Marketing and Investment Opportunity - Assignment Example

UNIVERSITY OF SOUTH AUSTRALIA Assignment Cover Sheet Please check your Course Information Booklet for submission details including due date and extension allowances. . ADDRESS DETAILS (Externals must provide this for return of assignments - optional for internals) Full name: Address: Postcode: This assignment needs to be submitted through the online grade book system in learnonline. Student ID                 Email: Course code and title: BUSS 1055 Discovering Opportunities in Property School: Commerce Program Code: Course Coordinator: Peter Rossini Assignment number: Project Further Information: (e.g. state if extension was granted and attach evidence of approval, Revised Submission Date)   I declare that the work contained in this assignment is my own, except where acknowledgement of sources is made. I authorise the University to test any work submitted by me, using text comparison software, for instances of plagiarism. I understand this will involve the University or its contractor copying my work and storing it on a database to be used in future to test work submitted by others. I understand that I can obtain further information on this matter at http://www.unisanet.unisa.edu.au/learningconnection/student/studying/integrity.asp Note: The attachment of this statement on any electronically submitted assignments will be deemed to have the same authority as a signed statement. Signed: Date: UniSA Property Plus Property Report Student Name Property Description PROPERTY ADDRESS: 38A Leader Avenue, Kilburn, Adelaide, South Australia Legal Description Title Reference: CT5996/267 Plan – Lot Reference: C24237   F1 Proprietor/s in Fee Simple: Encumbrances: Zoning Instrument: Current Zoning: Heritage Status: Location-neighbourhood description Distance to (nearest in kms) City: M Shops: P School: P Transport: General Topography (describe): Key Socio-economic indicators (describe): Streetscape (describe): Adjoining/Surrounding Land-uses (describe): Residential houses are adjoining the property. Relative property marketability (describe): Land description Site Area (Sqm): Topography/Accessibility Orientation/Aspect: Allotment Type/Shape: View/Outlook (describe): Mains Services: Water  Sewer  Electricity  Gas  HS Broadband  Main Building description # Main Rooms # Bedrooms # Bathrooms # Undercover car parks Built About # Living rooms Dining room Enclosed Building Area Attach/Storeys Style Main Outer Wall Main Internal Lining Roof Cladding Window Frames: Internal Condition External Condition: Renovation/Repairs (describe) Features (describe) Site Features Features (describe) Garden (describe) Images of Property Streetscape Site Exterior Interior Marketing Opportunity Appraisal of Subject Property A sales comparable approach is used to determine the appraisal (Beirne, 2006, p. 25). A basic appraisal process is carried out by analysing comparable sales and competing properties in similar markets. The activity will entail collection of appropriate data and interpretation of the data to come up with a perfect value for the property. In this case the location of the property is 38A Leader Avenue, Kilburn, Adelaide, South Australia. The property is a residential house with two floors. The first floor contains 1 Dining room, 1 Living room, 1 toilet, and 1 laundry. The Second floor has 3 bedrooms, and 2 bathrooms. It lies on a 258m2 with a garden at the backyard. The wooden floor is firm and the widow frames are made of metal. There is no cracking on the walls, floor, or windows. However repairs need to be carried out on the staircase and the front yard. All rooms are fixed with electricity, the bathroom, kitchen and toilets have water flowing in the taps. Other properties that are on sale in the location include: house at 33 Leader Avenue Kilburn it has 3 bedrooms 2 bathrooms 1 living room and 1 kitchen (250 m²). Another one is 38E Leader Avenue which has 3 bedrooms 2 bathrooms 1 living room 1 dinning room 1 kitchen (221 m²). Another one is at 44 Leader Avenue has 4 bedrooms 2 bathrooms 1 dinning room 1 living room 1study room and 1 kitchen (405 m²). Another property is at 48 Leader Avenue with 2 bedrooms 1 bathroom 1 living room and 1 kitchen (318 m²). Lastly there is one at 56 Leader Avenue with 3 bedrooms 1 bathroom and 1 living room and 1 kitchen (347 m²). Address Overall Site Location Building quantity Building quality Selling price 33 Leader Avenue worse Better worse Better Same $393,800 38E Leader Avenue Same Worse Same Same Better $386,500 44 Leader Avenue Much better Much better Worse Better Same $421,600 48 Leader Avenue Worse Much better Better Worse Worse $369,900 56 Leader Avenue Better Better Worse Same Worse $356,700 38A Leader Avenue (Shows price estimate) $344,100 to $364,100 $346,500 to $372,500 $331,600 to $345,600 $359,900 to $385,900 $366,700 to $380,700 The likely selling price using the Overall appraisal is $360,100 The likely selling price using the Site factor is $352,500 The likely selling price using the location factor is $338,600 The likely selling price using Building Quantity is $365,900 The likely selling price using Building Quality is $370,700 My overall appraisal of the property based on data available is $360,100. I