Liquidity is a Major Disadvantage for Real Estate Investors
出处：论文网
时间：2004-11-20
Real estate is a sort of traditional outlet for investment. The current real estate industry in china is just at the age of a boy. The exploitation of real estate is an industry of high profit which leads to the interests of many investors. The characters of real estate greatly affect the decisions made by investors.
Ⅰ．Introduction of the investment of real estate
⒈ The concept of real estate and its character
Real estate can be defined in generalized way or narrow way. Generally, real estate means soil and the buildings on it with its infrastructures and natural resources such as water. Narrowly, real estate means the buildings on soil and the rights involved by them. Here, we will take about real estate narrowly that are permitted by national laws to be invested by individuals.
The character of real estate:
a) Expensive
b) Hard segment
c) Can not be moved
d) Can not be added
e) Can not be replaced
f) Maintenance
g) Can be invested and consumed at the same time
⒉ The character of investment of real estate
a) The dealing of investment of real estate is combined closely with real estate
b) The location and around area and individual difference of real estate determine the difference of profit and price made by grade.
c) The maintenance of real estate determines the credibility of the investment of real estate.
d) Large scale of investment and long cycle of exploitation. The slow turnover of the investment of real estate should be considered.
e) The investment of real estate keeps alive and brings increment with the development of society and increase of population and increasing demand of soil which lead a trend of increasing price of real estate.
⒊ The advantage and disadvantage of investment of real estate
² Advantages: can be used personally and be invested；can get profit after a long time; can offset the loss of devaluation; as security for the loan.
² Disadvantages: ill liquidity; takes a lot of time and energy to manage after being rated; needs a lot of fund; at big risk.
Ⅱ．Lacking of liquidity is the main problem for investors of real estate.
⒈ The character of real estate determines its ill liquidity especially for the liquidity of found.
⒉ The reason
Firstly, it is caused by the high cost of dealing of investment. A large sum of found is needed in the investment of real estate and can not become return in a short term.
Secondly, the process of dealing is quite complicated. The cycle of construction of real estate takes a long time sometimes lasting for about four or five years, which leads to a complex procedure during the process of dealing.
Thirdly, the market of real estate is graded. The subsidiary market causes the lake of information for investors. the value in market is different with the real value of real estate. Real estate can not be moved like the other commodities. the difference of market causes a low flow of real estate.
Fourthly, the investment of real estate can not be segmented to gain profit in a long run. A little factor affects the return of investment.
Finally, houses owned by investors are rent for money. Different price of houses owned by different investors is always caused by the differences of location, communication, environment, attached facilities and styles of house. The over exploitation of real estate may increase the rate of leaving unused empty houses, which slow the liquidity of the found of the investors.
Ⅲ．A supposed example
Suppose you have a found of 200,000 dollars to invest for a house. If you pay 40,000 for the first time, and the rest 16,000 dollars will be paid by loan from bank. Would you keep on your investment?
1. You should make sense what you will gain as a return?
In the coming 6 years, if the house you owned revalued to 2,802,000 dollars at a rate of 5.9% annually, that means you have gained a profit of 820,000 dollars. It will be a good deal, but it is not the case.
Actually, there is a big problem of calculating without the thinking of a large sum of cost.
a) Suppose the deadline for the loan of 16,000 is 30 years at the rate of 16%, you have paid 13,763 dollars with the profit of 95,763 dollars.
b) At the same time, you also paid 55,305 as an interest of loan. If the rate for tax is 25% and the rate of loan equals the outlay of tax, the cost of your interest after tax would be 41,419 dollars. Subtract this interest from your profit, and then your profit of investment will decrease to 54,284 dollars.
c) The cost for gain this profit is much high. The 5% for medium decrease your profit from 14,100 to 40,184 dollars.
d) Except for the additional cost such as costs of house renovation, insurance for house owners, tax for house and procedure of loan, the profit of your investment just became a little.
Moreover, the above calculation does not include the cost of house fitment. Compared with cost, the profit is small. When calculating the profit of investment, what you should consider is not only the revalue of your house, but the money you saved for rent as a house owner.
2. Make sure your found does not leave unused
If this money is in short-termly you can’t used to the other purposes, so at invest to repay the longer circumstance in period bottom can still consider the investment. But if you want to acquire the income the solution a certain and urgent problem with this investment, that may because the real estate investment flows lack sexually but make affair even worse.
