Angus-Cartwright

Case 4

Sarah Hu
 Detailed
Analysis
2 3
Exhibit 1:
In Exhibit 1, we begin by summarizing the key parameters
of each investment property based on the numbers and as-
sumptions given in the case. We take note of the number
of units/sq ft of rental space, purchase price, sales price,
holding period, depreciable base, depreciable life, NOI, in-
crease in NOI per year, leasehold payments, and equity
investments. We also take note of the mortgage based on
how much debt was used to finance the project, interest
rate, loan term, and amortization period.
Exhibit 2:
In Exhibit 2, we calculate the before tax cash flow by taking
the gross rent and subtracting vacancy under the assump-
tion that it is equivalent to 95% for Allison Green and Stony
Walk and 93% for The Fowler Building and Ivy Terrace. We
calculate the amount of potential gross rent lost to vacancy
by multiplying these rates by the gross rent. After arriving
at the net rent, we subtract real estate taxes, other operat-
ing expenses and capital reserves. These expenses can
be calculated by making the assumptions that real estate
taxes are at 12% for the two properties in MD and 10% for
the properties in VA. After subtracting these expenses, we
can arrive at the NOI. We then subtract the mortgage pay-
ments and lease payments for Ivy Terrace to arrive at the
before tax cash flow.
Exhibit 3
Combining the information from exhibit 1 and 2, we can
standardize and calculate certain parameters per square
foot or per square unit. For instance, we take the real estate
taxes calculated in exhibit 2 and divide it by the number of
square feet office buildings have and number of units the
multifamily properties have.
Exhibit 4
In exhibit 4, we calculate metrics that measure risk includ-
ing added margin, break-even ratio. LTVR, and DCR. To
calculate the LTVR, we take the amount borrowed to fi-
nance the project over the purchase price. The DCR was
4 5
6 7
8 9
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 calculated by taking the yearly NOI over the yearly finance
payments. The break-even ratio can be calculated by taking
the sum of the real estate taxes, other operating expenses,
capital reserves and financial payments and dividing it by
the gross rent.
Exhibit 5
In exhibit 5, we create a discounted cash flow for each prop-
erty. We begin by calculating an amortization schedule by
subtracting the amount of principal paid from the beginning
balance to get to each period’s ending balance. Then, we
calculated the BTCF, which was a similar process to the
one we did in Exhibit 2. We then calculate the amount of
taxable income to determine how much tax needs to be
paid. To do this, we take the NOI and subtract interest and
depreciation, and add reserves, to determine the taxable
income. Finally, we take the amount of tax that needs to be
paid and subtract it from the BTCF to arrive at the ATCF. We
also determine the NPV at 10% and the IRR, which will later
be used to calculate some of the measurements of return.
To calculate the NPV at 10%, we used the NPV function to
12
discount the sum of the ATCF minus the amount of equi-
ty invested. To calculate the IRR, we use the IRR function
from Excel on the total ATCF.
Exhibit 6
In exhibit 6, we calculate metrics of return such as cap rate
(going in and going out), cash on cash return, increase in
capital value, pre-tax investment multiple, IRR, and NPV at
10%.
Exhibit 7
In exhibit 7, we rank the measures of return in order from
1-4 based on the calculations done in the preceding exhibit.
Exhibit 8
In exhibit 8, we partition the IRR for each property into 3:
cash flow before tax, income tax, and future values. We
did this by calculating both the actual and the discounted
(to standardize and be able to compare the percentages
since everything is now in the present period). We have the
actual values from exhibit 5, but in order to discount these
values, we use the formula (FV/(1+IRR)^period). We then
sum these discounted values and divide it by the amount of
equity invested in the project to get the percentages of the
partitioned IRRs.
Exhibit 9
In Exhibit 9, we simply take the percentages of the parti-
tioned IRRS that we calculated in the preceding exhibit and
summarize them in the table.
Exhibit 10
In exhibit 10, we calculate the net cash from sale by sum-
ming the amount of equity invested into the project with the
gain on sale (which is the difference between the expected
sales price and the purchase price) and the recapture of
mortgage amortization. The recapture of mortgage amor-
tization was calculated by taking the BTCF from sale and
subtracting both the return of initial cash and the increase in
sales price. We then subtract the 25% tax depreciation and
20% capital gains tax from this sum to get to the final value
of net cash from sale.
Risk factors
In the Angus Cartwright case, there are a number of risk
factors that are worth considering before choosing an in-
vestment property. Those factors include the LTVR, break-
even ratio (added margin), and DCR. The calculations and