arrived to this decision since most of the properties for sale in the area are well furnished and in quality condition. In addition the subject is in a worse location as compared to other properties in the area (Property Values - Leader Avenue, Kilburn n.d.). Since the method used is a simplistic way of determining the cost. Much complex method should be introduced such as assessing additional data in the same locality. Additional data such as age of the property and unique features of the property. Method of sale The most appropriate method of sale is through auction (Realestate.com.au: Australia no.1 property site, n.d.). This method suits the appraisal since the property is in a competitive market. Te property is proximal to most heritage and government facilities, it will attract many investors and buyers. In addition news about the auction will be communicated to the right targeted buyers. Additionally there are strong public relations with the auction agencies in the region. The community have embraced several methods of sale but the most appreciated is the auction. Auction has been embraced as a method of sale because it capitalises the changing market and the buyer seeks to identify all his/her needs before purchase. The property unique characteristics such as its proximity to the road and the good condition it is, supplements the method of sale. This method will employ a sole agency. The agent will be in control of the sale rather than the buyer (Deakin 2004, p. 109). Auction will attract massive investors and buyers. The highest bidder automatically buys the property. The sole agent will coordinate all marketing and advertising and controls all the negotiations. Marketing and Advertising Marketing activity will include determining the marketing budget and the advertising strategy. The marketing budget will be constrained and cover all crucial areas (David 2008, p. 231). The marketing budget will be as follows; statutory property searches $300.00 signboard 1800x1200 with photo $230.00 brochures 200 colour A4 $210.00 press advertisers (black and white) 5cm x 2col $469.70 internet sites $300.00 auctioneers fees $550.00 The advertising campaign will create a lasting impact on investors and possible client (Beirne, 2006, p. 15). The advertising strategy will entail media commercials which will run at intervals. These commercials are targeted to reach majority of clients. Media for advertising will be specialized trade and technical magazines, and in TV or radio. Investment Opportunity Income potential The characteristics and features of the property are; located on 38A Leader Avenue Kilburn. The house is a timber framed house with two floors 1 Dining room, 1 Living room, 1 toilet, and 1 laundry. The Second floor has 3 bedrooms, and 2 bathrooms. It has an undercover garage and a garden at the back yard. No conditioning but it is very close to the driveway and surrounded with residential houses (Property Profile Report 2011). The nearest properties for rental are; 18 Talinga Avenue, Kilburn, 3 Bedrooms 1 Bathrooms 3 Car Spaces going for $380 per week 65a Gladstone Avenue 3 Bedrooms 1 Bathrooms 2 Car Spaces going for $370 per week 3/2 Le Hunte Street, 3 Bedrooms 1 Bathrooms 3 Car Spaces going for $290 per week Address Rooms S Area  Actual Rent/wk  Implied Rent/wk  Price Description 18 Talinga Avenue, 9 738 m² $355     3 Bedrooms, 1 Bathrooms, 3 Car Spaces 65a Gladstone Avenue 7 371 m² $370     3 Bedrooms, 1 Bathrooms, 2 Car Spaces 3/2 Le Hunte Street, 6 540 m2 $290     3 Bedrooms, 1 Bathrooms, 3 Car Spaces 33 Leader Avenue 7 250 m² $310   $393,800 3 Bedrooms, 2 Bathrooms, 1 Car space 38E Leader Avenue 8 221 m² $380   $386,500 3 Bedrooms, 2 Bathrooms, 2 Car spaces 44 Leader Avenue 10 405 m² $460   $421,600 4 Bedrooms, 2 Bathrooms, 1 Car space 38A Leader Avenue 8 258 m2 $380 $360,100 3 Bedrooms, 2 Bathrooms, 2 Car spaces I imply the rent for the subject to be $380. I arrived to this decision after evaluating the condition of the other listed properties. Although the property has fewer rooms than other cheaper properties it is well maintained and very proximal to the road (Deakin 2004, p. 74). Renters will be much influenced with the appearance, the spacious rooms and the closeness to the road (Australia prequalification tender notice). Development Opportunity Development Opportunity The property has an opportunity for development. The property is in a residential zoning which attracts a lot of investments (Online development plans n.d.). It has a regular shape and a flat topography. The total area of the property provides an opportunity to develop a bigger home unit. The property is located around various heritage places. The closest is at 36 Kintore avenue. Within the proximity there are the council reserves and a playground as well. Other government services and facilities include; council information centre, child care facilities and public library 1.8 km away. The council collects waste every Wednesday. In addition there is a good road network in the estate and public transport is available. The development will include new features for the home such as swimming pool and a small playing ground for kids which can also double up as a place for relaxing. The garage will be reduced to 1 