Property investment feasibility is most commonly evaluated through the multi-period cash flow analysis method.This is the most commonly suitable methodology for evaluating a real estate investment as it takes into account the timing of both the incoming cash flows called revenues and the out-going cash flows called expenses.
This analysis requires estimation of the property's cash flows that containing both revenues and expenses over the expected period of time.
In the case of property investments that are expected to be held for more than 6-12 months, which is usually the case, the correct evaluation of property investment feasibility requires the use of prudent projections of property income and expenses. This means that the investor or his/her advisers should carefully examine current levels of revenues and expenses and assess carefully whether they will remain stable, increase, or decrease in the months and years ahead.
It is these projections that need to be used in estimating the future revenues and expenses that will be entered into the multi-period cash flow model.
Given that any projection has an element of uncertainty, it is advisable to examine property investment feasibility under alternative base-case and pessimistic scenarios, in order to assess the risk of possible losss if things turn out worse than predicted.
This analysis requires estimation of the property's cash flows that containing both revenues and expenses over the expected period of time.
In the case of property investments that are expected to be held for more than 6-12 months, which is usually the case, the correct evaluation of property investment feasibility requires the use of prudent projections of property income and expenses. This means that the investor or his/her advisers should carefully examine current levels of revenues and expenses and assess carefully whether they will remain stable, increase, or decrease in the months and years ahead.
It is these projections that need to be used in estimating the future revenues and expenses that will be entered into the multi-period cash flow model.
Given that any projection has an element of uncertainty, it is advisable to examine property investment feasibility under alternative base-case and pessimistic scenarios, in order to assess the risk of possible losss if things turn out worse than predicted.
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