Angus Cartwright

Angus Cartwright III, an investment advisor for the DeRight family, has four potential properties to decide between for John and Judy DeRight. John, a recent retiree, is looking for a safe investment to diversify his holdings. He is planning on selling half of the stock in his recently sold business, and invest in real estate. Because of his old age, I assumed that John would be more risk averse and would need a property that had strong cash flows. On the other hand Judy is the president of a small sized chemical company. Because of her younger age and her in place stable income, I assumed that Judy is more tolerant to risk. Also because of high pretax income ($1.6 million) I assumed that Judy would be looking to invest in a property that has tax advantages.

The first property, Alison Green, would be my recommendation for John. Of all the properties, Alison Green (AG), is the safest and offers the highest after tax cash flows. Of the four properties AG is the safest because it is best equipped to handle a financial crisis. AG has the lowest breakeven occupancy, at 64.84%. The property also has the best debt service coverage ratio (2) of all the properties. AG would give John comfort in knowing that he would not have to dip into his saving retirement to cover the debt on the property if the real estate market was to turn for the worst. Additionally, unlike the Fowler Building, AG is completely built out eliminating any risk in construction delays. Lastly, because of the building moratorium in parts of the county, John does not have to worry about competition in the short term. In terms of cash flow AG has the strongest in place cash flow. AG has the strongest Cash-on-Cash return at 12.06% and the highest Net Present Value at $734. When looking at the percent of total benefits (at Internal Rate of Return), AG offers the highest total benefits derived from cash flow at 73.98%. Because of these various reasons, AG would be a smart, safe investment for John....