values that are being referenced come from the Break-Even
Analysis (Exhibit 4).
The first risk factor is the Loan to Value Ratio. Since the
LTVR is calculated by taking the loan amount over the price
paid for the property, the higher the LTVR, the more the
project was financed by debt. Thus, the investment is more
risky as the LTVR increases since the probability of default
is higher as the lender is losing out on more money if the
borrower is unable to make their payments. In order from
highest to lowest LTVR, Stony Walk is 81.67%, The Fowler
Building is 76.36%, Allison Green is 70%, and Ivy Terrace is
63.64%. Therefore, from the calculated LTVRs, Stony Walk
has the highest risk and Ivy Terrace has the lowest invest-
ment risk. This is because the value of Stony Walk can de-
cline by 18.33% while the value of Ivy Terrace can decline
by 36.36% before the lender is exposed to risk.
Break-even ratio
Another risk factor is the break-even ratio. Profit only starts
once the occupancy rate becomes greater than this ratio.
In other words, if we have a lower break-even ratio, there is
lower risk in the project as occupancy can be lower in order
to breakeven and start earning profit. In order from highest
to lowest break-even ratio, Stony Walk is at 82.89%, The
Fowler Building is at 77.26%, Ivy Terrace is at 66.33%, and
Allison Green is at 66.2%. Therefore, from the perspective
of this risk metric, Allison Green and Ivy Terrace have the
lowest risk while Stony Walk has the highest investment
risk.
Added margin
A related risk factor to the break-even ratio is the added
margin. This may also be known as the profit margin and
can be calculated by subtracting the break-even ratio and
the vacancy rate from 100%. If the added margin is high-
er, this means that the investment is less risky, but it also
means that the break-even ratio and vacancy rate is lower.
Therefore, the added margin is an alternative way to look
at the breakeven ratio. The higher the break-even ratio, the
lower the added margin will be. The ordering from highest to
lowest added margin is the opposite of the preceding ques-
tion: Allison Green, Ivy Terrace, The Fowler Building, and
Stony Walk. This means that Allison Green has the highest
profit margins while Stony Walk has the lowest under the
given occupancy rates and calculated break-even ratios.
DCR
The last factor of risk that we will discuss is the debt cover-
age ratio, which measures the extent to which a property’s
underwritten NOI can cover debt service. The first kind of
DCR is the one that the lender requires. If the lender de-
mands a higher DCR, this means the investment is riskier
since the lender believes that for every dollar in debt in-
curred, the property needs to contribute more in order to
support the mortgage payment. Most commercial lenders
require a minimum DCR of 1.2. However, there is also a
computed DCR. The higher the value of this DCR, the saf-
er the investment is since it means that the NOI can fall a
greater percentage before debt service isn’t covered. The
DCR of the properties under consideration from highest
to lowest are Ivy Terrace at 2.18, Allison Green at 1.81,
The Fowler Building at 1.33, and Stony Walk at 1.25. This
means that from the perspective of the DCR, Stony Walk
poses the highest investment risk since it means the NOI
cannot fall as much as Ivy Terrace, for instance, before in-
solvency occurs.
Partitioning of IRR:
The partitioning of IRR is also an important consideration of
risk. In Exhibit 9, we can reference the summary of benefits
based on IRR for BTCF, Tax Benefits, and Future Value.
BTCF (cash from operations) based on IRR is more certain
since it is based on lease contracts. In contrast to this, the
portion of the return that is based on tax shelter and prop-
erty price appreciation are more risky and unpredictable.
Therefore, we should take this into consideration when con-
13
sidering the most important and least important percent of
total benefits with tax shelter and property price apprecia-
tion being less important than BTCF simply due to the fact
that they are more risky. For BTCF returns based on IRR
in order of highest to lowest are Allison Green at 70.61%,
Ivy Terrace at 64.66%, Stony Walk at 61.23%, and Fowler
Building at 53.9%. This means that Allison Green has the
highest returns on the least risky partition (BTCF) while the
Fowler Building has the lowest. For returns on tax bene-
fits from highest to lowest, the ordering of the properties
is Stony Walk, The Fowler Building, Allison Green, and Ivy
Terrace. For returns on FV from highest to lowest, the or-
dering of the properties is The Fowler Building, Stony Walk,
Allison Green, and Ivy Terrace. This means that Stony Walk
and The Fowler Building have the highest returns on IRR
with respect to the more risky partitions (tax benefits and
future value).
Return factors: Complementing the risk factors are the re-
turn factors, of which there are six that I will discuss. Most of
the numbers referenced can be found in exhibit 6.

