AU2010101397A4

AU2010101397A4 - Property evaluation system and method

Info

Publication number: AU2010101397A4
Application number: AU2010101397A
Authority: AU
Inventors: Eeling Daniel Chu; Jason Robert Fonseca; Charles Liu
Original assignee: MY INVEST DECISION Pty Ltd
Current assignee: MY INVESTMENT DECISION Pty Ltd
Priority date: 2010-12-10
Filing date: 2010-12-10
Publication date: 2011-01-13
Anticipated expiration: 2018-12-10

Description

AUSTRALIA Patents Act 1990 Innovation Patent Specification Title: Property evaluation system and method Applicant(s): My Investment Decision Pty Ltd Inventor(s): Charles Liu; Eeling Daniel Chu; and Jason Robert Fonseca Agent: © COTTERS Patent & Trade Mark Attorneys The following is a full description of the invention which sets forth the best method known to the applicant of performing it.

2 Property evaluation system and method Field of the Invention The present invention relates to a property evaluation system and method. In particular, the 5 present invention relates to an online system which enables investors to assess key performance indicators to make informed investment evaluations when investing in property. Background of the Invention The process of investing in any asset involves weighing up potential returns and the io associated risks. However, there are inherent risks associated with property investment, and it can be difficult for investors to evaluate and comprehend the wide range of factors involved, when assessing the overall merit or timing of a potential investment. Serious investors do not ignore the risks and set risk tolerance levels for how much money is they are prepared to reinvest into a property in adverse circumstances. Whilst risk is one of the most important aspects of investing, many people either do not understand or even consider risk. Since every person has their own level of risk appetite, evaluating performance based on risk provides a suitable performance measurement which is directly relevant to an investor's individual financial circumstances. 20 For example, consider an investment property having a forecast high capital gain, but also heavy negative cash flow in the early years of the investment. Investors with little spare cash will have a lower tolerance for risk as they are unable to withstand the heavy cash burden required to supporting the investment. If the cash burden becomes too high, an 25 investor may be forced sell the property, which may lead to significant losses. In contrast, an investor with a greater level of available cash will have a higher risk tolerance for such an investment. Financial returns are a very important aspect of any investment decision. The financial 30 returns generated by a property investment tend to vary year by year. Predicting the possible returns can be very difficult, as factors such as rental yield and vacancy rate all come into play. In addition, it can be difficult to compare potential returns on two property 3 investments side by side, as the individual factors for each property may be quite different from each other. It would be desirable to provide a facility for investors to enable them to forecast their 5 returns and manage their risk exposure by helping them to determine the risk and return profile of a given property over a finite period of time. Object of the Invention It is an object of the present invention to substantially overcome or at least ameliorate one 10 or more of the above disadvantages, or to provide a useful alternative. Summary of the Invention In a first aspect, the present invention provides a property evaluation system comprising: a user data input for inputting financial data relating to a real estate property, the is financial data including initial property value, property growth rate and investment timeframe; a processor adapted to calculate one or more performance indicators based upon the financial data; and a result generated by the processor including a summary of the performance indicators 20 and one or more corresponding embedded graphs identifying a change of the performance indicators over the investment timeframe. The property evaluation system preferably further includes a property growth rate estimation means, the growth rate estimation means including, 25 a back solve function wherein the processor calculates the property growth rate based upon the investment timeframe, the initial property value and a forecast sale price; or a link to an external database of historic property growth rate as a function of suburb or post code. 30 The property evaluation tool preferably further includes a scenario analysis tool adapted to provide an alternative result of the performance indicators factoring in a percentage variation change in one or more values of the financial data.