3. The investment risk eavlaution
The investment house property should still notice:
District, transportation, kit facilities, house a type, these will affect the mobility ability of the real estate.
Ⅳ．The way of reducing the ill liquidity
⒈ An investment fund of Real estate
Be started by profession real estate operation organization and the real estate industry investment fund that manage, can not only make the investor acquire the higher investment rate of return, but also can evade the risk of the investor availably, the other investment way can’t compare to this, so society a lot of free fundses is positive to look for the opportunity participates the real estate development. The real estate market is an operation that funds high degree is intensively, can say, having no the funds and then have no the real estate. The development investment is large-scale, the period is long, the worth an and expensive etc. in real estate characteristics makes real estate development, investment the funds of the demand measure bigness, and impatient of extend the reproduction, the for this reason funds collects the real estate develops the problem that company most concern.
⒉ Calculating the sound investment repays the rate prevents the blindness
Investment: Divided by investor but speech, invest objective calculate way in income is according to time divide the line for-rent age, income with expend very much the proceeding calculation. Income be rental that month that for-rent income, the expenditure includes a payment, the bank presses return style, repair the expenses, herd the industry fee, provide the fee of , car a fee and lie fee etc. inside. Still there is a cost, be your investment an opportunity cost for in bankly or proceeding other investment bringing, if calculate into these, invest to repay the rate possibility would be much lower. The investor must want to all consider into above these factorses at the time of computing own house investment repaying rate.
By any large, lower time in interest rate, the bargain cost of the real estate is low, in keeping with real estate investment; And interest rate higher hour, cost and expenses too high, cause the herding industry not easy rent or sell. The investor demand has the market experience with the abundant profession knowledge, lowering the investment risk, canning just get to expect of repay.
Investment calculation method:
① the rental repays rate analysis method
Formula: ( monthly thing in rental － in month in empress in tax law industry management fee) × 12/ purchase the total price in house
② rental recovery period analysis method
Formula: ( the month in empress in tax law rental － provides by the month of a style) × 12/( a period building style+ period building time inside by the style )
③ internal rate of return analysis method( the method of IRR)
Formula: IRR= total income in total amount/ total devotion in total amount
3. Make current real estate flowed to move, place the new way in industry:
(1) escort the old buying the new moving press
Do the mortgage with the old building first, used for purchasing the bride chamber from the bank loan. Return a funds for the method choice moves to press, lending money first the item useds for purchasing the bride chamber, the not enough part makes up deficiency with the loan, needing the bride chamber into dropping the old rent after living, toing alleviate the new buying the building pressure.
(2) turn to press to lend money the way afresh
Lend money at press house in the, can pass way that turn press very much, obtain the funds proceed to place the industry. Like this can under the situation of only having first suite style, it is relaxed to own two suites produce.
Ⅴ．Conclusions
The real estate is different from the stock, mutual fund has really, you can’t open the newspaper in a certain morning, discovering own industry depreciating 20% suddenly. But the information discharge of the real estate is small to also will bring you cannot. House property of worth a possible motion very violent, and also possibility it of the value compares you to imagine inside of little a lot of, but unless you are real to sell out it, having no otherwise from know it after all worth how much .Certainly, not all of the real estate investment is all not good. People the investment stock can enter quickly to out quickly with the mutual fund, but if investment real estate, caned make an institutional investor for.
To sum it up, the real estate is used as a kind of investment tool, the most suitable match the equal funds can be the person of the long-term investment; Have very abundant of real estate investment knowledge, presume the proceeding the person that short line investment.
REFERENCES
James R. McGuigan, (2000), Managerial Economics: Applications, Strategy and Tactics, 8nd Edition, Beijing, China Machine Press, pp.225-268
Darlow, C (1983), Valuation and Investment Appraisal, London, Estates Gazette
Fraser, W K (1993), Principles of Property Investment and Pricing, London, Macmillan
Chapman, C B (1991), Risk in P Venmore-Rowland, P Brandon and T Mole, Investment, Procurement and performance in Construction, RICS, London.
