEMENT
Introduction:
With approximate land area of 12,294 square meter, 11 Stanton Road, Seven Hills, New South
Wales 2147 property is currently not for sale. The property was last sold in 2011 at $4,350,000.
The total floor area of the property range between 2,000 square meter and 15,000 square meter
and has parking facility. The industrial property can be used as a warehouse by a business
organization as well as it can also be used for other commercial purposes depending on the
requirements of a business.
Image 1: Property location mam extracted using Google navigation app.
Property market:
Seven Hills is a highly desirable location for industries as it allows industries to use smooth
transportation system along with other infrastructural facilities. Securing a versatile industrial
asset in such location is always an attractive opportunity for any business entity. Though the
entire property is not for sale or rent with last sale of the property took place in February 2011

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PROPERTY INVESTMENT AND RISK MANAGEMENT
but it has provided the buyer significant amount of return on the investment since 2011
(CommercialRealEstate.com.au, 2019).
A closer look on the estimated value of the property over the years would give an idea as to the
capital appreciation in the value of the property since it was purchased by the current owner /
owners in February 2011. In February 2011 the property was last sold at a price of $4,350,000
and the scale below shows the expected median sale price of house properties at present on the
basis of data compiled and information collected by realestate.com.au (Ayotunde Olawande,
2011).
Image 2: The median value of houses as per realestate.com.au
From the above valuation scale the value of the property can be calculated. The value of the
property as in July 2019 can be estimated below by using the median house prices in the Seven
Hills region (Inward investment, 2017).
Timeline Value of the property

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PROPERTY INVESTMENT AND RISK MANAGEMENT
Feb-11 4,350,000.00
Jul-11 7,767,450.98
Calculation Amount ($)
A 765 Square meter house 725,000.
00
Industrial property value with 1.5 factor division (725000 / 1.5) 483,333.
33
Total area of 11 Stanton Rd Property 12,294.
00
Estimated value of the property 7,767,450.
98
Thus, it is clear that on the basis of median property value at Seven Hills the value of the
property as on the present date is around $7,767,450. As per information hosted in the website
(realestate.com.au) the median sale price of property in and around Seven Hills have increased
by almost 6%, i.e. 5.6% to be precise over the last 12 months. Further it is estimated that the
property values in the region will not experience any decline in recent future rather the growth is
expected to continue in recent future as well.

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PROPERTY INVESTMENT AND RISK MANAGEMENT
With current value of the property estimated at $7,767,450 the capital appreciation of the
property over the 8 years period earned by the investor is itself around $3,417,450. The capital
appreciation is almost 80% of the price at which the property was acquired by the investor in
February 2011. Considering that the property is an industrial warehouse it has provided
significant return to the investor in the form of annual lease and rental in addition to the capital
appreciation in the value of the property which is unrealized (Inward investment, 2016).
Mortgage requirements:
Large commercial and industrial properties have relatively easier terms and conditions as per as
mortgage requirements are considered. Considering the huge value of the property let us find out
the mortgage terms and conditions of the property by using the value of the property in two
different times lines, i.e. for February 2011 and July 2019 (Pupentsova and Livintsova, 2018).
In February 2011 the property was sold at $4,350,000 thus, the mortgage repayments calculation
of the property in terms of acquisition value of $4,350,000 is provided below.
Price of the
property
Deposit required Amount of loan Rate of interest pa Term of loan
4,350,000.00 145,000.00 4,205,000.00 3.74% 30 years
With annual rate of interest 3.74% the annual installment to repay the loan would be $235,558.
The monthly installment to repay the loan would be $19,450. For detailed calculation the
attached spreadsheet can be referred.

