Introduction
Real estate in the world is considered a good target for investment. Organizations and individuals willing to acquire residential and commercial property, as compared with other forms of investing money in real estate investments have a number of indisputable advantages. Investing in real estate is profitable to the investor as a result of the growth in real estate prices, as well as from property rental. In the long term real estate prices tend to rise, despite the possible local fall during various economic crises. Risks associated with investments in real estate, as a rule, lower than the risks associated with investments in equities or investment in the foreign exchange market and, especially, investment in derivatives, such as futures. Even if the property falls in price, there is the possibility of putting it out, which allows a person to ride out of tough economic times, getting a rental income.
In California, prices for real estate rise and fall equally fast. The increase of prices before the crisis reached 30% per year in some cities in California. Still, the financial crisis of 2008 reduced real estate prices in the state, while preserving its investment attractiveness (GP Guide). After the 2008 crisis the most significantly decreased property prices in cities such as the state of Los Angeles, San Francisco, San Diego, Sacramento. During 2008, the average cost of real estate in Los Angeles and San Diego has decreased by 20%, while in San Francisco - by 17%. State banks have begun to put the mortgage real estate, selling it at deep discounts. California housing market volume also reacted to the economic crisis and declined by about 25% (GP Guide).
When investing in real estate under construction in the conditions of equity in the building the investor can derive additional income from the investment of money in the early stages of construction, as compared with prices on the secondary real estate market prices on construction sites. At the same time, of course, there are additional risks associated with the construction and the possible bankruptcy of the developer or failure to comply with contractual terms and conditions on the timing and quality of construction (Stoodley). But these risks can be significantly reduced by choosing a reliable builder, who has been working in the market and having a partner with a good business reputation for a long time.
Purpose
The purpose of the current project is to invest in the creation of a modern cottage village with the developed infrastructure. It should be located near Los Angeles, California on the Western coast of the US. Most of the cottages will have an ocean view with separate entrance to the beach. The main project aimed is to construct a 20 cottage village. Those hours should be individual and mutually independent. Also, except for the construction of those cottages, the area will provide the following:
two shopping malls;
special place for fishing;
playgrounds;
public health center;
promenade with recreational areas;
parking for 140 cars;
a stop for public transport;
sports grounds;
boat substation.
Here are the services that a health and fitness center is expected to have:
full medical examination of the body using modern equipment;
a variety of physical therapy;
massages;
oxygen cocktails;
mud baths;
reception cleaning and improving the water;
individual rehabilitation programs;
disease prevention.
Project
The houses will be designed and built based on the light steel structure technology (LSST). It is based on a framework of a design and construction technology with the use of thermo profiles and profiles made of thin-walled galvanized steel (Metek). LSST is used as in the construction of load-bearing wall structures, as in the construction of interior and floor decks, roof systems. The cavities are filled with insulation designs and trimmed with water-resistant panels of Oriented Strand Board (Metek). After installation, the internal and external finishing painting is carried out as well as plastering and painting blends with ecological paints.
Metal structures have favorable characteristics for the construction of:
reliability;
ease;
individuality;
impermeability;
transportability;
manufacturability;
economy.
They are built quickly and serve their owners for many decades. For the implementation of the project it is required to get the following approvals: agreed in the state regulatory authority construction project of the village administration, including the master plan, the project of external communications (electricity, water supply, sewerage, gasification, etc.), project documentation of the houses.
The US real estate market (and Californian one in particular) is considered to be one of the most stable and secure in the world. California has a warm mild climate, beautiful nature, beautiful subtropical vegetation. Tourists beckon golden Pacific beaches and the magnificent ski resorts. In California, there are no powerful hurricanes, prolonged rains and extreme temperatures. Yet, buying a cottage on the Pacific ocean coast is a very attractive action for many people so the demand will be quite high. Moreover, there are reasonable prices, high level of education, excellent infrastructure, a stable economy, safety and security of investment (Stoodley). These major factors attract potential buyers from all over the world to buy a house in or near Los Angeles.
As a result of the 2008 crisis, cottages in the United States have become more accessible not only to politicians and stars, but also for ordinary people. Banks arrange the sale of the collateral property at a very affordable price. Annual interest rates on mortgage loans is approximately between 3.5% to 4.75% per annum. But such conditions are available only for those who legally reside in the United States over 2 years, has a positive credit history, as well as a permanent source of income in this country (GP Guide). There are also several US non-resident lending programs. The loan amount can be more than 500 thousand dollars, and the first installment must be not less than 45% of the total amount. Then the bank gives you a loan at 5-6% with a minimum package of necessary documents (GP Guide).
