M.Com. / The potential investor in real estate is often confronted with a selection of properties in which he can invest. Each of these investments involves an expected rate of return and a risk that can be expressed in relation to each other. This relationship, known as the risk profile, differs from investment to investment and is therefore unique to a particular investment. The expected rate of return on an investment in real estate depends on the total expected tenant income less operating expenditures. Furthermore, the expected rate of return is influenced by the choice of capital structure. To be efficient, the capital structure must combine own as well as borrowed capital. Expected gross tenant income increases from year to year in terms of the escalation clause. The market average discount rate, at which income is discounted, does not necessarily have to differ from year to year. Consequently. a higher income could lead to a higher discounted value. The risk of investing in real estate is influenced by various factors such as location, interest rates, mass opinion, tenant mix and operating risk...

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