Case: Revere Street Case Solution
Problem Statement:
The main problem of this case is that Alexander wants to make investment in real estate industry. Moreover, in order to evaluate the risk and potential benefits to enter in this market,multiple factors have to be considered when making investment in real estate.
Options Available:
For real estate investor, many options are available for investment other than buying a property with leveraged or mortgage finance. Some types are mentioned below:
Real Estate Investment Trust:
The investor could go for investment in units of trust, as these trust companies manage investors’ capital properly by investing in different avenues of real estate. As the fund holders have large funds of the public investor, therefore they can manage risk properly and better than a single investor. The funds are acquiring through different types of property such as the commercial and residential property, which diversifies the risk as the dependency level reduces. The investors get the price benefit as well,whereas lower level of income investors can invest in real estate market which was not the case in the past. (heck, 2015)
Real Estate Investment Club:
Another option available to the investors is the investment club, which invests fund specifically in real estate market. These clubs are formed by small group of investors, which cumulates their wealth and acquires an underlying asset. These clubs usually contain family groups and office colleagues. This option is also suitable for Alexander as he had good experience with his colleagues, therefore he can gather his colleagues to form a club and acquire the property. These clubs would eliminate the need of leverage finance, which would reduce the cost of finance, thus higher return on investment for the investors. (Pockets, 2006)
Real Estate Limited Partnership:
This allows the investors to go for the limited liability companies, which invest in the real estate market of the country or outside the country. The main benefit of this partnership is that the management of company is highly expert in this field and has the technical knowledge to make the better decision about investment. As most investors are of low income levels, therefore they cannot take the full advantage of tax deduction, thus this is a disadvantage of this type of option. (Facey, 2009)
Analysis
Alexander intends to invest in real estate of the US, as it has reasonable amount of savings which can be added with debt in order to acquire the property which would generate good returns on investment. Alexander wants to acquire property with the assistance of mortgage finance and for that he has to consider the future prospects of the property as it will generate reasonable cash flow to repay the loan as well as principle. The interest rates of the mortgage finance are fluctuating as it is linked with market condition therefore,hedging techniques might be beneficial for Alexander, however these techniques have some cost in doing so. These hedging techniques include Forward contract, money market option and futures.
Whenever an investor wants to make investment in the real estate, many factors have to be considered by the investor before making the decision to invest. Some of these factors are given below:.................
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