Thus, real estate prices in the US have declined significantly, which is definitely good for those who want to buy it. The average price of apartments fell by 18%. It does not apply to apartments in Manhattan close to Central Park, belonging to a very expensive market segment. They tend to loan well, but after the crisis there is almost no demand for buying those property.
The investment costs in the project of building a cottage village consists of several groups:
The cost of acquisition of land;
Costs for the development of design - budget documentation;
The cost of construction of the houses at the rate of $600 per 1 square meter;
The cost of landscaping;
The costs of communications;
The costs of the advertising campaign,
The cost of commercial real estate and construction of the wellness center.
All investment costs are summarized in the table the necessary investments.
It is expected that the construction of the cottage settlement will take about three years, respectively, the investment costs will be carried out in several stages. Income in this investment project will be formed due to the receipt of funds from the sale of real estate, as well as the functioning of the health center, followed by the possibility of selling the business. It is assumed that the residential real estate will be sold at a price of 2500 US dollars per square meter, and commercial real estate at a price of 4000 US dollars per square meter. The property is expected to be sold out within 5 years.
International practice of assessing the effectiveness of investment essentially based on the concept of time value of money. Investments are recognized as effective, if the flow is sufficient to return the original amount of capital investments and provide the required return on invested capital. The most common indicators of the effectiveness of capital investments:
discounted payback period (DPB);
net present value of the investment project (NPV);
internal rate of profitability (IRR).
Given the prevailing market conditions and characteristics of the investment project, the discount rate will be applied at the level of 18%.
With the current economic conditions, income from real estate is higher than the income from shares, securities. Staying at home, everyone can purchase real estate and to conduct active management of such acquisition in the US. If the transaction is carried out by correspondence, the agents that represent the client's interests, acts solely in accordance with the contract. It is also possible to obtain by mail order is on the property. Also, after-sale service includes a job management service. Manager will coordinate with the customer full range of necessary procedures to organize the provision of facilities lease and the subsequent transfer of funds to a client account, including the payment of all tax expenses. Unlike some countries, in the US there are practically no restrictions on property ownership for foreign investors. Buy any property in the United States will be able to both physical and legal persons. The buyer is not obliged to live in the USA, and also has the right not to be present in the country at the time of the conclusion of such a transaction.
The US real estate market differs from the other ones because of a very profitable investment schemes and acceptable, but still small risks. In addition, some cities can boast a highly developed tourism area in different directions. That is why investments in real estate in such areas as California can bring higher profits, which is based on the difference between real estate prices, as well as income from business or rental housing.
Recommendation
Still, real estate investments make sense for those who are willing to invest for the long term, because the liquidity is extremely low. If the investor is interested in a more liquid assets, it is better to apply for real estate funds, that is to buy a share, not a particular building or warehouse. Real estate is particularly advantageous to buy if the investor has an access to "cheap borrowed money". In table 1, it can be seen that immediate investment is wise for a company rather than waiting and being uncertain regarding how the economy is going to react. These criteria were ranked on a scale of 1-5 based on the current knowledge, taking into account the uncertainty of a future market.
In addition, another important choice that was made was the choice regarding the framing options for the cottages. The most important criteria investigated are collated in table 2.
The same 1-5 ranking system was used in this matrix. As can be seen from these matrices, it is wise to invest in real estate now, and LSST presents a significant benefit for the construction company in Southern California, particularly over wood, which must be brought from far away.
Conclusion
Works Cited
GP Guide, Global. "Mixed Signals In The U.S. Housing Market". Global Property Guide. N.p., 2015. Web. 8 Apr. 2016. Accessed at http://www.globalpropertyguide.com/North-America/United-States/Price-History
Metek,. "Light Steel Structures". Metek.co.uk. N.p., 2016. Web. 8 Apr. 2016. Accessed at http://www.metek.co.uk/solutions/lsstructure/
Stoodley, Ben. "Why You Should Buy Into California’S Real Estate Market". Equities (2016): n. pag. Web. 8 Apr. 2016. Accessed at https://www.equities.com/news/why-you-should-buy-into-california-s-real-estate-market