Schiller, R (1994), “Comment: The Interface Between Valuation and Forecasting”, Journal of Property Valuation and Investment, vol 12, no 4, pp.3-6
Marshall, P and Kennedy, C (1992), “Development Valuation Techniques”, Journal of Property Valuation and Investment, vol 11 no. 1, pp.57-66
Morley, S (1988), Partnership Schemes and Ground Rent Calculations in C Darlow, Valuation and Development Appraisal, London, Estates Gazette
Ⅰ．Introduction of the investment of real estate
⒈ The concept of real estate and its character
Real estate can be defined in generalized way or narrow way. Generally, real estate means soil and the buildings on it with its infrastructures and natural resources such as water. Narrowly, real estate means the buildings on soil and the rights involved by them. Here, we will take about real estate narrowly that are permitted by national laws to be invested by individuals.
The character of real estate:
a) Expensive
b) Hard segment
c) Can not be moved
d) Can not be added
e) Can not be replaced
f) Maintenance
g) Can be invested and consumed at the same time
⒉ The character of investment of real estate
a) The dealing of investment of real estate is combined closely with real estate
b) The location and around area and individual difference of real estate determine the difference of profit and price made by grade.
c) The maintenance of real estate determines the credibility of the investment of real estate.
d) Large scale of investment and long cycle of exploitation. The slow turnover of the investment of real estate should be considered.
e) The investment of real estate keeps alive and brings increment with the development of society and increase of population and increasing demand of soil which lead a trend of increasing price of real estate.
⒊ The advantage and disadvantage of investment of real estate
² Advantages: can be used personally and be invested；can get profit after a long time; can offset the loss of devaluation; as security for the loan.
² Disadvantages: ill liquidity; takes a lot of time and energy to manage after being rated; needs a lot of fund; at big risk.
Ⅱ．Lacking of liquidity is the main problem for investors of real estate.
⒈ The character of real estate determines its ill liquidity especially for the liquidity of found.
⒉ The reason
Firstly, it is caused by the high cost of dealing of investment. A large sum of found is needed in the investment of real estate and can not become return in a short term.
Secondly, the process of dealing is quite complicated. The cycle of construction of real estate takes a long time sometimes lasting for about four or five years, which leads to a complex procedure during the process of dealing.
Thirdly, the market of real estate is graded. The subsidiary market causes the lake of information for investors. the value in market is different with the real value of real estate. Real estate can not be moved like the other commodities. the difference of market causes a low flow of real estate.
Fourthly, the investment of real estate can not be segmented to gain profit in a long run. A little factor affects the return of investment.
Finally, houses owned by investors are rent for money. Different price of houses owned by different investors is always caused by the differences of location, communication, environment, attached facilities and styles of house. The over exploitation of real estate may increase the rate of leaving unused empty houses, which slow the liquidity of the found of the investors.
Ⅲ．A supposed example
Suppose you have a found of 200,000 dollars to invest for a house. If you pay 40,000 for the first time, and the rest 16,000 dollars will be paid by loan from bank. Would you keep on your investment?
1. You should make sense what you will gain as a return?
In the coming 6 years, if the house you owned revalued to 2,802,000 dollars at a rate of 5.9% annually, that means you have gained a profit of 820,000 dollars. It will be a good deal, but it is not the case.
Actually, there is a big problem of calculating without the thinking of a large sum of cost.
a) Suppose the deadline for the loan of 16,000 is 30 years at the rate of 16%, you have paid 13,763 dollars with the profit of 95,763 dollars.
b) At the same time, you also paid 55,305 as an interest of loan. If the rate for tax is 25% and the rate of loan equals the outlay of tax, the cost of your interest after tax would be 41,419 dollars. Subtract this interest from your profit, and then your profit of investment will decrease to 54,284 dollars.
c) The cost for gain this profit is much high. The 5% for medium decrease your profit from 14,100 to 40,184 dollars.
d) Except for the additional cost such as costs of house renovation, insurance for house owners, tax for house and procedure of loan, the profit of your investment just became a little.
Moreover, the above calculation does not include the cost of house fitment. Compared with cost, the profit is small. When calculating the profit of investment, what you should consider is not only the revalue of your house, but the money you saved for rent as a house owner.
2. Make sure your found does not leave unused
If this money is in short-termly you can’t used to the other purposes, so at invest to repay the longer circumstance in period bottom can still consider the investment. But if you want to acquire the income the solution a certain and urgent problem with this investment, that may because the real estate investment flows lack sexually but make affair even worse.
3. The investment risk eavlaution
The investment house property should still notice:
District, transportation, kit facilities, house a type, these will affect the mobility ability of the real estate.
