Asset class introduction

5 asset classes
Pros and cons of these asset class
Real estate as asset class
How real estate investments work
Stake holders’ interests

Investing

Physical asset & financial asset

Asset class
 Equity or stocks
 Debt or bonds or Fixed deposits
 Commodity or Gold
 Real estate
 Cash & cash equivalent

Equity
Pros
Equity investor enjoys ownership of the company
Companies issues equity to raise capital
Earning in the profits are sharing through dividends
Return in the form of capital appreciation
Ability to generate return that are higher than inflation
Limited liability
Tax benefits
Helps in
Well regulated structure
Cons
Equity doesn't guarantee returns
Equity investment carry high risk
Need proper skills to identify good equity deal
Need regular monitoring
News flow impact the markets
Analysis
Options available :DIRECT INVESTMENT- Stock exchange through stock brocker, IPO, sharing
capital
Indirect investment :Mutual fund , (PMS) Portfolio management Scheme

Debt Investor lend money to issuers at a predefined coupons

On maturity the issuer returns the principle to the investor.
Pros
Preservation of principle
Regular flow of income in the form of investment payment
Capital appreciation
Reduces portfolio Risk
Cons
Low inflation adjusted returns
Issue the price discovery
Interest rate risk
Credit risk
Analysis :
Conservative investors
Investors looking for Regular flow of income
Avenues to invest in Debt :
Bank FD, Cooperate bonds & Debentures, Cooperate Deposits, Government securities, Small
savings schemes offered by govt & post offices, Debt mutual fund, Public provident fund

Gold is a precious metal

Gold is a vehicle to monetary exchange
It carries “store of values”
Pros
Store of value
Reserve currency
Hedge against economic pressure
More often used as a jewellery / ornament
Easy to liquidate
Cons :
using it for security purpose

Investment option available :

Cash or cash equivalents, such as money market funds –Cash Equivalent
Cash equivalents are investments that can readily be converted into cash. The investment must be short term,
usually with a maximum investment duration of three months or less. If an investment matures in more than
three months, it should be classified in the account named "other investments." Cash equivalents should be
highly liquid and easily sold on the market. The buyers of these investments should be easily accessible.

The primary advantage of cash or cash equivalent investments is their liquidity. Money held in the form of cash
or cash equivalents can be easily accessed at any time

Pros:

 The chances of losing money on an investment in this asset category are generally extremely low.

Cons:

 Lowest return

 Liquidity is high

Analysis:

Risk associated with banks :

 The government guarantees many investments in cash equivalents.

 Investment losses in non-guaranteed cash equivalents do occur, but infrequently.

 The principal concern for investors investing in cash equivalents is inflation risk. This is the risk that
inflation will outpace and erode investment returns over time.

Avenues to invest in Cash & Cash equivalent :

savings deposits, certificates of deposit, treasury bills, money market deposit accounts, and money market funds
- are the safest investments

Real estate or other tangible assets 

Real estate and other physical assets are considered an asset class that offers protection against inflation. The
tangible nature of such assets also leads to them being considered as more of a “real” asset.

Pro’s

 diversify their investment portfolio with an asset class that's not directly correlated to the stock market &
volatility is low
 generate monthly income from rental cash flow
 benefit from long-term capital appreciation
 Hedge against economic pressure
 It provides ownership
Con’s
 Liquidity is low
 Capital intensive investment
 Regulators & rating agencies transparency is missing
 Rentals repayment risk
Analysis :
Low to medium risk ,with stable debt-like returns holding the entire holding period along with lease
accelerations ,makes it an attractive investment option.

Pre-leased commercial Real estate provides high rental yields in the range of 6-8% combined with a expectation
of a reasonable capital gain could not take the gross IRR to 9-12% in the long run.

How Does a real estate analysis works

Chronology:

It acts like different asset class in multiple situation with different stakeholders :

 When a Asset class is added in the portfolio for purpose of own occupying it & use for living or own
occupy it acts similar to gold as an an asset class for security purpose

 Developing a project developer aspects equity kind of returns

 Real estate to hedge against inflation :The first sign of inflation may be the rise in markets. The price of
commodities may rise even faster if rapid inflation seems immediate, as people will be moving out there
money from investments that don’t offer a hedge against inflation, to protect their assets. 

 Real estate acts like commodity as to hedge against bad economic times: Even at the time of bad
economic conditions, being the necessities, especially like agricultural products and energy, their demand
and therefore, their prices remain buoyant even when the economy sours.So real estate acts hedge in bad
economic times as well to mortgage their property as well

Real estate as asset class

Fig 1.a : Investment in lands- Value changes only as the Intrinsic value of the property

Fig 1.b : more inflow slow outflow of Cash-flow - Any maintainability required

Fig 1.c : Less inflow and more outflow- emerge in case of preleased Assets and acquired

Fig 1.d : constant inflow & more outflow - construction phase & advance booking is in place
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 Porter Five Forces is a holistic strategy framework that took strategic decision away from just analyzing the
present competition. Porter Five Forces focuses on - how Real Estate Investors Plc can build a sustainable
competitive advantage in Real Estate industry. Managers at Real Estate as an investment opportunity can not
only use Porter Five Forces to develop a strategic position with in Real Estate industry but also can explore
profitable opportunities in whole Financial sector.

Threat of new entrants : High

Economics of scale : High ;Proprietary product differences : High ; Brand identity : low
Switching cost : High ; Capital requirement : High ; Access to distribution : low ;
Absolute cost advantage : Medium ; Govt policies : High ; Expected retailization : High

New entrants in Financial Services brings innovation, new ways of doing things and put pressure on Real estate
Investment through lower pricing strategy, reducing  costs, and providing new value propositions to the customers.
 By innovating new products and services.
 New products not only brings new customers to the fold but also give old customer a reason to buy
Investment products.
 By building economies of scale so that it can lower the fixed cost per unit. 
 Building capacities and spending money on research and development. New entrants are less likely to enter
a dynamic industry where the very few players such as Investment Co. keep defining the standards
regularly. It significantly reduces the window of extraordinary profits for the new firms thus incourage new
players in the industry.
Analysis :
Strategies which can be directly figured out :
 Some companies equip you to hold a stake in real estate without worrying about issues such as
maintenance or handling tenants.  By taking the administration and landlord issues off your shoulders, real
estate investment companies set you up to make passive income without worrying about the nitty-gritty.
 REIT are a simple and accessible way to invest but not present in warehousing industry till now
 A growing trend in real estate is crowd funding /Fractional ownership
  If you don’t have a ton of money to invest, We can pool your assets with others.
 Fractional Ownership
Fractional ownership is an investment method where multiple parties, individuals or companies who are mostly
unrelated, come together to jointly own an asset which is of high value. The main reasons for opting for
fractional ownership is to mitigate the risk among the several entities and to share the maintenance costs

Fractional Ownership in Real Estate

For a very long time, investment in real estate has been thought of as a way which could only be accessed by
people with monetary advantages. However, with the emergence of new technologies and increasing awareness
about market, the thought is changing fast. Fractional real estate investment is a method where multiple people
come together to buy share of a property. This type of property ownership can be implemented in assets like
hotels, residential buildings, vacation homes, resorts and other commercial establishments like
Warehouse,Commercial buildings etc.

Input required :
 Identification of properties which have high potential to return a high yield
 Each of these properties is broken down into smaller units on the basis of taxes, legal fees etc.
 Conduct feasibility study, market research and make a concept development with due diligence, Title
search , Approvals & NOC
 These Fractional shares are listed on the company’s portal which can be purchased by investors