Case Detail

Case Summary

A Landlord's Certainty

Case Number: 5-119-006

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Authors: Craig Furfine

Key Concepts

cash flow analysis, financial strategy, real estate, financial analysis, financial management, capital structure

Abstract

32-year-old Heather Wilson was about to become a property investor. After years of painstaking savings, she had finally reached agreement to purchase her first buy-to-let property, a 1 bedroom flat in London's sought-after Kensington and Chelsea neighborhood. She looked forward to a lifetime of building wealth through property investments. Of course, some of the income the property would generate would be owed to Her Majesty's Revenue and Customs (HMRC). But such was the nature of life. Unfortunately, the tax laws had only recently become less favorable for property investors, but Wilson expected to negotiate a lower purchase price as a result and so she felt confident that her investment remained solid.

Learning Objectives

After students have analyzed the case they will be able to: calculate the taxes that must be paid when undertaking an investment in property; understand how taxes influence the rate of return earned by a property investor;determine the relationship between financing choice and after-tax returns; make sense of the theory of optimal capital structure in a real estate context.

Number of Pages: 14

Extended Case Information

Teaching Areas: Finance

Teaching Note Available: Yes

Geographic: London, England, UK

Industry: Real Estate

Decision Maker Position: property investor

Decision Maker Gender: Female

Year of Case: 2015