Portfolio Investment Decisions
Name
Institution
Portfolio Investment Decisions
Introduction
Investing in a group of investment requires allocation of income in specific rations to ensure maximum revenue generation. The distribution of income and resources is determined by the financial information of the investments, including prices, cost of financing and constant rent expected from the venture. Research on properties in various areas and analysis of their efficiency is required to attain maximum reward on the investment made. It functions to evaluate the client’s portfolio, calculate revenues expected from investing in the four chosen suburbs, including Kingsbury, Preston, Bandoura and West Heidelberg. Also, the compounded returns are used to to identify the most appropriate actions to take in investment. The decisions may include either using agencies to manage properties or individual management. A recommendation will be made on the necessary arrangements that the client should take regarding the portfolio investment.
Market research and efficiency figure
Managerial functions can be provided by other companies such as Airbnb and Real estate. The agencies manage, performs repairs, and rents the properties on behalf of the owners. Airbnb led properties to charge its tenants weekly in that every tenant who rents one of the properties under the management of Airbnb pays their rent every week. The median house prices for the properties in Kingsbury, Preston, Bundoora, and west Heidelberg vary due to the changes in the environment and conditions of the house. Preston rents at $ 600, Kingsbury at $ 580, Bundoora at $610 and Heidelberg at $550. From the revenue received from renting, Airbnb deducts a percentage to cater for the services they provide in the properties. Therefore the owners of property returns after deduction of the fee for the services offered when managing the properties.
In the real estate, Kingsbury median rental rate is $385 weekly, earning a yield of 3% per annum. Property in Preston charges $550, with a 3.9% yield yearly. Bundoora, property charges $420 with a 2.9% yield, while Heidelberg charges a rent of $360 per week, having a yield of 2.9%.
Therefore, higher income may be earned by investing in properties in Preston and Kingsburg since they have a higher percentage of yield compared to the properties in Heidelberg and Bundoora.
From the prices of property for both agencies, the rent is more elevated when investing through Airbnb than through real estate. Therefore, the cost of management will also be higher for the agency compared to real estate, which will be lower.
If the clients Airbnb properties are occupied four days a week, the efficiency figure will be:
[ (5/7) X 100] = 57.14%
The period at which the property is occupied is dependent on the prices of the properties. Airbnb has high prices that may not be affordable for everyone hence reducing the occupancy within a week. This is the reason why its efficiency figure is low at 57.14%, compared to the real estate, which has an efficiency figure of 90%.
The portfolio of the client
The client wishes to invest in 30 properties located in Bundoora, Heidelberg, Preston, and Kingsburg. The allocation of several houses considered the rent income received from each of the suburbs. Preston has the highest rent figure, depicting higher returns when the investment is made on them, compared to the houses in the two other regions. Also, the yield per annum is more elevated for homes in Preston and Kingsburg; therefore, more houses were from the. The client’s portfolio will include.
From the pie chart, Preston has ten houses, Kingsburg has eight houses, while both Bundoora and Heilberg has six houses. The percentages are calculated as:
Preston- 10/30 x 100= 33.33%
Kingsburg- 10/30 x 100= 33.33%
Bundoora- 5/30 x 100= 16.67%
Heidelberg- 5/30 x 100= 16.67%
Also, the houses are split between the Airbnb management and the real estate agency. The split is in the ration 1:1, to maximize the returns, having different managerial rules. The split is shown below:
The rental payment period for all the apartments will be one week. Therefore, the tenants who get into the apartment will be paying weekly charges, for the period they will be staying in the property.
Demonstration of Revenues
Because the agencies will manage 50% each of the client’s portfolio, each will have 15 houses in the various suburbs chosen. The revenues are as shown below:
15 properties of Real Estate Agency Median weekly rent for a single property Weekly median rent for all the properties Monthly Rent {Median weekly rent X 4 (for all properties)} Yearly Rent {Median monthly rent X 12} Efficiency % {Median Yearly rent X 90% Efficiency}
Preston $550 $2,750 (5 houses) $11,000 $132,000 $118,800
Kingsburg $385 $1,925 (5 houses) $7,700 $92,400 $83,160
Bundoora $420 $1,260 (3 houses) $5,040 $60,480 $54,432
Heldelberg$360 $720 (2 houses) $2,880 $34,560 $31,104
Total $1,715 $6,655 $26,620 $319,440 $287,496
12 properties of Airbnb Median weekly rent for a single property Weekly median rent for all the properties Monthly Rent {Median weekly rent X 4 (for all properties)} Yearly Rent {Median monthly rent X 12} Efficiency % {Median rent per year with 57.14% Efficiency}
Preston $600 $3,000 (5 houses) $12,000 $144,000 $82,282
Kingsburg $580 $2,900 (5 houses) $11,600 $139,200 $79,539
Bundoora $610 $1,830 (3 houses) $7,320 $87,840 $50,192
Heldelberg$550 $1,100 (2 houses) $4,400 $52,800 $30,170
Total $2,340 $8,830 $35,320 $423,840 $242,182
The real estate agency has an efficiency of 90% hence the revenue is likely to be higher compared to Airbnb with 57.14%. However, the charges for Airbnb is higher than that of the real estate; hence revenues are expected to be higher for the same number of houses. Because of the advantages of each, investing in 15 apartments for both agencies may create a good portfolio for maximum profitability.
