"USB 242 Experience Property Income Valuation Methods Capitalisation of Net Rents (profits)and application in investmentvaluationInvestment • Investment involves the creation of wealth • Not all investment vehicles are equal • Each investment class offers advantages anddisadvantages • These advantages and disadvantages can bedifferentiated by risk • Property is only one of a number of investment assetsTraditional Investment Assets • Equities (shares) • Bonds (gilts) • Property • Cash (Term deposits or STMM)Alternate Investment Assets • Artworks • Coins and stamps • Private equity investments • Businesses • Wine • Entrepreneurial schemes • CarsDifferentiating Investment Assets • Income type • Rent • Profit • interest • Income risk • Security of cash flow • Long term income streams • Reliability of tenants • Liquidity and market depth • Sovereign risk • Market maturity and transparencyCharacteristics of Property Investment • Unlike shares and bonds property is heterogeneous • Property is fixed location • Property unit cost is high and can limit ownership choice • Property can be more reliant on borrowing • Property assets are generally considered long termassetsCharacteristics of Property Investment • Property has to be managed • Property can be developed or have alternate uses toenhance value • Depreciation of property has to be managed • Property has an emotional aspect for the investor • Property is illiquid (direct ownership)Types of Property Investment • Direct property • Individual • Partnership • Company • Indirect property • Property companies • Listed property trusts (REITS) • Property syndicates"