Net present value (or NPV) is a real estate investing measure widely used by investors in an investment real estate analysis for a specific purpose: Net present value tells the investor whether a property will achieve his or her target rate of return and therefore should attract the investor’s capital into that investment.

Here’s the technical interpretation.

The net present value model is based on a decision rule that states if the discounted present value of future benefits is equal to or greater than the cost of those benefits it is a profitable opportunity. Whereas, if the present value of the future benefits is less than the cost for those benefits, the rate of return will not be achieved and chances are good that the investor should take another look.

Okay, let’s frame the idea with a simple illustration.

When you place your money into a savings account (i.e., invest your capital) you expect it to earn interest (i.e., provide future benefits). The bank dictates the return and you are either willing or unwilling to tie up your capital based upon your acceptance of that return. For example, whereas you might deposit $10,000 to earn 3.8% interest, you might not make the investment to earn 1.2% interest.

Fair enough. But suppose that the bank doesn’t quote an interest rate. Only what amount of money you’ll be able to collect in the future. Only that next year you will collect $10,300 with a deposit of $10,000 today. If there were no mention of an interest rate, how would you know what yield your investment is earning?

That’s the dilemma real estate investors face when analyzing income property. There’s a projection for both an investment amount and future benefit, but there’s no mention of yield. The investor has no idea what rate of return is achieved based upon that data alone, and therefore no way to compare it to other potential investment opportunities adequately.

This is where net present value comes in.

NPV lets you plug in a target yield for a property and then informs you whether the future cash flows (benefits) generated by that property will be enough to achieve that yield on your capital investment or not.

How It Works

NPV discounts all future cash flows by the desired rate of return to arrive at a present value of those future cash flows and deducts that amount from the initial equity (or capital invested). The result is a dollar amount that will always be either negative, zero, or positive.

How to Interpret

1) Negative dollar amount – This means that the present value of future benefits is less than the amount invested and that the specified rate of return is not met. In other words, you might want to move on to another property.

2) Zero dollar amount – This signifies that the present value of future benefits equals the amount of the investment and that the desired yield is perfectly met. In other words, the property will achieve the return you want but with no room to spare.

Do not get confused, the term investment property loan simply means a loan for investment of properties. These properties to be invested on are deemed to be profitable in the future that is why people loan to buy them. Presently, the real estate industry has become a lucrative business. A lot of realtors have testified on how they have come from rags to riches after getting into the real estate business. Depending on your talent and the circumstances, loaning to invest on a property may provide you with a good chance of building equity while nurturing the potential of capital gains as the value of the property appreciates over time. If you have the ability, it is definitely not a bad endeavor to try.

An investment property loan can be generally classified into two: residential and commercial. A residential loan is associated with investing residential properties like apartments, condos, buildings (with at least 5 units), stores, or warehouses. They are usually bought for expected future appreciation and rental income. On the other hand, a commercial loan is the one associated with investing on business and commercial areas. They are often more costly since bigger income is also expected to come from them.

Individuals are not the only ones loaning to invest on properties though. Quite a number of real estate investors in the U.S. make use of investment property loans in acquiring real estates too. There are two basic advantages on this. They can benefit form capital growth and tax deductions. Another important benefit comes from “negative gearing”.

In essence, the word “gearing” means borrowing for investment. A negatively geared investment means it is a property purchased using a loan where the expected income (after all the expense deductions) from the investment is less than the annual payable interest. This gives the investor a substantial tax benefit since they may deduct the cost of owning an investment property from their income which is taxable.

An investment property loan can come in different shapes and sizes depending on the requirements of the investors. They may be offered as interim, long-term or short-term loans. If you are interested in engaging into this kind of investment, you should make sure that you are knowledgeable of the terms of the loan. Make sure that you understand the interest rate and the time period of it. You must also keep track of the schedule. You want extra profit and not bigger credit.

There are quite a number of reputable investment property loans in the U.S. Most of them do not provide any limit on the number of properties you could own. They also offer adjustable mortgage rates and they have low down payment options. This is a great help because you can simply use the spare money to repair or renovate the property for future profitable use like reselling it or having it rented. A lot of loan providers also offer application online meaning you will not have to waste time setting an appointment with them or going to their office. Their online service allows quick and easy processing of your application for loan.

Be it any area or any sphere of life management is the key to success. Management of simple things such as your day-to-day activities etc. might not require much consideration but lot of planning is to be done when it comes to managing assets.

Asset management basically refers to managing money for individuals through stocks, bonds and cash equivalents etc. The asset management system has sprung from maintenance management systems and its aim is to optimize asset use and manage all maintenance efforts involved in making the assets as confidential, accurate and efficient as possible. The principles of asset management apply equally to all physical assets such as infrastructure, property, heritage, plant and equipment.

