Creating a cash flow analysis tool for private long-term real estate investment
Leponen, Meri (2015)
Leponen, Meri
HAAGA-HELIA ammattikorkeakoulu
2015
All rights reserved
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-201505117306
https://urn.fi/URN:NBN:fi:amk-201505117306
Tiivistelmä
This study looks at the profitability through cash flow analysis of long-term real estate investment from the private investor’s perspective. The focus of the project is on annual cash flow and refurbishment costs during a 20-year outlook period. The scope of the project is defined together with the commissioning private investor who has invested in apartments since 2011 and wants to discover whether the time, effort, and money used in the investments have been worthwhile and if the outlook of the investments are positive or negative in the long-term.
The before-mentioned refurbishment costs refer to the lifetime costs of the apartment. Refurbishment costs are estimated based on different materials that define their useful lifetime. With this knowledge, the cash flow analysis tool created in this project determines the timing and estimated costs of each repair and show the effect on annual cash flows and evidently overall success of the investment.
The main focus of this thesis in terms of theoretical framework is the basic real estate investment theories including formation of rental income and the lifecycle costs. Different investment methods such as return on equity are utilized in order to test, measure, and analyze the results of 3 different case apartments. In order to create the long-term cash flow analysis tool using Microsoft Office Excel, it is necessary to understand cash flow investment as an investment strategy. In addition, it is crucial to understand the different renovation types and to estimate the timing and estimated costs based on material knowledge. These concepts contribute to annual cash flow calculations through analysis and evaluation of the data using the tool designed for this purpose.
The research methods used in the project are desktop research and qualitative interviews with the private investor. The expertise of the private investor will provide the necessary data in the creation of the components for the tool as well as in the phase of inputting data to test the tool and analyze the profitability results. The tool is created using agile methods, which means that the tool is tested and validated after each modification. The process requires extensive desktop research in order to have the expertise to design the tool, test its validity, and give analytical outcome that will benefit the private investor as he will be able to make further decisions on findings with the tool in the future.
The before-mentioned refurbishment costs refer to the lifetime costs of the apartment. Refurbishment costs are estimated based on different materials that define their useful lifetime. With this knowledge, the cash flow analysis tool created in this project determines the timing and estimated costs of each repair and show the effect on annual cash flows and evidently overall success of the investment.
The main focus of this thesis in terms of theoretical framework is the basic real estate investment theories including formation of rental income and the lifecycle costs. Different investment methods such as return on equity are utilized in order to test, measure, and analyze the results of 3 different case apartments. In order to create the long-term cash flow analysis tool using Microsoft Office Excel, it is necessary to understand cash flow investment as an investment strategy. In addition, it is crucial to understand the different renovation types and to estimate the timing and estimated costs based on material knowledge. These concepts contribute to annual cash flow calculations through analysis and evaluation of the data using the tool designed for this purpose.
The research methods used in the project are desktop research and qualitative interviews with the private investor. The expertise of the private investor will provide the necessary data in the creation of the components for the tool as well as in the phase of inputting data to test the tool and analyze the profitability results. The tool is created using agile methods, which means that the tool is tested and validated after each modification. The process requires extensive desktop research in order to have the expertise to design the tool, test its validity, and give analytical outcome that will benefit the private investor as he will be able to make further decisions on findings with the tool in the future.