What types of real estate exist?
Income producing
Trading
Development
Market value - defining elements
Amount of money is estimated
Date of the consideration is the valuation date
Two distinct and independent players
Adequate marketing
Full knowledge of all the information (both buyer and seller)
Investment value - definition
The value of an asset to the owner or a prospective owner for individual investment or operational objectives
NPV as a criterion - pros and cons
Pros:
Associative property
Takes into account all cash flows
Discounts at CoC
Cons:
Does not take into account the dimensions of the initial investment
Does not take into account the investment´s length
IRR as a criterion - pros and cons
Pros
Can be used when the cost of capital is not known
Percentage -> easy to compare with other investments
Easy to understand
Cons
More than one IRR possible
No IRR without upfront costs
No associative property
Two ways to calculate the PBP
At FCFE or FCFO
With or without discounting -> possible to take into account the time value of money
Reasons why NPV shall be preferred
Considers cash flows
Discounts cash flows at the cost of capital
Drivers affecting the reliability of a real estate financial plan
Rental growth
Disposal prices
Exit cap rates
Operating costs
CAPEX
Effective tax rates
Capital structure
Cash flows (FCFO, Investment valuation) - requirements
Monetary
Differential (e.g., no sunk costs)
Net of taxes
Gross of financial charges
Working capital - core assets
Inventory
Advances to suppliers
Accounts receivable
VAT credits
Working capital - core liabilities
Accounts payable
Severance fund
Advances from clients
VAT debts
FCFO in the case of an INCOME PRODUCING PROPERTY
NOPAT
+ Depreciation
= CF from Operations
- Fixed Assets Investments
- Fixed Assets Divestments
= FCO
-> WC = 0
FCFO in the case of a Development Project
+/- Var. Inventory
+/- Var. Receivables
+/- Var. Advance payments
+/- Var. Trade debt
=FCFO
Last changeda year ago