The strategy of asset management depends on financial aspects of ownership such as calculating the entire cost of ownership, depreciation, licensing, maintenance and insurance. Asset management can be in different spheres. For instance asset management in the field of property is known as property asset management, asset management in IT, in finance or investment asset management and asset management in inventory and physical stock.

Varying with the kind of an asset management strategy a firm or an individual can add value to his business, improve investment performance, manage financial risk exposure and reduce costs to business.

Keeping the incredible significance of asset management in mind, various asset management companies have mushroomed these days. An asset management company is a firm that invests the pooled funds of retail investors in securities in line with the directed investment objectives. By offering more diversification, liquidity and professional management service, an asset management service holds a niche above the individual investors.

A leading name in asset management and investment management services is Lazard. Lazard is known for investment banking with offices in more than 16 countries across the world. Lazard provides multiple services such as advisory services that include mergers and acquisitions, asset management and restructuring to corporations, partnerships, institutions, governments and individuals.

Similarly the Asset Intelligence unit of General Electric’s Equipment Services has earned commendable name in providing intelligence based asset management and logistics services for commercial and transportation equipments. Hardcat is a leading asset management solution provider in UK, Australia and USA.

The joint venture between UK’s top ranking insurance company Prudential Plc. and India’s recognized financial institution, the ICICI Bank Ltd. has resulted in the ICICI Asset Management Company to supplement the Indian investor mutual fund products with different growing needs of investment.

All these proficient companies keep in mind the fact that investment is quite a challenging task that requires tremendous planning and risk. These companies function in a way to produce better risk-adjusted investment returns and present investment solutions to the clients.

Recently the prizes of traded asset management companies have touched the sky primarily due to two reasons- rising stock markets and industry consolidation. A paradigm instance here is that the Legg Mason shares increased by 76% due to the news that it was taking over Citigroup’s asset management business.

All in all asset management companies are ideal resources to drive costs out of your business operations, increase profitability and get access to vast information database for making a prudent choice

Majority of us hope to retire rich – that’s an obvious statement. But how to go about gaining that status is a big question. But let me put it in a very simple way for you, if you simply save $1 a day and assuming that you find a good investment that gives you rate of return at 10%, with compounding interest, that $1 a day in saving will grow to $1 million dollar in 56 years! Not bad right? And if you think that it takes too long, then why not save $2 a day?

Ever since we start off our working life, all of us will think of retirement sometimes in our career life and that’s when the IRA, 401K, 403(b), annuities and etc starts flowing in into our mind. There are many ways we can save for our retirement and this works differently for each individual of us. So this is the real beginning to our retirement planning and that is to start saving early.

As you start to think of the saving, we then begin doing our calculation such as how much money do we really need during our retirement years. As we are living longer, we need at least 20 years of income to cover our expenses, With working life gone out and having only free time to do whatever we want to do, we may then have to think of how should we live our retirement life when we stop having income coming in. We all want to have the financial freedom to pursue our retirement dream so really, should we stop working fully or may be you would enjoy having small side business so as you can have some income during the retirement year. Do you really want to play golf for 356 days for the next 20 years? Many retirees complained of the boredom after only 6 years into their retirement and many agree that they still want to work part-time.

The next point to consider is how we choose to spend our money now while still working may be different to how we spend our money during our retirement year. As we no longer need the appropriate business clothing, the travelling expenses and all the costs of business lunches with associates and etc., many of you may be surprised to hear that we may actually need a lot less compared to what we need today.

One of the most talk about topic when we mention retirement is the investment that we have made so that we can retire comfortably. It is essential and my advice is to give it a hard thought on this. What you choose and how you choose to invest right now will affects how your retirement life will turn out to be.

Life expectancy – It is a reality of life that we have to face this term sooner or later. Your life expectancy depends on many factors such as your living lifestyle, the kind of people you are surrounded with, your daily habit, your health factor as well as you family health history and etc…. However, there is so called Life Expectancy Calculator that helps you to predict such a thing.

Hence. there are many factors to consider before any of us should consider retiring. Many planning need to be done especially in terms of our financial. With retirement planning calculator, it gives you a clear overview what needs to be done and consider before we decide to retire.

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A present value annuity calculator is used so as to calculate, as the name implies, the present value of an annuity. There are two types of present value for an annuity. The first of which is the present value annuity immediate. This present value is the present value which is paid at the end of a period. The second type of present value is called the present value annuity due. This present value, on the other hand is the present value that is paid at the beginning of a period. Luckily, these two present values can be calculated through the use of a present value annuity calculator.

Usually, with the use of this type of calculator, you can find out the exact figures of your present value annuities based on the data that you have. The good thing about this calculator is that you will be able to know the present value of your annuity even before you invest your money. More often than not, you will have an idea of the future values of that investment of yours.

