W6_FELIX_ANALYZE PROFITABLE ASSET USING FUTURE & PRESENT VALUE

1)      Problem Recognition, Definition and Evaluation

I have asset i.e. one house at BSD City Tanggerang and one Apartment  (one bed room) at Karet Sudirman Jakarta.  I bought the house at 2009 while Apartment at 2008. Both of this asset was planned for my investment and rented.

On these year 2012, I want to analyze which one from my asset is profitable.

2)      Feasible alternatives

To make good evaluation, I would like to collect the data from those asset.

a.       A House at BSD City Tanggerang

Price                      :  Rp. 460.000.000

Down payment       :  Rp. 115.000.000

Year of purchase     :  2009

Bank Interest Rate  :  12.5%

Interest Period        :  10 years

Annual income rent :  Rp. 20.000.000

b.      An Apartement at Karet Sudirman Jakarta

Price                      :  Rp. 400.000.000

Down payment        :  Rp. 150.000.000

Year of purchase     :  2008

Bank Interest Rate  :  10.75%

Interest Period        :  10 years

                  Annual income rent        :  Rp. 36.000.000

3)     The cash flow for each feasible alternatives

Based from market value in this 2012, the house at BSD city was estimated worth around Rp. 650.000.000,- whilst the apartment at karet sudirman was worth Rp.500.000.000.

By using Present and future equivalent values we can calculate the cash flow as below table;

 a.       Property rate Increase :

Using equation   , we can find Interest rate, where:

I = Property rate increase

F= 2012 property value, in this case; House at BSD = Rp. 650.000.000; Apartment = Rp.500.000.000

P= Buying price, in this case; House at BSD = Rp. 460.000.000; Apartment= Rp. 400.000.000

N= Time/Period (years), in this case; House at BSD = 3 period and Apartment = 4 period

              The calculation can be shown at below table:

 

b.      Future value of the property

By using equation , we can find future value from both asset as follow:

F = Future Value after 10 years period

P = Buying Price  

I = property rate increase

N= calculation Period

The calculation can be shown at below table:

c.       Installment

Since I loan the money from the bank, than I should pay monthly payment to the bank, with follow equation:

A= monthly payment

P= Property buying price – Down Payment

I= bank Interest Rate; i=12.5%/year or 1.04%/month for BSD and i=10.75% or 0.89%/month for Apartment

N= 10 years Period or 120 month

            The calculation can be shown at below table:

d.      Rental Income

Assume I invest my property for rent for 10 years with 5% renting price escalation each year than I can find total income after 10 years period by using equation :

F= total income after 10 years period

A = Annual renting income; Rp. 20.000.000 for BSD and Rp. 36.000.000 for apartment

I = 5 % average renting escalation

N= 10 years period analysis

            The calculation can be shown at below table:

4)     Selection of the acceptable criteria.

Using the future and present values, we will analyze which one from both of the Assets will give the best profit.  

5)     Analysis for the alternatives

Based from above cash flows, I can calculate the profit as below table:
First I assume the DP (down Payment) value to the future value with equation
Interest rate (i) will be the deposit rate i.e. 6%/year.

With combine all the cash flow than we can get the profit calculation as below table:

            Future value of property – Installment + Rental income – DP Future Value: 
 

6)     Select the preferred alternative

From above analysis we can take conclusion that invest at a land (BSD city) is more profitable than having an apartment, even the renting income of the apartment is higher.

7)     Performance Monitoring & Post Evaluation of Result

Performance and the quality of these calculation can be review yearly by compare with the market price.

Reference:

·         *Engineering Economics-Fifteen Edition, chapter 4, The Time Value Of Money

·         *Understanding The Time Value Of Money, www.investopedia.com

·         *Time value of money, http://en.wikipedia.org/wiki/Time_value_of_money

·         *Mandiri KPR, http://www.bankmandiri.co.id/article/378083840178.asp