Angus Cartwright

Song Han Nguyen

FE 469 – Summer 2015

Prof. Munsell

6/9/2015

ANGUS CARTWRIGHT III

        John and Judy DeRight want to invest in real estate properties that meet the following criteria: (1) the property is large enough to attract a professional management company, and (2) has a minimum leveraged return on investment of 12% after tax. From Angus Cartwright analysis, all four potential properties meet both criteria though they carry different risks. Based on the Investment Ranking (Exhibit 7), 900 Stony Walk and Ivy Terrace are less attractive investments: 900 Stony Walk generates the least return but is the most expensive to purchase, and Ivy Terrace has the lowest future value.

The analysis suggests Alison Green as the safest investment, and I would recommend this property to John for the following reasons:

• John is retired and would probably be interested in a less risky investment to live comfortably. Alison Green only needs to occupy 64.84% of the unit for John to breakeven. The investment is significantly lower risk than the rest. 
• Alison Green provides a higher income stream than the others (Exhibit 7).
• A debt to Coverage ratio of 2.0 indicates that the property would easily generate enough income to pay its debt obligations (Exhibit 4).
• Alison Green has the second highest tax shelter at -18.4% (Exhibit 9)
• It also produces the second highest capital gain from its large value appreciation over 10 years (Exhibit 7). This allows John to take advantage of the new tax law and pay this gain at only 15%.

Having the highest IRR of 15.38% makes the Fowler Building the most attractive property (Exhibit 6). However, it remains the riskiest investment with the highest breakeven occupancy (Exhibit 4). Since high risks come high rewards, I would recommend the Fowler Building for Judy:

• Judy is an executive and can be a more aggressive investor with more available fund to diversify her portfolio. For this reason, Judy is willingly likely to take more risks to gain higher future return.
• Despite having lower tax benefits and cash flows, Fowler building has the highest future value, thus highest capital gain (Exhibit 7).
• For an investor that is more growth- than cash-flow-oriented, the Fowler building is a great long-term investment having the highest profitability index (Exhibit 6).

All properties appear to be large enough to attract the interest of professional real estate management