Abstract
M.Com.
The potential investor in real estate is often confronted with a selection
of properties in which he can invest. Each of these investments involves
an expected rate of return and a risk that can be expressed in relation to
each other. This relationship, known as the risk profile, differs from
investment to investment and is therefore unique to a particular
investment.
The expected rate of return on an investment in real estate depends on the
total expected tenant income less operating expenditures. Furthermore,
the expected rate of return is influenced by the choice of capital
structure. To be efficient, the capital structure must combine own as
well as borrowed capital. Expected gross tenant income increases from
year to year in terms of the escalation clause. The market average
discount rate, at which income is discounted, does not necessarily have to
differ from year to year. Consequently. a higher income could lead to a
higher discounted value.
The risk of investing in real estate is influenced by various factors such
as location, interest rates, mass opinion, tenant mix and operating risk...