TAILIEUCHUNG - Personal Real Estate Investing

The third approach, modern capital budgeting, recognises that today’s (present) value of an investment asset is the cash flow it can generate in the future, not the returns it has provided in the past. Accordingly, investment appraisal must adopt an ‘ex ante’ - forward- looking analysis - as distinct from the backward-looking focus of the traditional financial approaches typified by the ROI calculation. Modern capital budgeting, also known as ‘modern financial theory,’ focuses on deterministic discounted cash flow, and the probabilistic approaches of project risk analysis (Pyhrr, Cooper, Wofford, Kapplin, and Lapides (1989). Traditionally, under this approach, the required return on an investment is a function of. | Insights on Real Estate Personal Real Estate Investing Ted Krum Vice President Northern Trust Global Advisors When was the last time you were at a cocktail party where somebody wasn t talking about real estate It may seem like years and for good reason investments such as single-family homes retail properties and real estate investment trusts REITs have performed very well in an environment of shaky The Varying Nature of Real Estate Investments While real estate can be an important and worthwhile addition to your investment portfolio real assets are fundamentally different from financial assets like stocks or bonds. As shown in the Figure 1 the investment characteristics of real estate are closest to those of bonds. stock markets and low interest rates. Curious investors may be considering real estate projects as an addition to their overall investment portfolio. Some of the most critical questions investors should be asking themselves include X Should I add more real estate to my portfolio X What professional or technical expertise is required X How will leverage influence my returns X What are the investment and Table 1 Investment Characteristics of Major Asset Classes 1978-2004 2Q Sharpe Ratio Asset Class Return . Income . Total Risk . . Equity Intermediate Gov t Bonds T-Bills Real Estate Sources Ibbotson Associates Morgan Stanley NCREIF Prudential. legal risks X What form should my investment take X What are the income and estate tax implications X How does real estate fit into my overall financial plan These questions also are relevant for investors who become property owners or managers via inheritance guardianship or entrepreneurial pursuits. This indepth analysis provides a comprehensive overview of strategic financial and practical issues in personal real estate investment for non-real estate professionals. Additionally it offers insight into the ways in which real estate .

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