The first return factor that we analyzed is the purchase
cap rate or the going in cap rate. This rate represents the
weighted average of the return to debt and equity claim-
holders and measures how successful the property is at
using its invested capital (debt and equity) to generate a
cash flow profit before considering the effects of financing
and taxes. To calculate this ratio, we divided NOI by the pur-
chase price. Ivy Terrace had the highest cap rate at 8.18%,
then Allison Green at 7.25%, then Stony Walk at 7%, and
finally the Fowler Building at 6.78%.
The second return factor that we analyze is the sales cap
rate or the going out cap rate. This percentage is used to
determine the gross value of an investment property at
sale. To calculate this ratio, we divided the NOI by the ex-
pected sales price. Ivy Terrace had the highest sales cap
rate at 8.39%, then Stony Walk at 8.06% then Allison Green
at 7.88%, and finally The Fowler Building at 7.05%.
Ideally, we would buy at a higher going in cap rate and sell at
14
a lower going out cap rate because a lower cap rate means
that the value of the property at the time of sale is higher.
At the time of purchase, we want a higher going-in cap rate
because then that means the property was valued lower
and so the appreciation in property value has increased
during the investment period. According to the assumptions
made, none of these properties would be bought at a higher
going-in cap rate compared to a going-out cap rate. In fact,
most of the going in and going out cap rates are about the
same. Overall though, because cap rates serve as a rate of
return, we can conclude that Ivy Terrace is a better invest-
ment compared to The Fowler Building.
The third return factor that we analyze is the Cash-on-Cash,
which is also known as the return on equity. This factor is
calculated by taking the BTCF and dividing it by equity. This
ratio represents the profitability of a property to an equity
holder in one period. For our properties, Alison Green had
the highest COC return at 10.8%, then Ivy Terrace, then
Stony Walk, and finally The Fowler Building at 7.14%. This
means that from a COC perspective, Allison Green is the
best investment choice.
Another return factor that we can analyze is the percentage
increase in capital value. This was calculated by taking the
difference between the sales price and purchase price over
the purchase price. It represents the percentage of growth a
property experienced in value over the 10 years. However,
this factor is partially unreliable due to fluctuations and bar-
gaining in regards to property sales. Regardless, Ivy Ter-
race experienced the greatest increase in capital value by
percentage (27.27%), then the Fowler Building, then Alison
Green, and finally Stony Walk at 13.33%.
The next return factor that is analyzed is the pre-tax invest-
ment multiple. This metric is calculated by dividing the cu-
mulative, annual distributions plus the residual value by the
investors’ paid in capital. Essentially, it represents all the
pre-tax cash that an investor will receive over the life of the
investment against their equity investment. For our proper-
ties, Stony Walk had the highest multiple at 4.25, then the
Fowler Building, then Allison Green, and lastly, Ivy Terrace
at 3.41. From this return perspective, Stony Walk and the
Fowler Building are stronger choices compared to Allison
Green and Ivy Terrace since the investor can expect to re-
ceive a higher multiple of their equity in pre-tax cash.
Lastly, we can analyze and compare the NPVs calculated
at a 10% discount rate. This is where we took the future
cash flows of all 10 years for each building and discounted
them backwards to the present time to determine the value
of the project as of now. The Fowler Building had the high-
est NPV at $2321.95, then Allison Green at $1803.60, then
Ivy Terrace and Stony Walk at about $1077 each. From an
NPV perspective, The Fowler Building is the best choice
because according to the projected cash flows, this building
is worth the most in present time.
There are a number of qualitative factors on risk and return
that impact these properties.
Qualitative Factors
For Ivy Terrace, we should consider the qualitative factor
of the building moratorium. This means that supply is con-
strained in the short term within these areas of the country.
Therefore, if demand increases, we can create a monopoly
for a moment in time by raising apartment rents and prices.
Additionally, for this property in particular, another qualita-
tive factor on risk and return is the fact that the building
is still under construction. Inherently, there is greater risk
in a multifamily/apartment building that is still under con-
struction compared to those of other property types like
office buildings, for instance. Usually, preleasing helps to
mitigate some of the risk from the investor’s perspective
as it guarantees that at least a certain percentage of the
property will be rented upon completion of the construction
ending. It also serves as evidence for demand of that prop-
erty in that specific area. However, apartment buildings and
multi-family properties are unable to be pre-leased since
tenants would not be interested in signing a lease for a unit
that will not be available in the near future. Therefore, with
