I have a funny story to tell – once I was explaining the result of a project feasibility analysis to our development team and one guy asked me to explain the calculation of net present value. So, I started explaining him in the simplest way possible. He was curious, so I was happy. Then suddenly he interrupted me and asked, But why are we giving discounts? Nonetheless, even we professionals make mistakes. In one of the previous posts about the equity NPV, I discounted the equity cash flow at the weighted average cost of capital (WACC). Our reader, Srihari pointed
Use of debt financing is a standard practice in the real estate investing; and is often referred to as leveraging. Debt financing is used by the equity holders to enhance the equity return; however, debt financing can also magnify the severity of capital loss if the property value declines. Let’s look a case study to explore this further; we shall use simpler set of assumptions for the sake of ease. Consider a property with an acquisition cost of $10,000,000. Property is assumed to yield $700,000 in annual rent throughout the holding duration (no escalation!). Assume the property is sold at
The frenzy is back in the Middle East realty market. The average property prices in Dubai went up almost 18% in the third quarter this year, compared to Q3 2012 (link). The average price of a mid-range villa has soared 34% this year to 1,275 dirhams a square foot, the highest since October 2008 when property prices began to fall. Authorities are taking proper steps to avoid new property bubble forming. Dubai, which suffered one of the world’s worst property crashes in 2008, has doubled the property-sale fees in a bid to limit speculation and avert another housing bubble (link).
Effective Rent is defined as the remaining cash the landlord receives after paying all expenses for operating the property, and any costs for tenant work to get the space ready for occupancy. Effective rent is also often referred to as Net Effective Rent (NER). Effective rent is expressed in amount per area unit per time unit i.e. USD/SqM/mo. and is calculated over the lease duration. It is a common practice to take time value of money into account while calculating the effective rent. Base rent (quoted rent), tenant improvements (TI), rent-free period and escalation clause are the main variables. A
Financial calculator is a must have for any real estate analyst. It should be kept in mind that you are more likely to use spreadsheets (or custom software) for more advanced analysis. Excel is far more powerful than any hand-held financial calculator; and while doing advanced analysis a financial calculator may be not required at all.
HVS India has released the Trends & Opportunities Report for Indian hospitality sector. The report also outlines existing and future opportunities in the hospitality industry of specific interest to investors, developers and hotel operators.
Net present value (NPV) is defined as the sum of the present values of the individual cash flows (both incoming and outgoing) of a series of cash flows. In other words, it is the current worth of a future sum of money or stream of cash flows at a certain discount rate. In one of the previous posts, we have discussed in detail the definition, calculation and Excel formula for net present value. Refer this net present value post for more details. In this post we will be calculating the net present value (NPV) for the project and for the
Loan amortization schedule in Excel can be created either by using a template or creating a custom schedule – the easiest method will be using the template which is already in your Excel package. Alternatively, we can create a custom loan amortization schedule using IPMT and PPMT functions. First we will look how to use the inbuilt template in Excel to create loan amortization schedule.