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PRVT462 Intellectual Property Laws
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PRVT462 Intellectual Property Laws
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Course Code: PRVT462
University: United Arab Emirates University
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Country: United Arab Emirates
Question:
(1) Nominate the two essential elements of property investment performance and briefly describe each.(2) Briefly describe three factors that will affect return on capital.(3) What is the difference between gross and nett rents? While examining the differences.(4) Briefly explain how the length of lease affects the risk.We are looking for more insight than a long lease is good, and a short lease is bad.Short leases which are under rented, for example, may be a good in that context. Consider all aspects of what makes a good lease and a bad lease and look to complete this question with this in mind.
Answer:
Introduction:
The main objectives of property owners are to reap maximum interest from their properties by renting or leasing them. A property serves numerous functions like shelter, prestige, and marketing of food produced. The owner of a building gets benefits from renting an apartment while the lessees obtain interests through trading. The owner of a property is usually interested in two essential things that is gaining the return of capital, and in the end, all invested capital will be retained.
Elements of Property Investment Performance
The ultimate goals of the owners and lessees of the property are to reap a maximum interest from their property. An investor is usually interested in two major things that they get an adequate return at the end retains their capital.
Return on Capital
When it comes to the process of developing an investment, there are many risks involved. The investor expects to get returns despite the risks involved. Investment in property requires a lot of money since it is not flexible. Maximum returns should be obtained from property investment to catch up with other forms of investment. The market determines rents, and it is not stable most of the time. Magnificent properties will get high rents while those of low quality will not gain the same rent.
Return of Capital
The expectations of developing an investment at the end of it all will be the return of capital. Return of capital refers to the money paid back to the owners of the property and is always higher than net income. It is the return of the initial investment in the property development. At the end of the developing period, if the passing rent is higher than the net lease, the owner experiences shortfall. If passing rent is lower than net rent, owner gains capital. In renting properties, income usually comes from increasing the rents and improvement potential (Lützkendorf & Lorenz 2005).
Factors Affecting Return on Capital
Location
A suitable location of a property determines how much interest can be gained from it. In the urban and provincial areas, high-quality offices are situated where government agencies can easily be accessed. Retail belongings are found in central business districts and near the transport routes. The industries should be located near the consumers and also where they can access fast transport.
Quality and Design
The properties that yield capital should be of high quality and functional design. Buildings that are out of date or built many years ago face a lot of challenges. Examples are tall buildings which were made a long time ago before the lifts were introduced. People would prefer modern buildings that have elevators since they will save their time moving from floor to floor. Traditional houses will remain unrented hence renting cost staying stranded.
Competing for Property
Better designed and located property poses stiff competition, and this can affect the rent charged. The beginning of bulky goods has made retailers to reposition themselves in new buildings that would be purposely used for retail. The building that the retailers occupied before risk being left vacant hence would cause its rent level to fall (Hargitay & Yu, 2003).
Differences between Gross and Net Rents
Gross rent is the total amount paid while net lease refers to all expenses required to operate correctly. In net rent, usually, a landlord usually says his rent based on various factors. The amount charged is added to the net rent fee traditionally used in commercial real estates. Apart from the rent, other costs are paid for such as maintenance, insurance among others. The accumulation of all these expenses is referred to the net rent (Fraser, 2011).
Gross rent, commonly used in home real estates, is base rent and net rent is combined. Many people pay the rent fee at once, and it involves all house expenses. It is commonly used in homes because it comprises of small apartments and changes in cost cannot be predicted. It’s not common for landlords to use gross rent model for short-term leases.
How the Length of Lease Affect the Risk
Before owning a property, one has to decide whether it’s long term or short term. Long-term leases are 5years and above while short-term is 5years and below. Long-term rentals are stable. In more than five years, a tenant can perform a lot of income-generating activities. The income paid by the tenants is also guaranteed (Hoesli, & MacGregor, 2014). If for instance a particular property was rented for business purposes, the tenant can trade for quite a long period reaping maximum profits.
There is no security in short-term leases. There is no security on the property and also the income. The period is so limited such that the tenants do not have a strong feeling of belonging. As soon as the time elapses, they are supposed to move out of the apartment with all their belongings regardless of how they utilized the apartment in the period provided (Fibbens, 2008).
There is a lack of stability in short-term leases. When one is stable in a particular property, he will be able to engage in many activities freely. Therefore, people will be limited to the activities to participate in that is which can be beneficial for at least 5years. So, long-term leases are better than short term.
In conclusion, property investment is much costly than the other forms of investments including bank investment. The owners expect to get a maximum profit at the end of the season. Usually, he or she is interested in two basic things; return of capital and return of capital. Before setting up a property, the owner should consider certain factors such as the location, quality and design and competing of property. Long-term leases are more beneficial than long-term leases because of their stability and certainty.
References:
API (2015) the valuation of real estate, 2nd edition. Canberra: Australian Property Institute.
Fibbens (2008) cH1 Property Investment essential. Basics of investment valuation for property people. (Unpublished) 5-16 attached.
Fraser, W. D. (2011). Principles of property investment and pricing. Macmillan International Higher Education.
Hargitay, S. & Yu, S. M. (2003). Property investment decisions: a quantitative approach. Rutledge.
Hoesli, M., & MacGregor, B. D. (2014). Property investment: principles and practice of portfolio management. Rutledge.
Lützkendorf, T., & Lorenz, D. (2005). Sustainable property investment: valuing sustainable buildings through property performance assessment. Building Research & Information,
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