Reference no: EM131972247

Assignment -

Find an Australian house or apartment that you would like to research.

From here on this will be referred to as a house or property or home regardless of whether it is a house or apartment.

The house can be anywhere in Australia so long as you can find enough details about the home and the other variables discussed in the below questions.

Question 1 - This question is focused on valuing your house.

Question 1a: State the house's full address and copy a small picture of the house.

Question 1b: Estimate the home's value based on an average of no more than 3 similar properties that have sold within the last year or two.

Using the table below, set out the details of yoru chosen property first and the other comparable properties below.

If you can't find the floor space or land area, perhaps the number of garage spaces is available instead. Adjust the heading as necessary.

The first row of the table should include the details of the property you're valuing which was stated in the previous question.

The other rows should show the details of the other similar properties.

Question 1c: Estimate the gross annual rental revenue from leasing this home if you were the landlord and chose to rent it out to another person.

You should find similar rental properties and take an average of their actual or advertised rents.

The gross rental revenue ignores costs of renting. Ignore the intra-year time value of money effect.

So for example, even though rent might actually be $3,000 paid monthly, assume that it is 36,000 (=12 * 3,000) paid annually at the end of the year. Reference your sources.

Your comparable houses for rent do not have to be the same as the comparable houses used to estimate price in the previous question.

Question 1d: Estimate the annual rental costs of leasing your home if you were the landlord and chose to rent it out to another person.

Similarly to above, ignore the intra-year time value of money effect. Reference your sources.

Since we are trying to value the house asset, do not include the costs of debt (interest expense) or costs of equity.

Otherwise, your estimated house value will be zero since all asset cash flows are owed to debt and equity holders.

Note that not all of the below expenses (for example gas, water and electricity) have to be paid by the landlord and this can differ by state.

For example, Strata bills are a cost of owning an apartment so should be included as a cost but land tax usually isn't and should be zero. Vice versa for free-standing homes.

Question 1e: Estimate the annual growth rate of rents and explain your answer.

Reference your sources which may include data from the Australian Bureau of Statistics (ABS) or the Reserve Bank of Australia (RBA).

Question 1f: Assuming that your property lasts forever, use the 'perpetuity with growth' formula to find the implied total required return per annum (pa) of the house asset based on the estimated house price, net rent pa and rental growth pa.

Note that net rent equals gross rental revenue less rental costs. Be sure that your formula is linked to the results from the earlier questions.

For example, changes to the answer in question 1e should affect your answer to this question.

Assume that the rental revenue and costs found above are expected to be paid and spent in one year from now, and then they'll both grow by at the rate found above.

Question 2: This question is about financing the purchase of your house above.

Question 2a: Find the best (lowest rate) Australian home loan comparison rate that you can for a fully amortising 25 year investor (not owner-occupier) loan with monthly payments in arrears, with an LVR of 80%.

Your initial loan size should equal the estimated house price found in the previous question (1b) multiplied by 80%.

Question 2b: Prepare a loan amortisiation schedule by filling in the table below.

The loan must reflect the details of the loan you referenced in the previous question.

Include a graph of loan outstandings against time, measured in years, not months.

You may want to use the 2 extra columns to the right of the table to feed as input into the graph.

Attachment:- Assignment File.rar