19 Oct Deliverable 4 will have you compare your chosen property development to a preexisting structure. For those of you who have chosen a pre-constructed investm
Must be in APA format.
I have uploaded the deliverable 1, 2 and 3 as well.
Deliverable 4 will have you compare your chosen property development to a preexisting structure. For those of you who have chosen a pre-constructed investment, such as a strip mall or an apartment building, you will compare your property to the construction of the same type of structure. For those of you who have chosen to evaluate a development project, you will evaluate the purchase of a preexisting structure similar to that of your development. For Deliverable 4, you are required to do the following:
For students who chose a preexisting real estate structure for Deliverables 1, 2 and 3:
- Identify the expenses associated with developing real estate from scratch similar to the investment that was outlined in Deliverables 1, 2, and 3. This will include location identification (town/state and the actual plot of land for the development) within the same market as the outlined investment and the outlined expenses to develop the real estate to be similar to the original investment.
- Identify the risks associated with the development and how these risks will be mitigated. How does time factor into the associated project risks?
- Create the pro forma cash flow statements for the development project including any differences for financing needs
- Predict the ARV for the property, IRR, and NPV for the project.
- Compare the development project to the investment identified in Deliverables 1, 2 and 3. Which option is the better investment—development or purchase of a preexisting structure—for your portfolio goals?
For students who chose a development project for Deliverables 1, 2 and 3:
- Identify the expenses associated with purchasing an existing property similar to the investment that was outlined in Deliverables 1, 2, and 3. This will include location identification (town/state and the actual property) within the same market as the outlined investment and any additional expenses required to make the property comparable to the development project.
- Identify the risks associated with purchasing a preexisting structure and how these risks will be mitigated. What additional considerations need to be made?
- Create the pro forma cash flow statements for the existing property including any differences for financing needs.
- Predict the ARV for the property, IRR, and NPV for the investment.
- Compare the purchase of the preexisting property to the investment identified in Deliverables 1, 2 and 3. Which option is the better investment—development or purchase of a preexisting structure—for your portfolio goals?
Deliverable 4 is due by 11:59 pm CT on SATURDAY.
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Business Finance Real Estate and Investment
Name
Colllege
Business 520
Professor:
September 23rd, 2024
Property Classification: Residential
The property's address is 3015 BLODGETT DR, COLORADO SPRINGS, CO 80919. The details suggest the property is residential. Like a luxury estate, it boasts a gourmet kitchen, a main-floor master suite, big sitting rooms, and private and public outside spaces for entertainment. It stands out with high-end finishes and is a comfortable fit for a single-family home, not a company or multi-family structure.
Brishen Combs of RE/MAX Real Estate Group, whose contact number is +1(719)896-1270, is selling the property.
Investment Usage: Buy and Hold
Due to its size, high-end finishes, and superb Northwest Colorado Springs location, the home is ideal for a "buy and hold" owner (Zillow). This technique involves buying a home to rent or sell later for a profit. A wealthy person looking to rent or buy a luxurious property in a wonderful region might consider this one. Its location and high-end features make it a favorable pick.
Pros and cons of "buy and hold"
Benefits:
Due to its location and facilities, the property should initially attract high-income tenants. This ensures constant rental income.
Appreciation Potential: The property's high-end features and desirable Northwest Colorado Springs location make it likely to appreciate.
Tax Advantages: Property owners may receive tax discounts for property taxes, mortgage interest, and debt repayment.
Long-Term Investment: Real estate protects you from inflation and offers a more predictable return than riskier investments.
Drawbacks:
The property's excessively expensive price ($265/sqft) and $7,977 monthly payment may deter low-income investors.
Luxury features like the property's walkout basement wine cellar and custom bar may increase maintenance and repair expenditures.
If the home does not rent fast, its high-end features could mean more unoccupied space and lower cash flow.
Market Sensitivity: A weak economy may reduce rental demand and luxury real estate property values.
Investment Criteria
The location is Northwest Colorado Springs.
Rich Briargate and Central Colorado Springs surround the home, which is in a prominent neighborhood. This location attracts wealthy tenants and buyers due to its proximity to excellent schools, recreation facilities, and recreational opportunities.
Price Point:
Cost per square foot: $265
After taxes, its value was $1400000.
The monthly cost is $7,977.
When calculating investment returns, consider how expensive the property is and how wealthy the area is.
The property is a superb "buy and hold" investment due to its high-end features and big square footage. These upgrades will make luxury homes more desirable to renters and buyers who want all the conveniences.
