Real Estate and Shares Investment Decision Analysis

Name

Affiliation

 

Introduction

This paper will indicate an investment analysis proposal over a 25 years period. A long-term investment decision analysis is also supported. Clear descriptive data analysis on real estate as well as share will be evident in the paper.

Task 1A: Screenshot of the Property for Sale

Map of the Area

Justification of the Property

The following are the reasons why I choose to invest in the property above:

1. The property is close to an area that if developing, hence it is possible that the property security is in order, my family in the future will not have security problem
2. Secondly, the price of the property is within my budget, a reason why I am ready to invest in the property
3. Lastly, the price of the property is highly appreciating, it is possible that the property as indicated in the sale history of other projects in the area will fetch a better price in the future if I may need to sale it.

 

 

Sales History Screenshot

Growth Rate of Area 2006-2016 (Sebastopol)

 

 

 

 

Task 1B Choose The Shares

The companies that are choosen are Commonwealth Bank of Australia and Woolsworths Limited

Commonwealth Bank of Australia purchase of $200,000 at 73.12 was purchase on the stated date and time.

Woolsworths Limited purchase of $200,000 at 73.12 was purchase on the stated date and time.

 

 

10 years Chart of the Shares of Commonwealth Bank of Australia

10 years Chart of the Shares of Woolsworths Limited

 

 

Task 2A – Calculating the Costs of Purchasing Real Estate (SR)

Stamp Duty

Legal fees

It is considered that the legal fees of such an investment in Australia is around $200,000 to $300,000 (https://www.realestate.com.au/advice/hidden-costs-buying-home/)

Task 2B – Calculating the Costs of Purchasing Shares (SR)

	Company Name	Purchase Price per share	Number of Shares Purchased	Brokerage fees	Total Cost
Financial Company	Commonwealth Bank of Australia	73.12	2735.23	2850	202850
	Woolsworths Limited	24.10	8298.76	2850	202850

 

Task 3 – Financing the Investment (SR)

It is considered that the primary period for the payment of the loan is 25 years.

Task 3a – Calculate your total costs for this loan over the first 12 month period

(SNR)

From the above analysis, the monthly repayments for the 25 years period is $1,798. The fees that are likely related to the above loan is legal fees.

The amount payable in the first year is 12*1,798= $21,576

The balance of the loan after the first year is 350,000 (loan) less 21, 276 = $328, 424

 

 

 

Task 3b – Calculate your total costs for this loan (SNR).

Cost after the first 10 years is $21,576*10 is equal to $215,760.

The amount owing on the loan on the first 10 years are  350,000-215,760 is equal to $134,240

The total over 25 years paid after 2 weeks is 350,000+ 188, 993 = 538, 993 see image below:

PART 4 – THE FUTURE

Real Estate Option

Sale price	$1,000,000
less Cost of selling	$10,350
Adjusted sale price	$989,650
Purchase price	$450,000
add Cost of purchase and ownership	$13,413
Adjusted purchase price of asset	$463,413
Capital gain/loss	$526,237

 

This means that an investment on the above will have a profit of $526,237

 

Shares Option (Commonwealth Bank of Australia)

It is evident that a profit of $47,217.70 is expected.

Shares Option (Woolworths Limited)

A profit of $162, 390 is also anticipated on the sales of this shares after 10 years.

A total of 209, 608. 03 in profit is expected when the shares are sold after 10 years (2026)

 

Task 4B

Based on the calculations as indicated by the model, it is clear that the real estate option is the best to go with because it has a high capital gain of $526,237 as compared to that of stock that has only a capital gain of $209, 608. 03. The investor should therefore go with real estate gain.

Task 4C

The strengths of the Model are:

It offers a reasonable analysis of the real estate as well as share over time, for example it can calculate fortnight, weeks and months as well as years

It supports varied situations such as financial crisis among other factors that affects long-term investment

Limitations

It cannot be used on limited short-term investment such as 1 years and less

Conclusion

The model was reasonable because it was able to offer the needed answer to the investment analysis that was on board. It was also able to offer answers on the time to sell the real estate or share when needed and the time a profit or gain can be obtained. The model should be adopted in the future.

References

Benassy, J.P., 2014. Macroeconomics: an introduction to the non-Walrasian approach.      Academic Press.

Gwartney, J.D., Stroup, R.L., Sobel, R.S. and Macpherson, D.A., 2014. Economics: Private and public choice. Nelson Education.

Mankiw, N.G., 2014. Principles of macroeconomics. Cengage Learning.

Siegel, J.J., 2014. Stocks for the Long Run 5/E: The Definitive Guide to Financial Market   Returns & Long-Term Investment Strategies: The Definitive Guide to Financial Market       Returns & Long-Term Investment Strategies (EBOOK). McGraw Hill Professional.

Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge   University Press.