Quantitative and qualitative measures of real estate investment Essay

Quantitative and qualitative measures of real estate investment performance, and their use, usefulness and limitations in the re - Essay Example According to Feng, (2010, p, 11), Internal Rate of Return and property based portfolios have also been used. The quantitative and qualitative measures of real estate investment performance are useful, but they have some limitations, in the real estate investment decision-making process. This is because of the complex nature of real estate investment. Therefore, it may be difficult to absolutely appraise performance in real estate investment. In reference to Albert Einstein’s quote, â€Å"Not everything that can be counted counts and not everything that counts can be counted," it is worthy to note that there is no precise method of performance method that includes all the important elements and leaves out elements that do not contribute to performance measurement. In measuring real estate investment performance, real estate investors and managers, as well as, analysts use methods such as Simple Pay-Back and Simple Return on Investment (ROI) models (Muldavin, 2010, p, 98). Thes e models may be partially effective because they take into account factors such as the amount of return earned or associated with real investment. However, Simple Pay-Back and Simple Return on Investment models are essentially faulty because they fail to consider revenue or risk (Muldavin, 2010, p, 98). ... , these financial models obtain their results, based principally on initial development costs of real estate investments and operations costs savings (Muldavin, 2010, p, 98). It is not only the initial development costs and operations costs that determine the performance level of a real estate investment. There are other factors such as risk, based on market trends, which are expected to influence the performance of an investment. These factors are left out; hence they do not count all the elements that contribute to real investment performance. With this in mind, it can then be deduced that not everything that counts can be counted. Another measure that is used in the measurement of performance of a real estate investment is the financial model for evaluating real estate investments, Discounted Cash Flow analysis (DCF) (Muldavin, 2010, p, 98). The Discounted Cash Flow analysis addresses financial implications of sustainability. It also, facilitates the integration of quantitative an d qualitative analysis to measure the sustainable property's financial performance (Muldavin, 2010, p, 98). However, it should be noted that it is not only financial implications of sustainability of a real investment that counts, but also other factors that are market related, which cannot be quantified. Therefore, not all that counts can be counted. The use quantitative and qualitative methods in the measurement of performance of real estate investments involve the formulation of some financial assumptions, which are made for property. These financial assumptions pertain to performance measures such as rent, occupancies, and capitalization rates. The financial assumptions are derived, based on qualitative judgement and analysis of the best quantitative and qualitative information