SCHOOL OF BUSINESS AND SOCIAL SCIENCES (SBSS)

FINANCIAL PLANNING (SBF 2013)

GROUP ASSIGNMENT

“CASE STUDY”

Prepared by

Muhammad Salehuddin bin Mohd Serimenati AIU18092020

Muhd Tahir bin Ahmad AIU18092009
Siti Noralinnah Jusneh AIU18092008
Andi Nur Elisya Syahira Binti Bahri AIU18092007

Prepared for
DR. SHAHRIZA OSMAN

Due Date:
CASE STUDY FOR FINANCIAL PLANNING [30%]
All the residents of 906 East College Street are either current students or recent graduates. Leigh,
Blake and Nicole are siblings. Their parents bought the home which is close to campus, as an
investment when Leigh started at the university her freshman year. The following profiles describe
each of the housemates and their intermediate term goals.
Housemate Profile Intermediate Goal
Leigh Graduate art teacher, oldest sister. Works part- Backpack through Europe for
time at the local coop for the discount, sells a summer in five years.
artwork at the local farmer’s market, bikes to
work. Vegetarian, loves to garden, and has four
egg laying backyard hens.
Blake Junior, business student, brother. Expected to Hawaiian Iron Man Triathlon
someday come back to work in the family in five years
business, but first he would like to try a career
on Wall Street.
Nicole Freshman, pre nursing for the moment, Graduate in 4 years
youngest sister.
Karri Fifth year student, communications major. Anchor the evening news for a
Loves shoes and high fashion, chocolate, and local television network
the Big apple.
Peter Graduate from Culinary Art School, sous chef. Open his own sushi restraurat
Did an internship in Tokyo, would love in three years.
someday to go back and visit. Originally from
Colorado, wants to submit all of the state’s
14,000-foot peaks someday.
Brett Second year medical student, focused on Complete medical school and
emergency medicine. Interested in someday residency with as littlt debt as
seeing the world via volunteerism for Doctors possible
Without Borders.complete medical school and
residency with as little debt as possible.
Jen Fresman at the community college, undecided Pick a major, transfer to the
major. Very social, fastest texter in high school
university after 2 years
graduating class graduate with a bachelor’s
degree in 4 years
Jack Recent graduate in general studies. Currently Decide on a career and avoid
tending bar part –time, no benefits. Would like moving back in with mom and
to advocate for paintball as an Olympic sport dad.
Peter finds the perfect location for his sushi restraurant and wants to buy or rent the space.
Although it is three years earlier then he wanted to open his restraint, he does not want to miss this
opportunity. However, he does not have the money to buy it.
During an investment club meeting with all of his housemates, Peter brings up the idea of the
investment club buying the building and renting it to him so he could open up his business. The
housemates decide that is an idea worth considering, but they want to do it separately from the
investment club.
Required
(i) What form of ownership would you recommend using for the new business and why?

I would recommend using business partnership for the new business because invest in the
business, and each investor or partner has a share in the profits and losses. Based on this situation,
Peter desired to rent the space but it does not have enough money so Peter should invite their
housemate to join this business because business general partnership is more reliable and practical
to carry out the business such as you can invest how much money you afford with then the profit
we can divide according to the agreement that Peter made it. Peter can invite Leigh, Blake because
it seems like they suitable to join Peter’s business since they had graduated in educational
institutions. Leigh has own local coop, Blake is a business student so respectively they must agree
with the agreement then can proceed investing money into Peter’s business. Other feature of
business partnership is they can make a loan easily for additional capital. Each partner receives
a distributive share of the profits and losses of the business each year. This way at least can reduce
risk loses because they have small experience in business sector.

(8 marks)

(ii) You meet with Leigh and she tells you about the housemate’s interest in buying the
building and renting it to Peter for his restaurant. What advice would you give her about
the dangers of real estate investing before they buy the property?
(10 marks)
a. General market risk
All markets have economic ups and downs, interest rates , inflation, or other
market trends linked to them so she cannot eliminate the market shocks.
 b. Liquidity risk
Before buying, Leigh have to consider the needs to be given to the depth of
the market and how one will exit the investment. She can expect dozens of
buyers to show up at the bidding table in a place regardless of market
condition.

c. Credit risk
The length and stability of the income stream for the property is what drives
value. Leigh have to keep in mind that creditworthy tenant can go bankrupt.

(iii) Leigh also wants to know about the benefits of investing in real estate? What would
you tell her?
(6 marks)
a. Tax Benefit
One of the advantages of investing in real estate is the tax deduction that the owner
enjoys from the purchase of a rental home. That's the main reason why so many people
want to invest in real estate. For example, rental income is not subject to a tax on self-
employed persons. In addition, the Government also provides tax deductions for land
depreciation, insurance, repairs, travel costs, legal fees and property taxes. Real estate
owners are also entitled to reduced rates of tax on their long-term spending.

b. Cash Flow
Cash flow is the net income from real estate investment after mortgage payments and
operating expenses have been incurred. The key benefit of investing in the stock market
is its ability to generate cash flow. In certain situations, cash flow just improves over
time when you pay off your mortgage and build up your equity.

c. Inflation
One of the advantages of investing in real estate is the inflation hedge. Despite high
inflation, the investor's rental income, and the value of the property have risen
 significantly. Real estate owners welcome inflation with open arms, as their cash flow
rises as the cost of living increases.

d. Live Profit
Most people are investing in real estate for the cash flow they earn in the form of rental
income. This passive income is a great incentive to start and purchase the first rental
property. Depending on the location, investors can make a lot of money to cover their
expenses and make extra money on the investor's side. Cities or cities with colleges and
universities appear to have higher incomes because competition in these areas is still
strong. If wisely chosen, investors can obtain a stable long-term income stream and
even save for retirement. And investors do not need to stop investing in one property
at a time and can raise rates and invest in a variety of real estate while at the same time
increasing the positive cash flow and diversifying the investment portfolio of real estate
investors. Investors can also manage by hiring a professional property manager if the
workload becomes too high. One tip to keep in mind is that location is the key to
investing in smart property.

(iv) What would you do if you were one of the housemate? Why?
(6 marks)
If I were one of the housemate, I will give motivation to her. I will help her to
pursue her dream and this can help us to build strong relationship.

Dear students---- you are required to form a group with 4 students for this case
study. Your case study answer should be typed in Microsoft Word, Times New
Roman size 12, 11/2 spacing, justified.
Due Date 21 MAY 2020 via my gmail address only
shahriza.osman@gmail