4 In a second aspect the present invention provides a property evaluation system comprising: a first processor adapted to calculate one or more performance indicators based upon financial data; and a second processor in remote communication with the first processor, the second 5 computer processor including a user data input for inputting financial data relating to a real estate property, the financial data including initial property value, property growth rate and investment timeframe, the second processor being adapted to communicate the financial data to the first processor; wherein the first processor is adapted to generate a result including a summary of the io performance indicators and one or more corresponding embedded graphs identifying a change of the performance indicators over the investment timeframe. In a third aspect, the present invention provides a method of providing a property evaluation system, the method including the steps of: 15 providing a plurality of input fields for a user to input financial data values, the financial data values including initial property value, property growth rate and investment timeframe; and providing a backsolve function to calculate an estimate of any missing financial data values; and/or 20 providing a link to an external database to obtain an estimate of any missing financial data values; and generating a result including a summary of property performance indicators over the investment timeframe. 25 Brief Description of the Drawings A preferred embodiment of the invention will now be described by way of specific example with reference to the accompanying drawings, in which: Fig. 1 is a first flow chart identifying the property evaluation system and method; Fig. 2 is a second flow chart identifying the property evaluation system and method; 3o Fig. 3 is a third flow chart identifying the property evaluation system and method; Fig. 4 is a fourth flow chart identifying the property evaluation system and method; Fig. 5 is a fifth flow chart identifying the property evaluation system and method; and 5 Fig. 6 is a sixth flow chart identifying the property evaluation system and method; Detailed Description of the Preferred Embodiments In the preferred embodiment, the property evaluation system 10 and method is provided 5 through an interactive online application, in which a user can manually enter data concerning a specific property to obtain key performance indicators concerning the property, and a graphical output of those indicators. However, it is envisaged that the property evaluation system 10 and method may also be offered in a non-internet based environment, such as dowloadable applications. 10 As shown in the flow chart of Fig. 1, the system 10 includes a main user interface, or dashboard 12. Within the dashboard 12, the user is presented with a map 14 which is provided by an external service provider, such as Google'

TM

. The map 14 may be interactive, to enable the user to plot one or more properties on the map, based on the address of the is property, and the user may zoom in or out, or move the geographic confines of the map. The dashboard 12 includes an individual property analysis tool 16, which is referred to as the "property wizard". The property analysis tool 16 includes a number of information fields which can be manually entered by the user, and will be discussed in detail below. The data 20 may be entered on an actual basis, such as at sale time when the buy and sell prices and other parameters are known. Alternatively, the property analysis tool 16 may be used prior to a purchase or sale being made, with the user entering estimates of various unknown parameters such as the sale price or growth rate. 25 The dashboard 12 includes a results portion 20 for an analysed property, and an archive 18 of previously analysed properties. In the first screen of the property analysis tool 16, the user enters a desired name for the result, the property address, year of purchase and the forecast length of the investment in 30 years. The property analysis tool 16 subsequently plots the location of the property on the map 14. The first data entry screen is schematically indicated in the flow chart of Fig.1. Once this data has been entered, the user proceeds to a second screen in which the user 6 enters the property purchase price, forecast annual percentage growth rate, and purchasing costs, being the transactional costs incurred during purchase of the property. The second screen is shown in the flow chart of Fig. 2. 5 As depicted in Fig. 2, if the user does not have a value for the growth rate, the property analysis tool 16 provides the user with a first alternative being a simple calculation or back solve feature for calculating the growth rate based on forecast buy and sell prices over a given period of time. If the user does not have the required data for the calculation, the property analysis tool 16 may provide a link to an external internet site where the user may 10 obtain historical growth data for a given city, postcode or suburb. The user may then progress to a third data entry screen where the user is prompted for the loan amount, estimated life of the loan in years and also the month of the first loan repayment. In this third data entry screen, which is schematically depicted in the flow chart is of Fig. 3, the user also enters the loan type, being one of variable rate, split rate, fixed rate or interest only. The user is also prompted to enter the interest rate. The user then progresses to a fourth data entry screen, depicted in the flow chart of Fig. 4, in which the user enters estimated weekly rent, the estimated rental growth rate, the 20 estimated annual vacancy rate, and the first rental year. If the user does not have any indication of the estimated weekly rent, the user may be directed to access an external site that provides historical data of percentage rental yield for a given city, suburb or postcode. The property analysis tool 16 then provides a simple back solving feature which calculates estimated weekly rent, being a function of property value and the obtained rental yield. 25 Similarly, when the user needs to enter the rental growth rate, a back solve feature is provided so that a user may enter in current estimated rent and future estimated rent in 12 months, to determine the rental growth rate. Similarly, a back solve feature is provided to calculate the vacancy rate by entering the expected number of weeks that the property will 30 be vacant in a year. The user then proceeds to a fifth data entry screen, in which the user enters estimated tax deductible expenses, non tax deductible expenses and expenses growth rate, as depicted in Fig. 5. Again, if the user does not have access to data concerning the tax deductible 7 expenses, or non-tax deductible expenses, the user is directed to an external web page such as the Australian Tax Office. Similarly, if the user does not have an indication of the expenses growth rate, the user is directed to an external webpage such as the Reserve Bank of Australia, where the latest Consumer Price Index (CPI) data may be obtained. 5 Similarly, when the user does not have a strong indication of their risk exposure, the property analysis tool 16 directs the user to an internal budgeting tool, that allows the user to input their monthly income, and monthly expenditure, to estimate a weekly cash subsidy. 10 The sixth data entry screen depicted in the flow chart of Fig. 6 concerns possible renovations to the property. The user is prompted to enter a value for how much money they will spend on the property on improvements before the property is rented. The user is also prompted to enter their marginal tax rate. If the user does not know their is marginal tax rate, the user is directed to an external web page such as the Australian Taxation Office. The final information entered into the property analysis tool 16 concerns depreciation. If the user does not know their depreciation they are directed to an external tax depreciation 20 quantity survey based on such variables as the floor area and construction completion date. Alternatively, the user may manually enter the depreciation for each of the first five years of the investment. The depreciation tool may provide a back solve function, which evaluates estimates of depreciation using the average of numbers output from another tool. 25 Once the user has entered the data into the six data capture pages described above, the user may view results of the analysis. The results include the following indicators being the rental yield for each year of the investment, the level of positive or negative gearing for each year, the cash flows for each year, the loan profile for each year of the investment including loan payments, the expected capital gain, the users total yearly return on deposit, the yearly 30 value of the users equity, the cash flow from the property and the users risk exposure. Each of the indicators as well as being provided in a table, is also depicted in a chart output. The chart is in the form of a built in Flash TM based chart, embedded in the output result, which advantageously negates the need for the user to have Microsoft Excel TM or another such charting program installed on their computer.

