1
Ch 15: Forecasting and Analyzing
Risks in Property Investments
Applying Quantitative and Qualitative
Forecasting Methods,Together With Risk
Analysis, to Evaluate Real Estate Investments.
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2
Property Investments:
Long Term Risky Assets
Property investment analysis requires the
full application of all capital budgeting
techniques:
Forecasting: quantitative (i.e statistical) from Ch 3
qualitatative ( i.e judgmental) from Ch 4.
Risk Analysis: RADR and CE from Ch7.
Risk Analysis: Sensitivity and
Break-even Analysis from Ch 8.
3
Property Investments:
Long Term Risky Assets
More Risk Analysis Techniques:
Simulation from Ch 9.
Scenario Analysis from Ch 10.
4
Cash Flow Forecasting For An
Income Producing Property
Forecasting Rent:
(a) rent under the lease- this is detailed in
the lease covenants
(b) market rent – rent may be adjusted
under the lease covenants, and on
lease expiry. Market rent forecasts
combine both qualitative and
quantitative techniques.
5
Cash Flow Forecasting For An
Income Producing Property
Forecasting Operating Expenses :
sometimes current expenses are grown
forward using a common inflation index,
such as the Consumer Price Index.
Forecasting Vacancy Rates:
a common method is to forecast these rates
as an annual average percentage of the lease
rental.