Real Estate Investment Model
Final – Real Estate Model
MBA 623, Spring 2012, Blk 1
Due 5:00PM, March 3rd, 2012
Problem Statement
Since 2003, I have invested in rental properties by acquiring some median income type houses in some prime locations in Fortaleza, Brazil. The business has been profitable but with home prices exploding at unjustifiable levels in Brazil now I feel forced to look for other markets to invest. The recent real estate crisis in the U.S. created a favorable economic environment by reducing acquisition costs and increasing rental demand. So last year, I purchased my first rental property in Draper. I am now looking at the possibility to expand my rental business, but first I would like to develop a model that could answers couple questions.
First, the model needs to be robust enough to tell me how long it will take replace my current salary, so I can have a comfortable retirement. Also, I would like to find out whether this investment is offering me a good return by calculating the Return on Investment of this endeavor and how to enhance my ROI.
Last but not least, I am trying to assess what variable would impact the rental income the most. For instance, according to the ARA Equimark report, some areas in Salt Lake have a lower vacancy rate compared with others. I would like to see how I could maximize the net present value of future cash flows by purchasing properties in different areas besides Draper.
System Description
The Real Estate Investment Model provides a clear picture of cash flows generated by investing my savings in real estate. It takes in consideration the following variables and assumptions:
Inflation will play a key role to help me to justify raising the rents annually. As part of my rental contract and for simplicity, I stipulated that I will adjust the rent payments and cost of life at least by the U.S. inflation rate.
Salary growth rate will be used to adjust my salary annually since I want to assess how long it will take to replace my
MBA 623, Spring 2012, Blk 1
Due 5:00PM, March 3rd, 2012
Problem Statement
Since 2003, I have invested in rental properties by acquiring some median income type houses in some prime locations in Fortaleza, Brazil. The business has been profitable but with home prices exploding at unjustifiable levels in Brazil now I feel forced to look for other markets to invest. The recent real estate crisis in the U.S. created a favorable economic environment by reducing acquisition costs and increasing rental demand. So last year, I purchased my first rental property in Draper. I am now looking at the possibility to expand my rental business, but first I would like to develop a model that could answers couple questions.
First, the model needs to be robust enough to tell me how long it will take replace my current salary, so I can have a comfortable retirement. Also, I would like to find out whether this investment is offering me a good return by calculating the Return on Investment of this endeavor and how to enhance my ROI.
Last but not least, I am trying to assess what variable would impact the rental income the most. For instance, according to the ARA Equimark report, some areas in Salt Lake have a lower vacancy rate compared with others. I would like to see how I could maximize the net present value of future cash flows by purchasing properties in different areas besides Draper.
System Description
The Real Estate Investment Model provides a clear picture of cash flows generated by investing my savings in real estate. It takes in consideration the following variables and assumptions:
Inflation will play a key role to help me to justify raising the rents annually. As part of my rental contract and for simplicity, I stipulated that I will adjust the rent payments and cost of life at least by the U.S. inflation rate.
Salary growth rate will be used to adjust my salary annually since I want to assess how long it will take to replace my
References: http://www.equimark.com/pdfs/2010Jan.pdf http://www.housingwire.com/2010/07/01/short-sale-discounts-vary-widely-from-state-to-state http://www.realtytrac.com/trendcenter/ut-trend.html http://assessor.slco.org/cfml/Query/valuationInfo.cfm?parcel_id=28201010270000&nbhd=967&PA=1 http://www.nytimes.com/2007/04/10/business/11leonhardt-avgproptaxrates.html http://www.bls.gov/news.release/annpay.nr0.htm