In order to use this present value calculator, you have to know first and foremost, the value of the annual payments. Then you will also have to know the annual rate of interest, the number of years that the loan will exist, and the number of times that the annual rate of interest is to be compounded. However, it is of utmost importance that you have the right information so as to have an accurate result.

For some time now, we have heard about the melt down in the residential real estate market. The foreclosure rates on homes are rising, and many other homeowners are barely able to meet their payments. This problem is exacerbated by the fact that some people are also worried that they may lose their jobs in a deteriorating economy. What has not, until recently, been in the press to the same degree is information regarding the state of the commercial real estate market.

In spring, 2008, investment in commercial real estate has decreased to levels not seen in about 4 years. However, the fundamentals remain relatively strong. Vacancy rates continue to be low, and few markets are experiencing negative rent growth. These signals might suggest that now is the time to invest in commercial real estate in addition to carefully managing your current real estate portfolio.

If you own commercial real estate, what can you do to protect your asset? Commercial real estate is no different than any other type of asset. It must be actively managed to achieve the highest return on the investment.

Professional real estate asset management is the best, most reliable, solution. Most people who have a large portfolio of stocks, bonds and cash have professional money management. The same should be true of your real estate asset. Professional real estate asset management will increase the likelihood that your objectives will be met. Since real estate is a highly unique form of financial investment, your real estate asset manager will possess different skills than your money manager.

The nature and size of the real estate investment assets would define the asset management services needed. However, in all instances, the asset manager should physically mange the property, advising the investor on the fiscal viability and timing of maintaining/upgrading the property to ensure market competitiveness. An accomplished real estate asset manager should also be able to sit down with the investor to discuss the financial objectives and performance expectations the owner has from the asset and if/when to add additional types of real estate to the portfolio. When working with a money manager, there are certain funds that are bought for growth or for dividends, and the same is true of real estate. An astute real estate asset manager will be able to provide advice and guidance, and perhaps more importantly, recommend a real estate portfolio that will achieve the return desired.

When choosing a real estate asset manager, the investor should make sure that the manager does more that just use a computer program to determine the investor’s needs. Unlike stocks and bonds, the management of real estate is an art as much as a science. A great real estate asset manager is like a great chef who studies and trains in a number of different techniques and cuisines. However, the greatness comes when he adapts and changes depending upon the tastes of the diner and the ingredients at hand when actually preparing the dish. A real estate asset manager should be able to do the same. He/she should be trained in the disciplines of building management and finance. The asset manager should also possess the CCIM (Certified Commercial Investment Member) designation, which identifies him/her as one of only 6% of commercial real estate practitioners who have successfully completed the required rigorous coursework and exams in commercial and investment real estate. The designation, however, needs to be enhanced by an advisor who is able to adapt those skills to the individual real estate asset and the individual owner. Only then will the investor be getting the best possible management focus for his/her real estate assets.

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Have you ever wondered if property management companies are worth the investment? Renting out that extra couple rooms in your house may seem like something simple that you can do to make a few extra bucks, but unfortunately nothing is that easy. There is a great deal of paperwork that goes along with anything and unfortunately this is no exception.

When renting out a property you must consider insurance, how trustworthy your tenant or tenants are, the overall condition of the place, whether you will receive rent on time, how you will be compensated for damages, contributions to the utilities being used, and on and on. These relationships can get a little sticky and when this happens it is usually in the best interest of both parties to let the professionals handle the situation.

For a reasonable fee it is their job to take care of all the otherwise messy and complicated logistics of the situation that a person who is simply trying to save money and use empty space may not consider. You should also think about how difficult it can be dealing with someone living in your house that does not want to cooperate. We have all been in a situation where we had a landlord or tenant that we could not get along with, and it is a tough spot to get out of and be in.

So yes, just to make sure everything runs as smoothly as possible, a professional company is very likely the best way to handle the situation simply so you personally do not have to handle it and the headache that will come along too. If you really trust the person you are renting to, or really trust yourself and your ability to do the task properly, and know how to handle any legal complications that may come along, it is my opinion from research and some experience that it is best to leave it to the professionals. Besides, there wouldn’t be a line of work if people did not need it.

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I read with amusement an article I found on the website of a Self Managed Super Fund (SMSF) services company that compared the fees they charged for doing SMSF administration with the management fees charged by large Superannuation Funds and of course concluded that it was cheaper to have an SMSF. The writer of the article is assuming the only costs for running a fund is simply administration fees. In 2008, I did some research for a friend who was planning to start fund management company, and what I found was that the administration fees are only a small part of the costs of a fund management company. The biggest costs are for research and investment management expertise.

