Property Investment Appraisal 4th Edition

Description

By (author) Baum Andrew E.; By (author) Crosby Neil; By (author) Devaney, Steven

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Discover an insightful examination of the property investment appraisal process from leaders in the industry 
 

This book explains the process of property investment appraisal: the process of estimating both the most likely selling price (market value) and the worth of property investments to individuals or groups of investors (investment value). 

Valuations are important. They are used as a surrogate for transactions in the measurement of investment performance and they influence investors and other market operators when transacting property. Valuations need to be trusted by their clients and valuers need to produce rational and objective solutions.  Appraisals of worth are even more important, as they help to determine the prices that should be paid for assets, even in times of crisis, and they can indicate market under- or over-pricing.

In a style that makes the theory as well as the practice of valuation accessible to students and practitioners, the authors provide a valuable critique of conventional valuation methods and argue for the adoption of more contemporary cash-flow methods. They explain how such valuation models are constructed and give useful examples throughout.  They also show how these contemporary cash-flow methods connect market valuations with rational appraisals.

The UK property investment market has been through periods of both boom and bust since the first edition of this text was produced in 1988. As a result, the book includes examples generated by vastly different market states. Complex reversions, over-rented properties and leaseholds are all fully examined by the authors.

This Fourth Edition includes new material throughout, including brand new chapters on development appraisals and bank lending valuations, heavily revised sections on discounted cash flow models with extended examples, and on the measurement and analysis of risk at an individual property asset level. The heart of the book remains the critical examination of market valuation models, which no other book addresses in such detail. 

Table of contents:

Preface xi

1 Property Investment Appraisal in its Context
1

1.1 What is Appraisal? 1

1.2 The Appraisal Process 4

1.3 What Makes a Good Appraisal? 5

1.3.1 Accuracy, Bias, Smoothing, and Lagging of Valuations 6

1.3.2 Client Influence on Valuations 11

1.4 Conventional and Discounted-Cash-Flow Approaches to Appraisal 12

2 Principles of Investment Analysis
15

2.1 Introduction 15

2.2 Types of Investments 16

2.2.1 Cash Deposits 16

2.2.2 Fixed-Interest Securities 17

2.2.3 Index-Linked Securities 19

2.2.4 Ordinary Shares (Equities) 20

2.2.5 Property 22

2.2.6 Summary of Investment Types 24

2.3 Qualities of Investments 25

2.3.1 Income and Capital Growth 27

2.3.2 Operating Expenses 28

2.3.3 Liquidity, Marketability, and Transfer Costs 28

2.3.4 Real Options 29

2.3.5 Leverage 30

2.3.6 Tax Efficiency 31

2.4 Sources of Risk 31

2.4.1 Business and Financial Risk 32

2.4.2 Nominal and Real Risk 33

2.4.3 Systematic and Specific Risk 34

2.4.3.1 Systematic Risks 35

2.4.3.2 Specific Risks 35

2.4.3.3 International Investment Risks 37

2.4.4 Diversifying Risk 37

2.5 Comparing Investments: NPV and IRR 41

2.6 Initial Yield Analysis and Construction 46

2.7 Summary 48

3 The DCF Appraisal Model
51

3.1 The Cash Flow Model 51

3.2 The Inputs 51

3.2.1 The Holding Period 53

3.2.2 The Lease and Lease Events 54

3.2.3 Depreciation, Refurbishment and Redevelopment 55

3.2.4 Forecasting Rental Growth 57

3.2.5 The Re