Real Estate Market Analysis
Miami is known as one of the Dade countries in the US.This indicates the low value of prices and that the people are less interested to invest in the property. Miami is well-occupied country with a beautiful view of beaches and tourism spaces however,high unemployment rate makes the city more dry and unfavorable.
Furthermore, assets are the main source of a company, which helps to generate the revenue and utilize the investment to get more opportunities. Investors often overlook the balance sheet. Liabilities and assets are notnearly as much as revenue and earnings, while earning are important, they do not tell the whole story.Moreover, the balance highlights the financial conditions of the company and is an integral part of financial statements.
Investors normally are attracted to companies with plenty of cash on their balance sheets. After all, cash offers protection against tough times, and it also gives more option for future growth. Growing cash revenues often signals strong company’s performance. Indeed, it shows that cash is accumulating so quickly that the management does not have time to figure out how to make use of it. If loads of cash is more or less a permanent feature of the company’s balance sheet, then the investor needs to ask whether the money is being put to use.
The three important factors:
1. Saving rate:
This is that amount of money which is saved for future purposes. It is often discussed that saving tends to help improve the returns in the future.
As per retirement analyst, the venture return over the initial eight or nine years of contributing records for under 1% of ultimate result. At the end of the day, the initial returns will not have a lot of effect on how much cash has been earned.
It is less regarding profits and more about investment funds rate. Regardless of the possibility that it does not settle on the best speculation choices, it essentially does not make a difference that much. It identifies that reserve funds rates will far exceed the profits that it has generated. There was a wide range of number crunchers to help and make sense of it, however regardless of the possibility that cannot affect their recommendations at this moment, and that it could begin sparing something and gradually increase that sum after some time. The investment reserve funds rate could increase by 1% every year, or put half of all amount towards investment funds.
Resource portion is the excessive term as tohow it is selected to divide cash among various sorts of speculations. Moreover, this is an importantchoice, since the examination recommends that 90% of the venture return is dependenton those things that put resources into as opposed to the particular speculation decisions that were taken.
Deciding to invest resources into the share trading system will hugelyaffect theprofits. In any case, the particular stocks that wereselectedmattered significantly less at the most irregular amount, the principle choice indicates the part of cash between stocks and bonds. Stocks speak to possession in an organization. They offer the most elevated potential return, as well asthe most elevated threatof disaster. Stocks are commonly well-placed to contribute some long amount ofcash, yet are less secure when managing short-term objectives.
Bonds are credited to provide for organizations. Much the same as a credit that would be literally, they pay a financing cost and after some time, the whole advance is paid back. They do notoffer as much return as stocks, howeverthey additionally compriseless risk. The critical choice is basically the amount of cash to put towards each.
By investing more stocks, the higher the potential return, the higher potential risk as well, particularly in the short term. A decent general guideline emphasizes on losing a large portion of the cash, which is in stocks at any given year without changing any surplus. Therefore,on the off chance that there is60% of cash in stocks thatare expectedto confront around 30% of difficulties later.
3. Sticking to plan:
At the point when the business is up and running, it might need to more forceful. Moreover,when the business sector is down, it might need to get out. Furthermore, when the agent is exulting regarding the stock he just purchased, he might be enticed to purchase it as well.
Numerous financial specialists offer fine rates that affect the business sector all in all. They wind up purchasing high and offering low, the polar opposite. To ignore that, it requires to block the commotion and continue doing the task, regardless of the surrounding. (Becker)
The real estate market analysis
Description of Market Area:
The analysis has been conducted on the real estate which indicates the effects of changes in climate and other market conditions on the values of the property in Miami. The analysis mainly includes economic, social and environmental situations in the state or in overall country. For better analyzing the perspective of each stakeholders’ interest in the local area has been considered.
Miami is one of the major cities of United States and is located in the south eastern Florida. Furthermore, Miami has one of the busiest ports as well which is improving the local economy through the trade and by this port, the local business community also can reap benefits as it would help them to sell their products in international market. Miami is known as a better climate city all over the world as the environmental condition is stable in the local area and the mean temperature in this area is almost between 18C to 20C.
These factors help the local economic condition as the environment of local area is too good since many foreign tourists are attracted towards the city and tend to spend most of their time as well as their money in exploring Miami. Miami Beach is famous in the world and many of the citizens in the United States travel to Miami to spend their vacations. The local residents of Miami are very cultural sound and tend to follow their standards.
Being one of the most populated cities in the US, the city is also currently facing challenges due to the higher population rate. Moreover, the economy of the area is developing at a higher rate as compared to other cities of the US. Many Governmental institutions and organizations’ headquarters are located in Miami which is generating local employment and prosperity locally.
