Profits and yields for international real-estate projects, financial calculations - worthiness of investing in a real-estate company and real-estate investment strategies.

Paradox: On one hand, the rates of return for income-generating real-estate are going down, but paradoxically, the prices asked for commercial properties and offices are increasing. However, there are several places in the world where the opposite is also true. In this section, we will look at some general financial calculations for real-estate enterprise.

How has financing for enterprise projects worked until now?

It is well known that there is no real-estate market without a credit market, and the liquidity crisis that has developed in the markets has caused a snowball effect in the field of real-estate - the banks asked for more security from the enterprisers; they stopped financing 90% of the property value, and only if the debtors were strong did they agree to finance 60-70% of the investment. At the same time, financing costs went up, and from then until the real-estate crisis, the road was short. All this has already been mentioned in depth in previous chapters.

International Real-Estate Companies

Enterprise companies and local businesses bought real-estate outside of their own countries all over the world in the USA, Canada, the UK, Germany, Switzerland, Poland, Russia, the Ukraine, and Romania - the former playing fields for enterprisers. At first, this usually worked extremely well. In the last ten years, an enormity of real-estate enterprisers has been created who took a gamble and leveraged themselves with big loans that financed properties the breadth of the globe. Equity capital was low, and leverage high, (cheap money) when property values dropped; inflation rose, and the favorable interest games shattered into tiny pieces.

Take Note! Returns of 78% - How did the Real-Estate Industry Work up until the Credit Crunch?

Up until the credit crunch, the game was seemingly simple - funds were taken at specific interest rates, a relatively small amount of equity capital was added, and income-generating properties were bought with returns (rental fees) greater than the loan producing phenomenal return on the equity capital. Here is a simple example illustrating this: equity capital of 10 is invested together with a loan of 90 to buy a property costing 100. The loan is given at 5% interest, and the property yields a return of 10%. So, every year, interest of 4.5 is paid, but the property yields 10, and annual profit margin is 5.5% which is raked in on an equity capital investment of 10. This means that annual profit for the enterpriser is 15.5%. He sells the property for 130 after three years, pays back the loan of 90, and eventually earns 16.5 net from three years rent (after interest deduction) and also equity capital of 30. On the basis of the deal, the 10 invested from the original equity capital created income of 46.5 in 3 years - an annual return of 78%. The enterpriser then invests proceeds from this property into other projects, and as long as they are successful, the investors and entrepreneurs are very satisfied.

There is no doubt that following the revival or strengthening of the markets after huge governmental rehabilitation programs to set the damaged economic wheels rolling, the banks will be able to loan money to each other, and to set up credit again for individuals, companies, and investors. Today, enterprise companies and contractors are halting projects, and customers are not receiving loans. There is now a situation where there is a shortage of the building of residential apartments, which will end up in a lack of housing, and money coming from the collapsed stock exchanges is also directed at investing in housing and real-estate. Areas where there were once vast amounts of new housing are disappearing but on the basis of the above a state of stability will be reached and from there, we can only go forward. It needs to be taken into account that private bodies restored investments in the capital market as well as in real-estate.