Real Estate Analysis

Jing Yang

1.

Loan amount; loan constant (k); net operating income; amortization period; spread.

2.

Strength:

First, income from tenants. The biggest benefit of owning an apartment property is that the tenants will provide you with a direct income stream. Those monthly rents will go straight into RAT’s account, ideally more than offsetting any expenses for the month. The property has 9 x 2 or 3 story apartment buildings each containing from 12 to 18 units. According to the October 2016 income statement given in Exhibit A, the total monthly gross income is $198,070, which is greater than its monthly expense of $143,600, implying its considerable income. Based on the leasing history, vacancies had not been an issue of this apartment for years. When apartments became vacant, the new tenants usually moved in within a month. Therefore, this property will bring huge and continuous profits in the future.

Second, income from Property Value Growth. In addition, since RAT own the property, they stand to gain from an increase in the property value over time due to changing demands in the area, even if the property doesn’t undergo any changes. The value of this apartment may rise significantly over the course of a few years.  Because it is easy to route the highway. It nears the Newton School system which has an excellent reputation. It also nears a large park and shopping area.

Third, Sweat Equity. The other factor that RAT should consider is that the sweat equity is likely to add additional value to the property as they maintain and upgrade it. Doing things like repainting the home, adding new siding, refinishing the inside, doing some basic landscaping to the yard, and so on will add value to the home without significant financial cost. Not only will this allow you to charge more for rent, it will also increase the value of the property itself should you choose to sell it in the future.

Weakness:

On the other hand, there are a number of disadvantages to owning this apartment property. Individually, these disadvantages are relatively small, but they add up to a significant cost.

First, Concentration of Assets. One drawback to investing in a rental property is that for most people, owning an apartment property is a serious concentration of their assets. The problem with that concentration is that it’s not diversified at all and leads to higher risks than diversified portfolio. That investment is in a specific apartment property, so they may lose a lot of money if the property itself encounters any unexpected accidents or the whole real estate market goes downhill.