The population of the city has heavily changed due to the immigration, which indicates many international citizens migrated towards the city as the urbanization rate in the city is too high. Moreover, this higher urbanization rate is solely due to major constructions in the city such as high rise skyscrapers and constructions of tall buildings. These major developments and construction have made the country the fastest growing region in the United States last year. However, currently, the development is slow in the region.
Sports in Miami city is also at its peak where the local residents tend to go for the basketball and other sports events and spend most of their money in attending such events, which is a positive indicator for the local market. Major international sports leagues, which mainly include football, basketball and tennis events are organized in Miami, and these events attract many international organizations as well as sports fans towards the city. For the conduction of these events, extra ordinary large stadium has been constructed for the visitors which has improved the local standard of living and wealth for the citizens.
Local political situations are also very stable and progressing fairly, since the local institutions provide private funding to support the market. All the above factors have improved the standard of living of the local residents and the income level of the residents is also increasing, which has enhanced the purchasing power of the residents and hence, they can be able to buy the property and can invest their savings in commercial properties. On the other hand, the improvement in market condition and higher demand from prospective property buyers has made the property expensive.
Demand and Supply Analysis:
The recent survey of employment indicates that the employment in the local area is decreasing by around4.5% however, within this it is projected that the predicted job growth in this region is 185 for the future which is again a positive indicator for the potential investors interested in investing in commercial properties. Since the job market is growing and the purchasing power of the local residents is also growing, therefore the demand of the property will increase in the future as well as the rents will also increase in future. These enhancements of rent will assist the existing investors in financial terms.
Currently, the population in Miami is largest as compared to other cities and the average annual income of house hold is too high and the residents of Miami spend most of their income in entertainment activities, which supports the economy. The people of Miami are well educated and qualified as they are living in a global financial centre, which is why this area has become very competitive in the country.
Almost all the citizens of the USintend to move to Miami as everything is better in Miami, which include hospitals, church, museum and any other relevant site. These factors increase the demand of this area as many people are attracted towards this city.
Climate is a vital thing for the higher demand of the area of Miami as compared to any other area of the country as the mean temperature of this area is moderate annually. The tropical climate attracts many tourists as well and they spend most of their time in resorts and spend heavily in shopping.In Miami everything is available nearby and it is easy to reach from one place to another. Therefore, there is more demand for housing units and the prospective buyers are willing to pay more for the property above the market price.
Many large organizations of the US have moved their headquarters to Miami city which is a positive sign to the landlords existing in the city, since the investment value of the existing landlords will increase and they are getting reasonable rental for their properties. On the other hand, many large skyscrapers are to be constructed in the future which would increase the supply of the houses for the prospective buyers.
Major growth in construction industry indicates that the range of residential and commercial projects will come in the market and this will result in large supply of the properties. Many construction companies tend to increase their sales volume by providing better properties at best price, as a result, this would enhance the supply of the residential and commercial properties. Hence, the price will not fluctuate heavily as the balance between the supply and demand is reasonable.
Local governments and dicritcs governments playan important role in providing better policies to the local residents of Miami. District government provides micro finance to establish local business and to operate the existing business as well which would improve the local market and the real estate market in turn.
Local government tends to improve the social conditions of Miami as currently Miami is facing higher crime rates which is not a good sign for the economic growth as well and sustainable growth. Local police is improving its capacity and operational activities given the increase in the crime rate. New strategies and policies have been implemented to improve the law and order situation in the city by the district governments.
Infrastructure provides the city numerous benefits as the state of the art infrastructure helps the local residents regarding transport. New roads and linkages provide the citizens with many benefits such as they can easily and quickly reach their desired place. The local government is constantly investing large funds in roads, railways and airports, which has helped in economic growth as well as the country overall. Hence, the economic growth reflects the growth in real estate market.
Educational intuitions also play an important role regarding economic and social growth of the city. Many large universities are operating in the city, which include public and private universities, which has improved the standard of living of the residents and can attract many foreign students towards Miami, and these foreign students can help in enhancing the business by improving operational activities. Moreover, increase in foreign students would lead to an increase in student dormitories, which would further lead to an increase in the revenues of real estate.
Lower barrier for the construction company poses emerging threats for the existing investors, since the investors intend that the property’s value increases when the demand is high and supply of property is low. However, in actual the case is entirely different from the expectation of the investor as the government provides incentives for the construction companies which then construct buildings, which then increases the supply of properties, leading towards stabilization in prices. Hence, the additional apartment units will negatively affect the existing investors in the commercial property.