apartment units like Ivy Terrace, the developers are always
building “on spec”, which presents greater risk. Lastly, for
Ivy Terrace, we must consider the pros and cons of the land
lease. While the land lease is able to provide a tax deduc-
tion, the flip side of the coin is that the leasehold agreement
is also a fixed financing cost for the investor.
A qualitative factor that should be taken into consideration
and that can be applied to all properties in consideration is
the property type. Generally speaking, office buildings have
a longer lease term than multifamily. This is because mul-
tifamily leases will typically last only one year while office
leases are usually for 3 to 5 years. Therefore, residential
properties like Allison Green and Ivy Terrace will have high-
er turnover rates and be slightly more risky than the office
properties over the course of the 10 year investment period.
Next, we will discuss the area in which the property is lo-
cated and the projected supply/demand for the type of
property within Montgomery County, MD and Arlington
County, VA. In Montgomery County, the backbone of the
economy are biotech firms. The county as a whole is one
of the wealthiest in the country and many of the school dis-
tricts are therefore, very highly rated. As a result, I believe
that demand for residential/multifamily properties would be
higher than office buildings, making Allison Green a more
attractive choice than Stony Walk. In Arlington County, VA,
the area is very urban and the backbone of the economy is
the federal government’s presence. Therefore, demand for
office properties would probably be higher than residential,
making The Fowler Building a more attractive choice than
Ivy Terrace.
Another qualitative factor that can be taken into consider-
ation is how recession proof a tenant/type of commercial
real estate may be. During a recession, individuals and
businesses are both likely to be impacted in a negative
manner. Individuals are at a higher risk of losing their jobs
and therefore, their spending power goes down. They are
no longer interested in buying homes during recessions and
oftentimes, they are unable to pay their mortgages or rent.
The housing market follows the economy very closely, and
therefore, home values and the residential real estate mar-
ket will drop during recessions.
Businesses, likewise, experience negative effects from the
15
recession. For instance, during COVID there was a steep
drop off in demand for office properties in particular. Many
businesses failed to make their rental payments and office
properties experienced a large sell-off as well as a steep
decline in prices.
Lastly, we will discuss the number of tenants as a factor
of risk and return. Within the multifamily units, there is a
greater effect from vacancy if a tenant leaves for Ivy Ter-
race simply because the property has fewer units than Al-
lison Green. Within the office properties, there is a greater
effect from vacancy if a tenant leaves for Stony Walk than
The Fowler Building because the property has less rentable
square feet, which means that percentage wise, tenants are
taking up more space within their lease in Stony Walk than
in The Fowler.
Profiling the investors
For John, more of the partitioning of the IRR should come
from operations since he is retired. In contrast, Judy could
have a greater percent of return coming from the future val-
 ue component. Based on our calculations from Exhibit 9,
I would recommend Alison Green for John and either the
Fowler Building or Stony Walk for Judy. This is because out
of all the properties, Alison Green has the highest BTCF
return on equity (70.61%) while Stony Walk and the Fowl-
er Building have the highest FV return on equity (around
65.68% and 68.78%, respectively).
Additionally, for John, it is important that the projects earn
him at least a 2.14% cash-on-cash return because he is
expected to earn $750,000 on stock dividends based on
his $35M equity in his business. Because he is planning on
using a portion of his $35M equity to invest in real estate,
he can expect to earn a 2.14% return or better on this real
estate investment, especially since there is also higher risk
associated with investing in this asset class. In our calcula-
tions in Exhibit 6, we see that all the properties earn at least
a 2.14% cash-on-cash return. Alison Green earns a 10.8%
cash-on-cash return, Stony Walk earns 7.71%, Ivy Terrace
earns 9.67%, and The Fowler Building earns 7.14%.
scenario, CF after debt service amounts to $11,762,149. In
the base case scenario, CF after debt service amounts go
to $7,421,465.
For Allison Green, in the worst case scenario, CF after debt
service amounts to $7,213,185. Under the best case sce-
nario, CF after debt service amounts to $10,571,827. In the
base case scenario, CF after debt service amounts go to
$8,803,331.
For Stony Walk, in the worst case scenario, CF after debt
service amounts to $1,698,445. In the best scenario, CF af-
ter debt service amounts go to $5,758,330. In the base case
scenario, CF after debt service amounts to $3,685,772.
As we can see, in all of the properties and across all the
scenarios, the CF after debt service is highest under the
best case scenario and lowest under the worst case sce-
nario. If we calculate the IRRs for