car space since there is an open parking space on the street. The zoning policy of port Adelaide Enfield council allows complete development and redevelopment of properties (Development Plan Port Adelaide Enfield Council 2012, p. 384). This development opportunity is a viable option since the land owner will benefit immensely. The development control policy allows comprehensive development in this residential area. Furthermore, it allows greater usage of the land towards improving residential houses (Development Plan Port Adelaide Enfield Council 2012, p. 384). The zoning development control clearly stipulates that, houses should be built approximately 4 meters from the boundary. However much development such as recreation centre could be initiated in the property but the zoning policy restricts. The policy clearly stipulates dwellings and home buildings should be related and located in one region. Since the property is located among residential property then the best development opportunity is to build a home unit (Australia prequalification tender notice 2010). Additionally the policy restricts building houses that may overlook into the neighbours back yard. Detailed Feasibility OR Investment Analysis Feasibility Using the back of envelope pro forma method to determine the feasibility of the property the procedure will analyse and compare the total income to the total cost to be incurred in developing the property (Beirne, 2006, p. 252). A positive outcome in the feasibility test will give a go ahead to pursue the proposed project. If the proposed property goes to sell: Potential selling price for the property $360,100 Building area – 220 square metres Demolition cost $35.00 per sq. m. = $7700 Site preparation costs, connection fees, fencing, landscaping fee, etc. say $40,000 Marketing cost and agency fee (2 per cent of selling price) – 2% x $360100 = $7,202 The cost of construction (Individual House - tiled roof, brick veneer approx 220 sqm) - $1038 \sqm x 220 m2 = $228,360 Construction of Car park (Carport metal roof $260 \sqm) $260\sqm x 40 m2 = $10,400 Consultancy fee and application fee - (15% of construction cost) - 15% x $238,760 = $35,814 Total cost of the development = $335,056 Income Selling price $360,100 Therefore total development value $360,100 cost cost of construction ($1038 \sqm x 220) $228,360 Site preparation costs, connection fees, fencing, landscaping fee, etc. $ 40,000 Consultancy fee and application fee $ 35,814 Demolition cost ($35.00 per sq. m. X 220) $ 7,700 Marketing cost and agency fee $ 7,202 Construction of Car park $ 10,400 Total development cost $ 327,916 Profit $360100 - $327,916 = $32,184 Return on investment $32,184/$327,916 = 9.815% If the proposed property goes for rent: Weekly rental per unit is $380 The market gross annual income multiplier is 27 Construction cost – $1,363 per square metres x 220 = $299,860 Site preparation costs, connection fees, fencing, landscaping fee, etc. – $40,000 Consultancy fee and application fee – 15% x $310,260 = $46,539 Marketing cost and agency fee – (2 per cent of selling price) 2% x $533,520 = $10670.4 Car park construction (Carport metal roof $260 \sqm) $260\sqm x 60 m2 = $15,600 (Gross annual income multiplier = 27) Income Gross annual rental ($380 x 52) $ 19,760 Gross annual income (27 x $19,760) $ 533,520 Potential Selling price $ 533,520 Cost cost of construction ($1,363 \sqm x 220) $ 299,860 Site preparation costs, connection fees, fencing, landscaping fee, etc. $ 40,000 Consultancy fee and application fee $ 46,539 Demolition cost ($35.00 per sq. m. * 220) $ 7,700 Marketing cost and agency fee $10,670.4 Construction of Car park $10,400 Total development cost $ 415,169.4 Profit $533,520 - $ 415,169.4 = $118,350.6 Return on investment $118,350.6/$ 415,169.4 = 28.507% Both feasibility tests clearly indicate that the total development value exceeds the total development costs. Therefore it gives assurance that the development proposal can be pursued further. The feasibility analysis also shows that the development will make many returns if the proposed project is for rental rather than for sale. The highest return development will definitely be the most productive to the investor (David 2008, p. 302). References ‘Australia prequalification tender notice: Land and property management authority seeks pilot project to examine alternative valuation methodologies in New South Wales’ 2010, US Fed News Service, Including US State News, pp. n/a. Beirne, M 2006, The Property Management Tool Kit, AMACOM Div American Mgmt Assn, New York. 321 pages David, M M 2008, The A-Z of Facilities and Property Management, Thorogood Publishing, London. Deakin, M 2004, Management: Corporate Strategies, Financial Instruments and the Urban Environment, Ashgate Publishing, London. Development Plan Port Adelaide Enfield Council 2012, viewed on 24 May 2012, Online development plans n.d., viewed on 24 May 2012, Property Profile Report: Comprehensive profile on an individual property 2011, viewed on 24 May 2012, Property Values - Leader Avenue, Kilburn SA 5084 n.d., viewed on 24 May 2012, Realestate.com.au: Australia no.1 property site, n.d., viewed on 24 May 2012, The South Australian Heritage Places Database 2011, viewed on 24 May 2012, Read More