Recent survey indicates that the population of Miami will increase by almost 12%, which will demand additional properties and since the demand is high, the price will increase and the prices of the property will depend on the economic conditions of the area. On the other hand, the economic conditions are emerging which mainly includes better infrastructure and enhancement in the real estate market of the Miami.
The analysis of real estate market includes performance of the capital markets, stable inflation rates, minimum interest rate, inclining foreign direct investment and taxation level. All of the above economic indicators would positively affect the real estate market of the US, since there is lower inflation rate and higher foreign direct investment, which has been improving the gross domestic product of the country.
Family compositions in Miami on an average comprise of four to five people in a single house. Various ethnic groups are residents in Miami, which makes Miami as multicultural city. Most of these ethnic groups are from China,who tend to help in the betterment of the city. These factors indicate that the market is segmented in the small groups and these factors make it difficult to predict the future prices of the real estate market.
Major construction companies announced the proposed projects, which has increased the supply of the properties in the future. Shopping plazas are also being constructed by those companies and most importantly, industrial parks have flooded the real estate market, and the supply of the properties will increase in the near future. As a result, this will make the real estate market very competitive.
Banks provide mortgage finances to the potential buyers so as to purchase the houses and payback its principle and interest amount through the pre agreed installments. As a result, this will increase the demand in the real estate market from the prospective buyers.
Forecast Future Demand and supply conditions:
The population of Miami is expected to increase in the future, and this indicates that the households will demand more houses and since the demand is high, therefore the properties’ prices will increase, and this is a positive indicator to the existing and potential investors in the real estate market as the market will grow in the future as well as price will also increase in the future, due to which the investors would be more profitable this way.
It is assumed that the government will be successful in achieving the lower crime rate, which will positively affect the local economy and real estate market in the future. Hence, the prices of the properties will increase in Miami. The government is constantly improving the city’s infrastructure, which will encourage growth in the economy and would enhance the standard of living in the future. Hence, the occupancy rate of houses will increase, which in turn would increase the volume in the real estate market, however the real estate market is ineffective market as there is low volume of transactions in the real estate.
On the other hand, the major construction companies’ announced proposed project in the real estate market, which in turn would increase the supply of the commercial and residential property as well as this would result in the lower prices of the properties. These situations would make the industry competitive for the existing players of the market.
As the capital markets are recovering after a long recession in the real estate market, therefore this is a positive sign for the investors and their confidence over the properties will increase as they will generate better return in the future for the prospective and existing investors.Furthermore, the GDP of country is growing which in turn would lead to a growth in GDP per capita, as a result, these factors will generate the demand of the real estate commercial and residential properties.
Valuation of the property using ARGUS software:
The commercial property is selected in Miami for carrying the valuation by using ARGUS software. The commercial property has the building area of 460000 sq.ft. which indicates that the project under consideration is a large project. The appropriate data was gathered to value the property under consideration.
The relevant data includes the list of commercial and residential tenants in the building and at which rate of rental the contract of tenancy is based. Since the property is in the core area of Miami,this is why the business potential and the occupancy rate is higher in this building which is assumed as almost 92%.
Many other assumptions are taken to reach the required valuation of the property, which includes the rent rate from the tenants, capitalization rate and inflation rate etc. The valuation indicates that the property has potential for the prospective investors as the growth rate is above average and the return from investment is also higher than the market.
The assumption is taken in the scenario of the real estate investment trust that the property is purchased on leverage, which indicates reasonable proportion of debt finance is involved in the purchase of property. The operation income from the property is increasing annually as shown in Argus’ results. The net cash flows after paying all relevant expenses are also increasing annually and this has turned the project favorable to invest.
The higher income yield and higher capital yield create the project’s value for the real estate investment trust. The five years holding period is considered for the valuation of the project in Miami. The present value of future value and capitalization model is followed to value the property in Miami. Exhibit 1 indicates the results generated from Argus valuation software which includes discounted cash flow, adaption summary, cash flow summary, and calculation of yields.
Conclusions and summary:
The valuation of the property indicates that the commercial property provides numerous benefits for the real estate investment trust. The higher income yield and capital yield makes the project attractive for investment as there is less risk involved in the project. The project is operating in Miami city and the economic, social, educational conditions of the Miami city are improving which has made the city more progressive. Therefore, these situations will flourish the business environment in the city. Since the prospects of the city are also very attractive, thus the investors may switch their funds in the city. Hence, the investment in the project of Miami provides many benefits to the investment trust, which is why it is recommended that trust should invest in the project.
Location of the Property in Miami: