For more information on this video, and to sign-up for our 10-day Free CFA Course click here - http://www.edupristine.com/10-day-cfa/cfa-alternative-investments/ To know more about these trainings, do contact us at -M: +91 80800 05533 Investors are increasingly turning to alternative investments seeking diversification benefits and higher returns. This study session describes the common types of alternative investments, their valuation, their unique risks and opportunities, and their relation to traditional investments.

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Alternative Investments
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2. Real Estate Valuation
Real Estate
Valuation
Sale Comparison Income
Approach Approach
Market value is estimated relative to a Values the property using a perpetuity
benchmark. discount type of model.
Wherein the various factors
Net Operating Income (NOI)
affecting the price of the security Appraisalprice 
are determined and quantified and Market cap rate
put in as a regression equation to
Benchmark NOI
finally arrive at the price of the Market cap rate 
security. Benchmark transaction price
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3. Concept Checker
 The specifics of a simple hedonic model are as below:
Characteristic Units Slope Coefficient In
$
Number of Rooms Number 50,000
Distance to nearest public Miles -5,000
transportation
Gym in the neighborhood 0 or 1 10,000
The characteristics of a specific real estate property: Has 5 bedrooms, half mile away
from the bus stop, and no gym in the neighborhood. The appraised value using sales
comparison approach is:
A. $ 237500
B. $ 247500
C. $ 255000
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4. Answer
 B
Characteristi Units Characte Slope Value of
c ristic of Coefficie Characterist
Specific nt In $ ic
Property
Number of Numbe 5 50,000 250,000
Rooms r
Distance to Miles 0.5 -5,000 -2500
nearest public
transportation
Gym in the 0 or 1 0 10,000 0
neighborhood
The Appraised 247,500
value
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5. Concept Checker
Apartment XYZ
Gross Potential Rental Income $500,000
Estimated Vacancy and Collection 10%
Losses
Insurance and Taxes $50,000
Maintenance $20,000
Depreciation $15,000
Interest on Financing $15,000
If there was a similar sale with an NOI of 100,000 and its sales price was 1,000,000, find
the market value of apartment XYZ.
A. $ 3.8mn
B. $ 3.67mn
C. $ 3.75mn
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6. Answer
A Apartment Depreciation and
XYZ cost of financing
Gross Potential Rental Income $500,000 are not factors in
Estimated Vacancy and 10%*$500,000 ($50,000) the NOI calculation.
Collection Losses It is assumed that
Insurance and Taxes ($50,000) maintenance will
Maintenance ($20,000) keep the property
in good condition
Net Operating Income 380,000
(NOI) and the value of
Similar Transaction property is
NOI 100,000 independent of any
Market Price 100,000 financing
Cap Rate 10% arrangement.
Market Price Note: Taxes that are
NOI (Apartment XYZ) 380,000
relevant are
property taxes.
Cap Rate 10%
Market Price of 3.8mn
XYZ
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