Recommended Lender and Loan Product
The Amerisave mortgage is the best lending option when all costs are considered—the cheapest mortgage in terms of total loan costs. The monthly payment is lower, and the total price is lower when you add up the fees and the amount you must repay (Jiang et al., 2020).
Conclusion
Finally, a "buy and hold" investment plan is the best way to maintain this property. Its luxury features and Northwest Colorado Springs location make it a terrific investment for long-term rental income and capital growth. However, potential investors must consider the large initial investment, market volatility, and maintenance expenditures. This property's premium price, fantastic facilities, and magnificent location make it a wonderful long-term investment.
References
Baum, A. (2021). Tokenization—The future of real estate investment. The Journal of Portfolio Management, 47(10), 41-61.
Jiang, Y., Ho, Y. C., Yan, X., & Tan, Y. (2020). When online lending meets real estate: Examining investment decisions in lending-based real estate crowdfunding. Information Systems Research, 31(3), 715-730.
Zillow. Blodgett Dr. Colorado Springs, CO 80919. Available at: https://www.zillow.com/homedetails/3015-Blodgett-Dr-Colorado-Springs-CO-80919/13650196_zpid/
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Sheet1
| RE/MAX Real Estate Group | |||||||||
| Rocket Mortgage | Payment | Principal | Interest | Balance | Payment Number | ||||
| Payment | $9,445.15 | ($9,445.15) | ($1,117.10) | ($5,590.67) | $1,118,882.90 | 1 | |||
| Loan Origination Fee | $11,200.00 | ||||||||
| Down Payment | $280,000.00 | ||||||||
| ALTA Loan Policy | $550.00 | ||||||||
| Hazard Insurance Est | $3,500.00 | ||||||||
| Taxes | $2,770.00 | ||||||||
| Payoff after Year 5 | $546,033.74 | ||||||||
| Total Loan Costs at Closing | $298,020.00 | ||||||||
| Quicken loans 30 yr | Payment | Principal | Interest | Balance | Payment Number | ||||
| Payment | $6,987.34 | ($6,987.34) | ($1,037.34) | ($5,950.00) | $1,118,962.66 | 1 | |||
| Loan Origination Fee | $11,200.00 | ||||||||
| Down Payment | $280,000.00 | ||||||||
| ALTA Loan Policy | $550.00 | ||||||||
| Haazard Insurance Est | $3,500.00 | ||||||||
| Taxes | $2,770.00 | ||||||||
| Payoff after Year 5 | $555,533.67 | ||||||||
| Total Loan Costs at Closing | $298,020.00 | ||||||||
| AmeriSave mortgage | Payment | Payment | Principal | Interest | Balance | Payment Number | |||
| Payment | $6,787.14 | ($6,787.14) | ($1,093.81) | ($5,693.33) | $1,118,906.19 | 1 | |||
| Loan Origination Fee | $0.00 | ||||||||
| Down Payment | $280,000.00 | ||||||||
| ALTA Loan Policy | $550.00 | ||||||||
| Hazard Insurance Est | $3,500.00 | ||||||||
| Taxes | $2,770.00 | ||||||||
| Payoff after Year 5 | $555,501.54 | ||||||||
| Total Loan Costs at Closing | $286,820.00 |
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Real Estate Investment Project
Name
College
BUSI 520: Real Estate Finance & Investment
Professor:
October 8th, 2024
Property Identification and Investment Usage
3015 Blodgett Dr, Colorado Springs, CO, is a luxury residential property with a primary classification of investment type as 'buy and hold.' It is a luxury home valued at $1,400,000, offering high-end finishes, gourmet kitchens, first-floor master bedrooms, and large outdoor spaces for private or social entertainment. It is located in the affluent outskirts of Northwest Colorado Springs, centered around schools, parks, and shopping centers. The initial approach to this property, normally referred to as buy and hold, involves buying this property and finding tenants to realize month-on-month streams of income while selling the property in the future for an appreciation in investment. This property is alluring for the affluent, high-end class since the area's luxury characteristics will make the property a good investment in the long run. This property would, therefore, be ideal for investors whose aim and focus are on returns through rental income and appreciation in the value of the property over time. However, would-be buyers face the challenges of an initial cost with high mortgage rates and, further on, are called to keep paying tenants for that house constantly to make a profit out of it.