The writer of the article must assume investing requires no skills and choosing the right stocks to invest in is as simple putting the stocks page of the newspaper on the wall and throwing a dart to choose a stock to buy, or taking tips from your neighbour or taxi driver. He assumes there is no need to pay for financial education, research or advice to properly manage an investment portfolio. I wonder how well his clients’ portfolios are doing this year – not too well I suspect if they believe no skills are needed for investing.

For anyone who is considering starting an SMSF, you must factor in a cost for investing. Some of the costs would include

1) Education – if you plan to invest in stocks, you must know some basic techniques for analysing stocks such as fundamental analysis and technical analysis so you have a basis for what stocks to buy, and when to buy or sell a stock. If you wish to invest using other more complex instruments such as options, futures, warrants or CFDs, there is more education that you will need to invest in. There are many education companies out there and most courses I have seen costs a few thousand dollars each. I have spent quite a lot of money on books, courses and seminars but I see it as an investment in myself to develop the skills I need to help me manage my investments, no different from paying for a University degree to get the skills I need to help me find a job.

2) Research -

We can define the term portfolio simply to be the combination of assets. A dedicated investor can honestly reach the optimal portfolio position following the theory that defines the theories of the same. According to this theory; variance (that can be in its standard deviation or in square root) of return and mean return are the two fundamental factors that can automatically determine the functionality of the shareholder, investor or even depositor. Based on this concept, an individual can depict it as a portfolio theory based on two parameters or even mean-variance portfolio theory. It is always preferable option for an investor to return in lower variance in support of a higher one and mean return to be higher in support of a lower one. Hence in investment portfolio management, balanced investment strategy is considered to be the most successful approach that is followed by almost all investors. Portfolio management services in India includes this strategy in their fundamental theories and supports it quite comprehensibly.

The continuation of investment portfolio management is indispensable for an individual who is concerned to different facets of investment both personal and official. But there are certain factors that an individual should observe before going for any investments. He is be updated with the allocation of asset reviews at least on a fortnight or weekly basis as the fluctuation level of these markets are quite high and rapid. Moreover to slice off the risk and diminish the impact of losses, an individual should maintain a healthy ratio that balances both his financial securities and stocks. So there should always be a margin of risk taking factor before investing in shares and stocks. Moreover in investment portfolio management, stability is found to be provided to your commodities and stocks in your personal investment which directly yields an open option to buttress a stock concentrated portfolio. Besides in the long run, the value of such portfolios does not loose nor fluctuates with the rapid change of market conditions. Keeping a close view on the taxes and procuring benefits as and when offered can directly put a positive impact on your investment policy of the assets. Such a observatory approach will help an individual worry less about paying hefty amounts in the form of taxes after gaining some worth countable profits over the shares and other financial securities.

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Without question, there are some disadvantages with mutual funds. They charge management fees that ultimately cut into annual return figures, they invest the way they feel most appropriate without any consideration given to the investor who pays the manager’s fees, they can be narrowly focussed, and a few others that are well publicized in the investment industry.

However, mutual funds offer tremendous advantages for the majority of the population. Three of the most overlooked benefits are discussed here and they point to the very fact that mutual funds are, for the most part, an investor’s best option.

1. Mutual funds offer tactical investment management. Although many funds will take a buy and hold approach, the securities they own are part of the overall portfolio for a very specific reason. It is rare that a fund manager will purchase a security that he or she feels is a losing proposition. Instead, securities are purchase for their specific appeal, whether it is short-, mid-, or long-term capital growth, income, or a combination of both.

2. Mutual funds provide expertise in niche areas where the investor lacks sufficient knowledge and skill to take positions in individual securities. With asset mix being such an important, vital part of any investor’s long-term success with their investment portfolio, it becomes increasingly important to incorporate niche sectors, whether short-term bonds, high yield investments, small-cap equity, foreign equity, and so on. Almost no investor will have professional-level investment knowledge in every asset class and sub-class, requiring them to seek assistance from other professionals. Rather than relying on a rogue neighbor who dabbles in a specific asset for “fun,” enlisting the expertise of a highly (often overly) qualified investment manager makes a great deal of sense for the price they cost (often, minimum investment levels are under $2,500) and you usually pay less than 1.5% in expenses.

3. Mutual funds can have specific or general functions depending on an investor’s needs. Whether an investor needs a complete investment solution (such as with a target date balanced fund or portfolio) or something on a more specific level (such as filling a gap in their overall asset mix), a mutual fund exists on the market to fill those gaps, and everything in between.

As shown with these three simple examples, there is a mutual fund available to everyone, regardless of his or her immediate and long-term needs. Of course, other options exist but the closest one will find to a mutual fund alternative is an exchange traded fund, which often will not satisfy the investor’s long-term and/or specific need.

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