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PROPERTY INVESTMENT AND RISK MANAGEMENT
Now using the current estimated value of the property the mortgage repayment calculations are
made in the table below.
Price of the property Deposit required Amount of loan Rate of
interest pa
Term of
loan
7,767,450.00 145,000.00 7,622,450.00 3.74% 30 years
With annual rate of interest 3.74% the annual installment to repay the loan would be $435,120.
The monthly installment to repay the loan would be $35,258. For detailed calculation the
attached spreadsheet can be referred. It is important to note that in both cases the amount of
deposit has been assumed to be same at $145,000 with annual rate of interest of 3.74% taken to
calculate the mortgage repayment schedule (Śmietana, Konowalczuk and Maszczyk, 2016).
Ratio analysis:
Part a:
Tenancy Schedule
Yea
r
Annual rent Municipality tax Repair and maintenance
1 217,560.32 21,750.00 10,878.02
2 217,560.32 21,750.00 10,878.02
3 217,560.32 21,750.00 10,878.02

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PROPERTY INVESTMENT AND RISK MANAGEMENT
4 217,560.32 21,750.00 10,878.02
5 217,560.32 21,750.00 10,878.02
6 217,560.32 21,750.00 10,878.02
7 217,560.32 21,750.00 10,878.02
8 217,560.32 21,750.00 10,878.02
9 217,560.32 21,750.00 10,878.02
10 217,560.32 21,750.00 10,878.02
Note:
It has been assumed that the annual rent of $217,560.32 each shall be paid by three different
tenants along with property tax and repair and maintenance expenditures for the property of
$21,750 each and $10,878.02 each respectively.
Part b:
Year Gross income effective gross income Net income
1 652,680.96 685,315.00 250,194.37
2 652,680.96 685,315.00 250,194.37
3 652,680.96 685,315.00 250,194.37
4 652,680.96 685,315.00 250,194.37

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PROPERTY INVESTMENT AND RISK MANAGEMENT
5 652,680.96 685,315.00 250,194.37
6 652,680.96 685,315.00 250,194.37
7 652,680.96 685,315.00 250,194.37
8 652,680.96 685,315.00 250,194.37
9 652,680.96 685,315.00 250,194.37
10 652,680.96 685,315.00 250,194.37
Note:
The entire property has been segregated into three rental properties as it was difficult to find a
single tenant for the entire property. Accordingly, the gross income, effective gross income and
net income after deducting the annual mortgage repayment have been calculated in the table
above.
Part c:
Particulars Ratio (%)
Gross income ratio
8.40
Effective gross income ratio

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PROPERTY INVESTMENT AND RISK MANAGEMENT
8.82
Net income ratio
3.22
Part d:
It is clear from the above calculations that the investor is expected to earn significant gross and
net income from the property. The gross income of $652,680 as well as net income of $250,194
are on the basis of certain assumptions thus, the underlying assumptions must be hold true in
order to realize the above income from the property.
Conclusion:
Taking into consideration the discussion about the 12,294 square meter industrial property
situated in 11 Stanton Road, Seven Hills, NSW 2147 it is clear that the investor of the property is
not only expected to earn significant operating return from the property but also the expected
capital appreciation in the value of the property will enhance the value of the property in the
hands of the investor in the long run.

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PROPERTY INVESTMENT AND RISK MANAGEMENT
References:
Ayotunde Olawande, O. (2011). Harnessing real estate investment through proper tenant
selection in Nigeria. Property Management, 29(4), pp.383-397.
CommercialRealEstate.com.au. (2019). 11 Stanton Road, Seven Hills NSW 2147 - Industrial &
Warehouse Property For Sale | Commercial Real Estate. [online] Available at:
https://www.commercialrealestate.com.au/property/11-stanton-road-seven-hills-nsw-2147-
2015461524 [Accessed 23 Jul. 2019].
Inward investment. (2015). Property Management, 23(8).
Inward investment. (2016). Property Management, 23(8), pp.12-35.
Inward investment. (2017). Property Management, 24(8).
Pupentsova, S. and Livintsova, M. (2018). Qualimetric Assessment of Investment Attractiveness
of the Real Estate Property. Real Estate Management and Valuation, 26(2), pp.5-11.
Śmietana, K., Konowalczuk, J. and Maszczyk, A. (2016). Rating in the Assessment of
Investment Property. Real Estate Management and Valuation, 24(4), pp.98-107.