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compare equity financing to debt financing
financial statement analysis essential to management, investors, and creditors.
effectiveness of financial leverage
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There are various financing options for the type of business I want to open and operate which is a Real Estate Investment company. Structuring these financing instruments accordingly is important and relevant to the overall success of the potential income-producing real estate investments. Moreover, selecting the right financing option depends upon the factors involved on each deal or transaction such as the time horizon, the volume of transactions and the type of property being purchased. All of these factors play a big role in selecting the right financial instrument. (Berges, 2004)
There are three financing instruments I could probably use depending on what I think would be the right choice for the company’s unique objectives and goals. Debt, equity and partnerships are some of the financing options available for this type of business, and each carries benefits as well as drawbacks. Furthermore, when using any type of financing options, the company must keep in mind a very important factor called leverage; being highly leverage can cause an investor to go under quickly. A quick example would be as follows: if the interest rate on a loan is 5.0 % and the expect return on asset is 10% than the leverage is positive. (Berges, 2004)
Debt financing happens when a company or an individual acquires a loan, using other people’s money, which can come in the form of debt or equity. This type of financial option is available through obtaining a loan from a mortgages company, a bank, or family members. “Financing with debt typically requires that you repay a loan with predetermined terms and conditions such as the repayment term (number of years to repay the loan)”. (Berges, 2004, p. 66) When using debt to acquire a house as an invest...
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...roperties. However, I think that based on my research and the overall strategic plan of the business, we would only consider the methods mention here. Furthermore, financial statements are a very important part of a business. These statements help with the every day operations of a business and are great tools to get confidence from investors as well as banks.
Reference
Berges, S. (2004). The Complete Guide to Real Estate Finance for Investment Properties : How
to Analyze Any Single-family, Multifamily, or Commercial Property (pp. 61-79). Hoboken,, NJ: John Wiley & Sons, Inc. Retrieved February 4, 2011, from NetLibrary.
Kaplan, J. M., & Warren, A. C. (2010). Patterns of Entrepreneurship Management (Third ed.). Hoboken, NJ: John Wiley & Sons, Inc.
Solomon, M. R., Poatsy, M. A., & Martin, K. (2010). Better Business. Upper Saddle River, NJ: Prentice Hall.
In existence is $150,000, specifically set aside for the purchase of distressed real estate. This essay will outline a detailed strategy ensuring a maximum return in regard to the financial investment made on the home. Including a description of distressed real estate and foreclosure in addition to how utility can play a role in the decision-making process.
Financial statements are essential to the success of a small business. Financial statements have a value that goes far beyond preparing tax returns or applying for loans, and can be used as a roadmap to steer you in the right direction and help you avoid costly breakdowns (U.S. Small Business Administration [USSBA] 2014).
“The objective of financial statements is to provide information about the financial strength, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions.”
The subject of this report, estate agencies, and Ledingham Chalmers in particular, were chosen because at some point in everybody's life, property is going to be in the picture, and most likely all business linked to that will be handled through an estate agent's. The reason for choosing property, over so many other possibilities, is that the professional skills required in each of the fields connected to property managing are fairly similar, or at least carry a few basic similarities. Hence, it was easy to draw an outline of the skills required.
National Association of REALTORS. (2010) Profile of home buyers and sellers 2010. Chicago: NAR Publishing.
For fiscal 2011, the real estate allocation was around 28% of its assets. The real estate portfolio of Yale was reviewed by their real estate managers and Yale’s had exercised a wide range of control and continuously reviewed the investment decision of the real estate managers. Additionally, they had pared its portfolio to focus on those managers with whom the staff was most comfortable in terms of people and execution. Since there has a lot of challenges invest in the real assets, recently, Yale’s has considering to reclassify the real assets into two groups, real estate and natural resources (oil and gas, minerals and mining, and timberland).
