1 / 0

Aggie Investment Club

Aggie Investment Club. Securities Analysis Workshop: Real Estate 2/11/2010. Tonight’s SAW. Why own real estate? Real Estate Analysis Approximate valuations Case Studies Case 1: Buying an apartment building* Case 2: Selling apartment building to management company*

cicily
Download Presentation

Aggie Investment Club

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Aggie Investment Club

    Securities Analysis Workshop: Real Estate 2/11/2010
  2. Tonight’s SAW Why own real estate? Real Estate Analysis Approximate valuations Case Studies Case 1: Buying an apartment building* Case 2: Selling apartment building to management company* Case 3: Buying stock in a company that owns the apartment building* ROI Example* Value Added Investment Example * Taxes and depreciation were intentionally left out for simplicity
  3. Pro’s to Owning Real Estate Return consists of property rental revenue and property appreciation Control over your investment (can add value through improvements, monitor costs, etc) Historically a strong hedge against inflation Tax incentives (interest, closing costs, etc are tax-deductible)
  4. Basics of RE Valuation “100 Rule” Approximation Multiply 1 month’s rent by 100 Actual value varies depending on building age, location/appreciation rates, etc. Traditional valuation: Discounted cash flow Comparative Transaction Multiples ($/SF) Quick Comparisons: “Cap Rate” Operating Income / Purchase Price, aka (EBITDA / EV) Which one is right? How do you choose?
  5. 20 Unit Condominium Building Case Study 1
  6. Comparative Transaction Multiples
  7. DCF Analysis Let’s take a closer look
  8. Case 1 Summary
  9. Strategic Buyer: 20 Unit Condominium Building Case Study 2
  10. Comparative Transaction Multiples NO CHANGE! Comps are comps…
  11. DCF Analysis Let’s take a closer look
  12. Case 1 & 2 Summary Usually Comp values will fluctuate more with the market
  13. IPO Property Owner: 20 Unit Condominium Building Case Study 3
  14. IPO Scenario
  15. Total Valuation Summary Strategic acquirer’s can justify higher valuations Much of valuation is up to your assumptions: junk in, junk out
  16. Based on Case 2 Example ROI
  17. Return on Investment All depends on your assumptions once again The terms of the loan make a big difference Let’s play on Excel…
  18. My Recommendation for RE Let’s look on Excel for this one. Buy a distressed property in a good location at a fair price for it’s condition Buy from Trusts, Estates, personal contacts, etc Remodel the building and bring it up to date There are many fixes you can do that make a big difference without costing a lot (i.e. refinishing floors, repainting, new trim and add crown molding, new fixtures, new appliances, knock out a wall to make it feel bigger, etc) Rent the refinished units at multiples of their previous rent rate
  19. Summary High rental values and lower maintenance costs come from good location and high quality construction All modeling is highly variable depending on your assumptions; the more assumptions, the higher your probability of errors Do your homework and know your assumptions! All investing comes down to 2 things: 1) Hard Work (do your homework) and 2) Emotional Intelligence (don’t get caught up in the market).
More Related