Ⅳ．The way of reducing the ill liquidity
⒈ An investment fund of Real estate
Be started by profession real estate operation organization and the real estate industry investment fund that manage, can not only make the investor acquire the higher investment rate of return, but also can evade the risk of the investor availably, the other investment way can’t compare to this, so society a lot of free fundses is positive to look for the opportunity participates the real estate development. The real estate market is an operation that funds high degree is intensively, can say, having no the funds and then have no the real estate. The development investment is large-scale, the period is long, the worth an and expensive etc. in real estate characteristics makes real estate development, investment the funds of the demand measure bigness, and impatient of extend the reproduction, the for this reason funds collects the real estate develops the problem that company most concern.
⒉ Calculating the sound investment repays the rate prevents the blindness
Investment: Divided by investor but speech, invest objective calculate way in income is according to time divide the line for-rent age, income with expend very much the proceeding calculation. Income be rental that month that for-rent income, the expenditure includes a payment, the bank presses return style, repair the expenses, herd the industry fee, provide the fee of , car a fee and lie fee etc. inside. Still there is a cost, be your investment an opportunity cost for in bankly or proceeding other investment bringing, if calculate into these, invest to repay the rate possibility would be much lower. The investor must want to all consider into above these factorses at the time of computing own house investment repaying rate.
By any large, lower time in interest rate, the bargain cost of the real estate is low, in keeping with real estate investment; And interest rate higher hour, cost and expenses too high, cause the herding industry not easy rent or sell. The investor demand has the market experience with the abundant profession knowledge, lowering the investment risk, canning just get to expect of repay.
Investment calculation method:
① the rental repays rate analysis method
Formula: ( monthly thing in rental － in month in empress in tax law industry management fee) × 12/ purchase the total price in house
② rental recovery period analysis method
Formula: ( the month in empress in tax law rental － provides by the month of a style) × 12/( a period building style+ period building time inside by the style )
③ internal rate of return analysis method( the method of IRR)
Formula: IRR= total income in total amount/ total devotion in total amount
3. Make current real estate flowed to move, place the new way in industry:
(1) escort the old buying the new moving press
Do the mortgage with the old building first, used for purchasing the bride chamber from the bank loan. Return a funds for the method choice moves to press, lending money first the item useds for purchasing the bride chamber, the not enough part makes up deficiency with the loan, needing the bride chamber into dropping the old rent after living, toing alleviate the new buying the building pressure.
(2) turn to press to lend money the way afresh
Lend money at press house in the, can pass way that turn press very much, obtain the funds proceed to place the industry. Like this can under the situation of only having first suite style, it is relaxed to own two suites produce.
Ⅴ．Conclusions
The real estate is different from the stock, mutual fund has really, you can’t open the newspaper in a certain morning, discovering own industry depreciating 20% suddenly. But the information discharge of the real estate is small to also will bring you cannot. House property of worth a possible motion very violent, and also possibility it of the value compares you to imagine inside of little a lot of, but unless you are real to sell out it, having no otherwise from know it after all worth how much .Certainly, not all of the real estate investment is all not good. People the investment stock can enter quickly to out quickly with the mutual fund, but if investment real estate, caned make an institutional investor for.
To sum it up, the real estate is used as a kind of investment tool, the most suitable match the equal funds can be the person of the long-term investment; Have very abundant of real estate investment knowledge, presume the proceeding the person that short line investment.
REFERENCES
James R. McGuigan, (2000), Managerial Economics: Applications, Strategy and Tactics, 8nd Edition, Beijing, China Machine Press, pp.225-268
Darlow, C (1983), Valuation and Investment Appraisal, London, Estates Gazette
Fraser, W K (1993), Principles of Property Investment and Pricing, London, Macmillan
Chapman, C B (1991), Risk in P Venmore-Rowland, P Brandon and T Mole, Investment, Procurement and performance in Construction, RICS, London.
Schiller, R (1994), “Comment: The Interface Between Valuation and Forecasting”, Journal of Property Valuation and Investment, vol 12, no 4, pp.3-6
Marshall, P and Kennedy, C (1992), “Development Valuation Techniques”, Journal of Property Valuation and Investment, vol 11 no. 1, pp.57-66
Morley, S (1988), Partnership Schemes and Ground Rent Calculations in C Darlow, Valuation and Development Appraisal, London, Estates Gazette
- 上一篇：论财务管理目标与资本结构优化
- 下一篇：从公司治理结构透视财务管理目标