Demonstrations of Cost
Property agencies incur costs in managing the properties to ensure the maintenance and proper state. Therefore, a specific percentage of the revenues is paid to the agency to enhance its operations. Real estate agents charge a rate of 8% to 12% of the monthly income received from various Suburbs.
The price covers costs for maintenance of the houses, labour for cleaning and repairing, and also vacancy where the properties are not rented out. Using a rate of 10% monthly, the real estate costs would be:
Real estate Monthly Income for each Property Monthly income from the properties x 10% Monthly maintenance cost Total maintenance cost per year
(Monthly maintenance cost X12)
Preston $ 11000 10/100 X 11000
$1100 $13200
Kingsburg $ 7700 10/100 X 7700 $770 $9240
Bundoora $ 5040 10/100 x 5040 $504 $6048
Heidelberg $ 2880 10/100 x 2880 $288 $3456
Total $3142 $31944
The total managerial cost for real estate agency is $ 31944
Airbnb charges 15% for every nightly rate for the maintenance of the property. Therefore, the cost for a month will be:
Airbnb Median night rent for a single property Median rent for all properties Management cost (15% X night rate) Charges per month (Management cost per night X 30) Maintenance cost per Year (Monthly charge x 12)
Preston $85.71 $428.57 $64.29 $1,928.57 $23,142.86
Kingsburg $82.86 $414.29 $62.14 $1,864.29 $22,371.43
Bundoora $87.14 $435.71 $65.36 $1,960.71 $23,528.57
Heidelberg $78.57 $392.86 $58.93 $1,767.86 $21,214.29
Total $334 $1671.43 $250.71 $7,521.43 $90,257.14
The charges per year for the Airbnb is $ 90,257.14
Overall net Position
With the revenues and cost calculated, the net Position of the client will be revenue less the management cost. The net Position is as shown below:
For the real estate portfolio:
Median Monthly Income Monthly managing cost Total revenue/ Month Total Revenue Per Year Total maintenance cost per year Total revenue 90% Efficiency
Preston $ 11000 $1100 $ 9900 $118,800 $13200 $106,920
Kingsburg $7700 $770 $6930 $83160 $9240 $74,844
Bundoora $5040 $504 $7560 $90720 $6048 $84,672
Heidelberg $ 2880 $288 $3888 $46656 $3456 $43,200
Total $31420 $3142 $ 28,278 $339,336 $31,944 $309,636
For the Airbnb:
Median Monthly Rent Total Management Cost Per Month Total revenue/ Month
Total Revenue per Year Total Managing cost per year Total Revenue 57.14%
Preston $12,000 $1,928.57 $10,071.43 $82,282 $23,142.86 $59,139.14
Kingsburg $11,600 $1,864.29 $9,735.71 $79,539 $22,371.43 $57,167.57
Bundoora $7,320 $1,960.71 $5,359.29 $50,192 $23,528.57 $26,663.43
Heidelberg $4,400 $1,767.86 $2,632.14 $30,170 $21,214.29 $8,955.71
Total $35,320 $7,521.43 $27,798.57 $242,182 $90,257.14 $151,924.86
The investor will receive $309,636 per year for the investment in real estate and $151,924.86 for the investment in Airbnb.
Conclusion and Recommendation
Investment in the suburbs having fifteen properties managed by each of the agencies gives a wide range of returns results. However, the analysis shows that investing in real estate is much more profitable due to the high-efficiency rate of 90%. Airbnb has a lower efficiency rate of 57.14% and also the management rate is higher at 15%. The clients should choose to invest more in the real estates in a ratio of 1:2 or 70% to 30%., the higher being the real estate. This decision will maximize the profits as it would lead to more returns from real estate.