Comparable Properties and Competitive Offer
Three comparables were found within the same locale to deduce a competitive offer for 3015 Blodgett Dr. These comparables showed luxury finishes, square footage, and locations within some of the richest neighborhoods in Colorado Springs. The comparables were:
· Property A: Priced at $1,350,000, this property is slightly smaller but offers similar luxury finishes and location.
· Property B: Valued at $1,425,000, it has a similar floor plan and additional outdoor amenities such as a custom swimming pool.
· Property C: Listed at $1,380,000, this property features comparable outdoor spaces and high-end interiors.
These comparables indicate that the competitive and suitable offer price would be $1,375,000. This price offer would keep the property aligned with the local market and would simultaneously give room for some negotiation. With its high luxury status, such high pricing can be justified to ascertain its desirability, enabling it to attract high-income-earning tenants.
Renovation Needs and After Repair Value (ARV)
The property at 3015 Blodgett Dr. is in very good condition, and it only needs minor renovations to keep it relevant in the luxury rental market. Renovations include bringing the outdoors up to date with current amenities that would attract luxury renters; this would include an updated patio area with additional landscaping. With the assumption that such renovations cost an estimated $40,000 for landscaping improvements, patio enhancements, and minor interior updates, including repainting and replacing fixtures, the after-repair value would appreciate by approximately 7%, bringing the possible value to $1,495,000. This added value would not only increase the resale price but also contribute toward higher rents that tenants with modern tastes and desires for a more luxurious lifestyle would pay for.
Pro Forma Cash Flow Statement
The "buy and hold" strategy was considered in developing the pro forma cash flow statement. That is, the ownership of the property is assumed for a period of three years. The mortgage options reviewed include a 30-year fixed mortgage at the current rate of 6.11%. Based on the provided data, the financial aspects are as follows:
· Purchase Price: $1,400,000
· Down Payment: $280,000 (20% down)
· Mortgage Loan Amount: $1,120,000
· Loan Origination Fee: $5,600 – $14,000 depending on the loan product
· Monthly Mortgage Payment: Approximately $6,847.40 (based on a 30-year fixed mortgage at 6.11%)
· Estimated Renovation Costs: $40,000
· Estimated Monthly Rental Income: $12,000
· Monthly Expenses (taxes, insurance, maintenance): $3,500
· Annual Property Taxes: $2,400
Cash flow analysis reveals that with mortgage payments, taxes, insurance, and maintenance accounted for, the property would yield a positive monthly cash flow of approximately $2,651.60. Full occupation of the property and the absence of major unplanned expenses are assumed (Gyourko & Molloy, 2021).
The property’s projected cash flow for three years is as follows:
Over the three-year period, the property is expected to generate a cumulative net cash flow of $95,187.85. This figure assumes no major changes in rental income or unexpected increases in operating expenses.
Financial Metrics – Cap Rate, Cash Flow, and NPV
Several key financial metrics were calculated to determine the viability of this investment:
i.Capitalization Rate: The cap rate was calculated by dividing the NOI by the purchase price of the property. On an estimated annual NOI of $66,000 and a purchase price of $1,400,000, the cap rate works out to approximately 4.7%. This is below the average and indicates a high-quality, luxury property with reasonable income consistency.
ii. NPV: The NPV was estimated at a 6% discount rate. Given the forecasted cash flows over three years, the NPV is positive, indicating that this investment could yield more than the principal value invested (Gyourko & Molloy, 2021). A positive NPV supports the view of making this a long-term investment in this property (Wang & Wu, 2022).
Iii Cash Flow: The monthly cash flow, as reflected in the pro forma statement, is positive under the selected mortgage option. Surplus money of $2,651.60 each month would ensure that the investor can cover operational costs and thereby yield a return on investment.
Conclusion
The investment property at 3015 Blodgett Dr. is an exemplary "buy and hold" opportunity for investors seeking to realize long-term income appreciation. Its status as a luxury home, complemented by its prime location in Northwest Colorado Springs, epitomizes this property for desirability among upscale tenants. A competitive offer of $1,375,000 with very limited renovation needs will allow the subject property to provide consistent rental income while appreciating over time. Metrics from a financial standpoint include an NPV of positive value, a cap rate of 4.7%, and a positive month-to-month cash flow. Although the initial investment cost is pretty steep, the long-term benefits of owning part of this region's luxury property outweigh the negative attributes. However, while planning, an investor is to be prepared for market volatility or seasonal vacancy in the future.