8 Whist the indicators such as the rental yield vary each year during the life of the investment, the property analysis tool 16 also provides an average over the forecast life of the investment. 5 After the property analysis tool 16 has been run, the results are presented to the user in both an online version, or alternatively as a PDF document which the user may save onto their own computer. 10 Each time the user runs the property analysis tool 16, for a given property, the result for that property is saved in the archive 18, and the property is plotted on the map 14. Accordingly, the user can generate a list of properties to compare, for example if analysing a portfolio of held properties, or alternatively when buying a property to compare the features of that property with other possible available properties. The user may keep all of the is analysed properties in their archive 18 for further consideration, or alternatively the user may delete one or more of the analysed properties. When a result has been generated, the user may change some parameters of that result by simply returning to the property analysis tool 16 and changing some of the data in the user 20 entry fields. When any of the data is changed, the result is re-run with the new parameters updated in the results and graphs. The information may be split into free content and pay for use content with some of the simpler metrics being provided for free, and the more advanced metrics being accessed 25 through a pay per use system or a subscription fee. Advertising may also be provided on the page in a banner arrangement, with advertisements targeting relevant and associated products such as mortgage broking or building inspection services. 30 In addition, the property evaluation system 10 may also be provided with a news and information resource in which housing and property related articles are presented to users. The property evaluation system 10 is hosted by a first central processing unit of a remote 9 mainframe or online server, and the first central processing unit is in communication with a second central processing unit of an internet connected device such as a desktop computer, a laptop computer, a smart phone or another such device. 5 In a preferred embodiment, the property analysis tool 10 includes a scenario analysis tool. The scenario analysis tool provides preset scenarios for the user to stress test the investment, such as changes in the interest rates and growth rate. The Scenario analysis tool enables a user to perform comparisons to a base case, and the scenarios generally have a focus on risk optimisation. The scenarios include sensitivities on interest rate, vacancy, io expense, property value, capital growth, rental growth. The scenarios included in the scenario analysis tool include but are not limited to the following hypothetical scenarios: * Interest up 2% is - General Downside - Interest up 2%, Vacancy up 2%, Expense growth increase 2%, Property Value Growth less 2% * Interest rate increases by 1 - 2%, Interest rate decreases by 1 - 2% * Rental growth increases by 1 - 2%, rental growth decreases by 1 - 2 % * Non tax deductible growth increases by 1 - 2 %, non tax deductible growth decreases by 20 1 -2% * Tax deductible growth increases by 1 - 2 %, tax deductible growth decreases by 1 -2 % * Capital growth increases by 1 - 2%, capital growth decreases by 1 -2 % In one embodiment, the property analysis tool 10 includes a standard version, which is free 25 to access, and a professional version having professional features, which are only available to members or account holders, who must initially register to access the professional features. The professional features may be available either on a pay per use or time based subscription basis. 30 The professional features include: Target return functionality - calculates a targeted metric by changing one or more variables. For example - calculates the LVR at which a property will have a positive cash flow, and calculate what year this will occur under specified conditions; 10 Scenario analysis - allows a user to perform a comparison between scenarios and the base case on the same report. The values are charted side by side allowing a direct graphical comparison to highlight the effects of the scenario. Scenario analysis for the professional version allows the user to create scenarios rather than a preset of scenarios as provided by 5 the standard version; Property portfolio comparison application - provides a comparison between two or more properties on the same report; 10 Portfolio management - provides portfolio level tracking of properties which allows portfolio sensitivities when a property is added or sold etc, monitoring the LVR at the portfolio level; Increased assumption flexibility - complex rate curves can be modelled, for example growth rate might go up for the first 10 years and then go down in the next 10. A user may enter is the assumption of the growth rate for each year to customise the curve; Increased flexibility with multiple sensitivity and scenarios; Break Even Model - provides an understanding at which point the property investment will 20 break-even; Double Gearing (returns, equity, risk, tax) - provides the ability to analyse the property's prospect of Re-gearing and the potential financial returns that may be attributed; 25 Selling timing scenarios - provides the ability to understand the optimal year to sell the property based on preset investment criteria; Comparing the returns of a property against a set benchmark to determine Alpha returns; 30 Comparing the returns of a property against actual results; and Financial Structure Optimisation - calculates the optimal financial structure based on the investor's priority of objectives. For example calculates the best loan type, loan term and level of gearing based on the investor's objectives and risk appetite.