Lendlease is a leading international property and infrastructure group, with a business model that contains three basic components. Those three components are development, construction and investments. In development, they focus on developing communities, apartments, retail areas and social/economic infrastructure. In construction, they focus on defense, commercial, residential sectors and pharmaceutical buildings. In investing, the investment management platform also includes the Group’s ownership interest in property and infrastructure co-investments, retirement living and US military housing. Lendlease is an Australian company but has business headquarters in 4 regions of the world. These regions are Australia, Asia, Europe
Each step of the appraisal process involves an unknown amount of estimation error. The combination of these errors is unlikely to produce a perfect, error-free estimate of value. Thus, appraisal error is virtually unavoidable. Investors need reasonable estimates of value when buying, selling, or retaining commercial property, so an unknown amount of appraisal error adds uncertainty to the decision-making process. Despite the uncertainty, investors have learned to make allowances for appraisal error in their decision-making processes. The way in which real estate investors interpret appraisal errors has a material effect upon the decisions that they make. In particular, the predominant belief among real estate professionals is that appraisal error is random. This belief materially influences investor attitudes toward portfolio management and the valuation process itself. Lack of understanding of the relative magnitudes of random and nonrandom components of total appraisal error has consequences for optimal portfolio strategies. For example, investors who deem the bulk of total appraisal error to be random may reasonably conclude that error in estimates is beyond their control or influence. To minimize total portfolio valuation error, such investors may assemble large, diverse portfolios even though the cost of owning an array of properties of various types and in various locations is expensive. On the other hand, if the bulk of total appraisal error is nonrandom, investors would do better to pay attention to improving value estimates on each property rather than hoping that the errors in values of a large pool of properties will offset one another. In particular, investors should institute valuation controls and procedures to minimize the errors in each valuation of individual portfolio assets. Such controls might include obtaining multiple simultaneous estimates, changing appraisers for each periodic revaluation, or increasing the frequency of valuations. This conclusion becomes particularly significant in light of studies like Miles that determine that the typical magnitude of total appraisal error is about ten percent of appraised value. Information in three recent empirical studies provides evidence that previous appraisal research has been mistaken in assuming most appraisal error to be random. The demonstration that most appraisal error is nonrandom should encourage real estate investors to focus additional attention on individual asset selection and valuation at the expense of portfolio assembly.
There is a range of criteria relevant for a decision of financing a new venture. To construct my list for the evaluation of a new company as an opportunity I have selected to refer to t...
“Real estate is land, all of the natural parts of land such as trees and water, and all permanently attached improvements such as fences and buildings. People use real estate for a wide variety of purposes, including retailing, offices, manufacturing, housing, ranching, farming, recreation, worship, and entertainment.” (Answers.com) In order to more specifically focus on a specific area of real estate this discussion will deal with the housing industry of real estate. In this discussion, when housing is analyzed it will be in the realm of rental real estate.
The real estate sector comprises different groups of companies that own, develop and operate properties, such as residential land, buildings, industrial property and offices. Because real estate companies usually buy out the entire property, such transactions require large upfront investments, which are quite often funded with a large quantity of debt. One metric that investors pay attention to is the degree of leverage the real estate company has, which is measured by the debt-to-equity (D/E) ratio. In May 2015, the D/E ratio for the real estate sector ranged from
For this study, we will analyze 2 out of 85 property companies’ (which are listed on Bursa Malaysia) capital structure for the year 2010 and 2011. These two companies are IGB (Ipoh Garden Berhad) and Encorp Berhad.
The financing decisions should be made with a view to achieve that target capital structure set by the management of the company. After existence of a company for few years, the financial manager then has to deal with the existing capital structure. Almost every company needs funds to finance its activities continuously. Each time the funds have to be arranged, the financial manager needs to consider the advantages and disadvantages of various sources of finance and selects the best option keeping in view the target capital structure.
...anks and lenders, investors putting up equity tend to take a more long-term view and most don't expect a return on their investment immediately. None of the profits will need to be channeled into loan repayment, and more cash on hand will be available for expanding the business in addition to there being no requirement to pay back the investment if the operation or project fails. On the other hand, a bank or lending institution has no say in the way you run your company and does not have any ownership in the business, and business relationship ends once the debt is repaid. Interest on the loan is tax deductible, and principal and interest are known figures you can plan in a budget (provided that you don't take a variable rate loan). Ultimately the best combination of equity and debt financing will depend on the business needs and what is the best fit for the project.
The capital structure of a firm is the way in which it decides to finance its operations from various funds, comprising debt, such as bonds and outstanding loans, and equity, including stock and retained earnings. In the long term, firms seek to find the optimal debt-equity ratio. This essay will explore the advantages and disadvantages of different capital structure mixes, and consider whether this has any relevance to firm value in theory and in reality.