Site Analysis for Real Estate Developments + Case Study
Site analysis for real estate development is one the basic prerequisite for the feasibility study and development analysis. Real estate development is a wide term which might include activities ranging from the restoration and re-sale of existing buildings to the purchase and development of new buildings on vacant lands. In this post we will be exploring how to do site analysis of a vacant land for the feasibility study and development analysis, however; the concepts remain same for any real asset acquisition and development. Site analysis is a preliminary phase in real-estate development that encompasses study of the climatic, topographical,
Covid and Real Estate in Canada: No Eureka Moment
Covid and real estate in Canada has not found a Eureka moment yet. The real estate sales have dropped to the lowest level in a generation. The volume for the April month was the lowest since 1984 – when the population was a third smaller. The Covid pandemic has led to an unprecedented cash and credit crunch and impacted the real estate companies in different ways. In a short-term perspective, landlords will be struggling to maintain liquidity, keep tenants safe while complying with government policy. And the key question remains whether real estate market in Canada is resilient enough to
Tax impact on Equity and Project IRRs
As Naiyer posted a while ago the relationship between project IRR and equity IRR, which constitute a curious trio along with Cost of Debt (CD) in project finance. Below graph indicates how the relationship between EIRR/PIRR inverses when cost of debt equals project IRR. Later, Naiyer asked himself, can equity IRR be lower than project IRR. Using one of his analyses, he proved how that could be true (even when cost of debt is lower than project IRR) due to a long construction period for example. This is depicted in the following figure. But what about tax liabilities? Adding taxes
Ultimate Guide to Highest and Best Use Analysis
Highest and best use analysis produces the highest value for a property based on the concept of maximum productivity. The concept of highest and best use was popularized by economists Irving Fisher. In this post on highest and best use analysis, we will focus only on real estate although this concept can be applied many other assets. Definition The Appraisal Institute defines highest and best use as follows: The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the
Be Careful Excel Warning
If you are using Excel 2013, I’m sure you must have encountered be careful Excel warning. When you try to save a workbook, suddenly a pop-up appears saying ‘Be careful! Parts of your document may include personal information that can’t be removed by the Document Inspector.’ It is definitely annoying, but also this feature is necessary to prevent unintended personal information leakage. There is always a balance between ease of use and privacy. If you are sharing a workbook and don’t want the recipient to know who wrote the original document, such privacy options come very handy. The dialog pop-up
What is Incremental IRR?
Incremental IRR is a way to analyze the financial return when there are two competing investment opportunities involving different amounts of initial investment. In this post we will explore how to calculate incremental IRR and how it helps in deciding between two projects with different investment. Let’s consider a project with following cash flow stream: Assume 10% discount rate. The IRR/NPV can be calculated by using Excel IRR/NPV functions. The project IRR is 13.27% and the NPV is 128.5. Now let’s consider another project with following cash flow stream: The IRR for this project is 12.78% and the NPV is
The Curious Case of Negative IRR
Negative IRR indicates that the sum of post-investment cash flows is less than the initial investment; i.e. the non-discounted cash flows add up to a value which is less than the investment. So yes, both in theory and practice negative IRR exists, and it means that an investment loses money at the rate of the negative IRR. In such cases the net present value (NPV) will always be negative unless the cost of capital is also negative, which may not be practically possible. However, note that a negative NPV doesn’t always mean a negative IRR. It simply means that the
How to Create Hatched Charts in Excel
Hatched charts in Excel look beautiful. They look cool and professional. Hatching or shading between plotted lines enhances charts and helps to convey the story. Creating hatched charts in Excel is rather easy (I’m using Excel 2013). For this illustration we will be using following set of data: First hatched graph we will create for sales number only. Go to insert<Charts<Insert Area Charts. Insert the simple 2D area chart. Now copy and paste the sales data into it. The graph will look like this. Now format the axis label to include the years corresponding to the sales. You can format