11 The property analysis tool 10 may include an online forum. This provides a feature on the website where a user has the ability to post or otherwise discuss the analysis results and/or post a question from the property analysis tool 16 to a forum. This allows other users to 5 provide feedback and a response to any questions. Although the invention has been described with reference to specific examples, it will be appreciated by those skilled in the art that the invention may be embodied in many other forms. 10

Claims

1. A property evaluation system comprising: a user data input for inputting financial data relating to a real estate property, the financial data including initial property value, property growth rate and investment timeframe; a processor adapted to calculate one or more performance indicators based upon the financial data; and a result generated by the processor including a summary of the performance indicators and one or more corresponding embedded graphs identifying a change of the performance indicators over the investment timeframe.

2. The property evaluation system of claim 1, further including a property growth rate estimation means, the growth rate estimation means including, a back solve function wherein the processor calculates the property growth rate based upon the investment timeframe, the initial property value and a forecast sale price; or a link to an external database of historic property growth rate as a function of suburb or post code.

3. The property evaluation system of claim 1, further including a scenario analysis tool adapted to provide an alternative result of the performance indicators factoring in a percentage variation change in one or more values of the financial data.

4. A property evaluation system comprising: a first processor adapted to calculate one or more performance indicators based upon financial data; and a second processor in remote communication with the first processor, the second computer processor including a user data input for inputting financial data relating to a real estate property, the financial data including initial property value, property growth rate and investment timeframe, the second processor being adapted to communicate the financial data to the first processor; wherein the first processor is adapted to generate a result including a summary of the performance indicators and one or more corresponding embedded graphs identifying a change of the performance indicators over the investment timeframe. 13

5. A method of providing a property evaluation system, the method including the steps of: providing a plurality of input fields for a user to input financial data values, the financial data values including initial property value, property growth rate and investment timeframe; and providing a backsolve function to calculate an estimate of any missing financial data values; and/or providing a link to an external database to obtain an estimate of any missing financial data values; and generating a result including a summary of property performance indicators over the investment timeframe. My Investment Decision Pty Ltd By Patent Attorneys for the Applicant ©COTTERS Patent & Trade Mark Attorneys