References
Gyourko, J., & Molloy, R. (2021). Regulation and housing supply. Regional Science and Urban Economics, 86, 103217. https://doi.org/10.1016/j.regsciurbeco.2021.103217
Wang, Y., & Wu, J. (2022). Real estate investment and economic growth: A comprehensive review. Journal of Real Estate Literature, 30(1), 65-87. https://doi.org/10.1080/10835547.2021.1964719
Liu, Y., & Wang, S. (2023). The impact of COVID-19 on real estate investment decisions. Journal of Property Investment & Finance, 41(2), 141-156. https://doi.org/10.1108/JPIF-09-2022-0071
Bhattacharya, J., & Koval, V. (2023). Analyzing housing market trends: A case study of urban areas. International Journal of Housing Markets and Analysis, 16(1), 25-42. https://doi.org/10.1108/IJHMA-12-2021-0182
Chen, Y., & Chang, C. (2023). The role of financial technology in real estate investment: Opportunities and challenges. Real Estate Economics, 51(3), 563-590. https://doi.org/10.1111/1540-6229.12318
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1
Real Estate Finance and Investment
Name
College
BUSI 520:
Professor:
October 8th, 2024
Market Analysis
Due to its high-end services and comfortable lifestyle, the house at 3015 Blodgett Dr, Colorado Springs, CO, is popular. Many factors are considered when doing a market analysis, including:
Provision of Extra Features: Many high-end single-family homes in Northwest Colorado Springs are currently for sale. In the top-end rental market, residences cost $1.3 million to $1.6 million within a mile, indicating considerable competition and demand.
Finding Vacancy and Sale Rates: This area's low vacancy rate of 5% indicates considerable rental unit demand. Homes in this neighborhood sell for about 30–60 days, making the market strong.
Prices and rates: it is reasonable to charge $5,500–$7,500 per month, which is the average rent. Based on these considerations, the house rental location seems good. The rental market is tempting since there are few unoccupied properties, and high-end homes are sought.
Tax Considerations
Tax impacts must be applied to pro forma cash flow.
Real estate taxes are $14,000 per year, or 1% of the purchase price. Earnings Duties: Federal and state taxes will significantly impact cash flow at 25% (Berry, 2021). Methods for cash flow calculation:
Pretax Cash Flow shows -$7,679.48 annually.
Tax implications: Negative cash flow can pay taxes. Changing the taxed income may result in a modest tax obligation if the property's reduction in value is a tax shield.
After-tax cash flow: Still negative after taxes, but less negative after-tax savings. This is because tax exemptions reduce income tax.
Internal Rate of Return (IRR)
Pre-tax IRR is expected to be 5%. Using the estimated five-year financial flows, including rental income and sale proceeds, to calculate this value. The internal rate of return (IRR) compares the initial investment to the predicted cash flows from rental income and property sales to determine investment profitability (Hazen & Magni, 2021).
Mortgage interest deductions can boost cash flow by lowering taxed income. You can compare it to other investments better with an after-tax IRR closer to 6% or 7%. This number indicates how much these deductions can affect the property.
Plans to reduce risks
Market Risk: The study's methodology: Economic considerations can significantly impact market circumstances, renting demand, and property values. Local job rates, demographic changes, and economic downturns may empty properties and lower rental income.
Risk-reduction strategies: Regular market evaluations every six months allow real-time changes to rental price plans and marketing initiatives. Maintaining local economic data and trends helps you anticipate demand changes (Li, 2020).
Operational Risk: The study process: Unplanned maintenance issues could raise the final cost. Tenant damage or infrastructure failure may increase costs.
Risk-reduction strategies: Start a maintenance fund: Set aside some of your rental money for unexpected repairs to reduce maintenance expenditures.
Exit Strategy
Improvements and fixes: The analysis: Making the property more desirable to tenants and letting the owner charge higher rents can boost its resale value and rental income.
Action Plan: Specific Update Comments: Focus on the kitchen and bathroom, which are utilized most. Updates to these rooms might make the house more appealing to purchasers. Consider energy-saving upgrades to cut costs and attract green renters.
Home Improvement Cost Estimate: Set a repair budget to ensure that the investment yields the desired benefits. Based on local market data, prioritize renovation projects by ROI.
References
Berry, C. R. (2021). Reassessing the property tax. Available at SSRN 3800536.
Hazen, G., & Magni, C. A. (2021). Average internal rate of return for risky projects. The Engineering Economist, 66(2), 90-120.
Li, X. J. (2020). Research on investment risk influence factors of prefabricated building projects. Journal of Civil Engineering and Management, 26(7), 599-613.
