Private Property Investment for Rental

Andreas Reinbach Bars√łe & Simon Sig Vestbjerg

Student thesis: Master thesis


Investments in real estate for subletting is differing from other investment alternatives as stocks and bonds because the investor needs to administrate the operation during the maturity of the investment. Simultaneously is a real estate investment often seen as a geared investment and together with the before mentioned administrative operation, this can be considered as an entrance barrier to many investors. Thus, this thesis investigates how a private investor should dispose his or hers real estate investment with a subletting purpose. Furthermore, is this thesis answering whether the return on investment is equal to the risk of the investment. This should be seen in the light of gearing, macroeconomic conditions and the constant need for cash flow. Based upon predefined parameters is one case apartment selected as the basis of investigation. The apartment is chosen based on an analysis of property type and geographic placement, as well as the investors financial scope. Thus, the case is based on an existing apartment that has been on the market in the western part of Zealand. The case is basis for an analysis on the dispositions an investor has to take in order to yield the greatest return of investment with the lowest possible risk. These dispositions covers the optimization in regards to taxation, funding together with the operations costs of running the apartment. Additionally, a regression analysis will be performed based on selected and analyzed fundamentals, which will end with an expected sales price on the case apartment at the end of investment. The above mentioned analyses is based on a range of assumptions, why there also will be conducted a sensitivity analysis on the most important parameters. This thesis will conclude that a 30-year fixed interest rate mortgage should be the preferred for this kind of investment. Also, the operation of the investment should be through a business tax scheme, the rent is determined by the value of the rented as wells as a minimization of maintenance through the lease. With a calculated return requirement on equity at 10.5% is the NPV of the investment 32.654 kr. Thus, the investment is attractive to the investor with the predetermined prerequisites installed in this thesis.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2019
Number of pages135