Accounting Analysis

Appraisal Report for Flats

Introduction

The formation of Appraisal report has huge importance when determining huge investment decisions especially in property investment. The purpose of this report is to highlight the risk, things that need to be revalue and most important monitory and non monitory benefits.

The focus of this report is to analyze and develop an appraisal report for 20 flats that would be constructing on the junction of Chestnut Avenue and Holly Close. In this report different risk factors as well as benefits will be highlighted with supported documents.

Discussion

Assuming that the entire flats project duration is for one year and on the basis of this, the cost and revenue were projected. However, due to some market condition, due to the credit crunch, it was difficult to obtain mortgage and legal issues; company was not able to generate the projected revenue and hence has to sell on price trading in the market (Ross, Williams, 2012).

Cost of Flats

Since 20 flats will be constructed on the junction of Chestnut Avenue and Holly Close and size of 80M2 per flat, and there will be 160M2 common areas. Beside this, Two Shops comprising 100M2 and 70M2. Total M2 is 410M2.

As per M2 cost is £1,000/M2, total amount would be as followed:

Construction Cost

M2

Total price

Size per flat

80M2 80,000

Common areas

160M2

160,000

One Shops

100M2 100,000

Second Shops

70M2

70,000

Total Construction Cost 410,000

Projected Revenue

Looking at the market condition which was static, it was expected that each flat would sold for £109,000. Beside this, 10% of the flats would be retained in the rented sector that is 2 flats will be on rent amounting for £4800 per annum. The following is the schedule for projected revenue:

Projected Revenue

Flats

Amount

Sold

18

1,962,000

Rent

2

9600

Total projected Revenue

1,971,600

Leasing of Shops

Shop development would be through on pre-let for five year FRI leases and shops will be sold to investor once they are completed. The agreement was set in which developer agreed with the vendor for land price of £100,000 which will be paid at the end of development period or after one year of contact which ever occur soon to the developer. Penalty of £1,000 per month would have to be paid to vendor if the land payment is not made on time (Halpin, Senior, 2012).

Land Price: £100,000

Penalty on Late Payment: £1,000 per month

As it was discovered evidence of bats on the site, this delay in construction. Assuming that developer agreed to complete these shops in one year period, but due to evidence of bats on the site, construction was delayed which cost penalty on the developer of £10,000. The following amount has to be paid to developer by vendor.

Leasing of Shops

Land at a price

£100,000

Penalty

£10,000

Payment made to Developer

£90,000

Actual sales of Flat

After the construction was completed, flats were finally offered for sale 3 months late. The following is the actual sales for flats. As it was planned to sell 90% f the flats and 10% to be for rent, but due to market condition ...