INVESTMENT VALUATION

—What is meant by “Investment”?

  The sacrifice of something now for the prospect of later benefits”

•What are the “later benefits”?

-Flow of income

-Return on capital

-satisfaction

  Principles of Investment

-—Security of capital;

—-Security of income from the capital invested;

—-Regularity of income;

—-Ease of purchase and sale of the investment;

—-Low cost of purchase and sale of the investment; 

 

What are investment returns?

  Investment returns measure financial results of an investment

 Returns may be historical or prospective (anticipated). 

Payback period analysis

 

Return on Investment (ROI)

  The amount you make over and above your initial investment is your return on investment (ROI).

ROI is most commonly expressed in percentage terms (e.g. “I’m getting a 12% per annum return on my investment”).

ROI determined:

1. Gross Yield

2. Capital Growth

What is gross yield?

Annual rental income/Purchase price * 100

An indirect measure  of how much of the mortgage your tenants will pay.

What is capital Growth?

Measure the change in your property's value in time and usually expressed in percent per annum terms

Meaning of risks?

Exposure to the possibility of economic or financial loss or gain,physical damage or injury, or delay, as a consequence of the uncertainty associated withpursuing a particular course of action.

 

Popular Definitions:

1.The probability of loss

2.The probability of not receiving what is expected

3.The difference between expectations and realizations.

4.The possible variance of return relative to the expected or most likely return

5.The chance or probability that the investor will not receive the expected or required rate of return that is desired on the investment.