16 17
Sensitivity Analysis
In order to test the solvency of these properties under differ-
ent scenarios, we can change the inputs of the parameters
such as the growth rate and the vacancy.

In ARGUS, I have done a sensitivity analysis of the best

case, where inflation/growth is at 5% per year and vacancy
rate is at 1%. I have also constructed a worst case scenario
where growth is at 1% and vacancy rate is at 10%. We com-
pare the base case scenarios to the worst case scenario
and the best case scenario to get a better idea of how the
return and risk metrics change accordingly.

For Ivy Terrace, in the worst case scenario, CF after debt

service amounts to $5,360,727. Under the best case sce-
nario, CF after debt service amounts to $10,629,594. In the
base case scenario, CF after debt service amounts go to
$8,471,072.

For The Fowler Building, in the worst case scenario, CF after

debt service amounts to $4,594,396. Under the best case

Executive
Summary
18
The investment problem: Angus Cartwright IV is a financial
advisor who is tasked with helping John and Judy DeRight
make an investment decision regarding potential real estate
properties. There are 4 properties that Angus Cartwright is
considering recommending, with those being Alison Green,
900 Stony Walk, Ivy Terrace, and The Fowler Building. He
is tasked with completing detailed financial analyses in or-
der to support his recommendation on which property John
should invest in and which property Judy should invest in.
The investment alternatives: The four properties that are
examined include Alison Green, which is a 100 unit multi-
family apartment complex located in Montgomery County,
MD. 900 Stony Walk is an office building in the same area
with 5 stories and 67,000 square feet of rentable space. Ivy
Terrace is a 75 unit apartment complex in Arlington County,
VA and The Fowler Building is a 110,000 square foot office
building.
Quantitative risk and return factors:
For John, the quantitative risk factors that would be most
relevant include added margin and the break-even occu-
pancy rate because he is looking to invest in a property that
can generate him profit/CF during the investment period.
Thus, it is important that the occupancy rates, added mar-
gins, and break-even occupancy rates are most relevant.
For John, Ivy Terrace and Allison Green seem to initially
be good choices in regards to mitigating risk due to the
fact that they have the highest added margins and lowest
break-even occupancy rates. For Judy, the quantitative risk
factors that are most relevant should be the LTVR, DCR,
added margin, and break-even occupancy rate. Ivy Terrace
has the highest DCR and the lowest LTVR, indicating that
the property seems to have the lowest risk out of the 4 we
are considering.
For John, the quantitative return factors that are particular-
ly relevant for him are the cash-on-cash returns and cash
flow before tax IRR partitions. Since Allison Green and Ivy
Terrace have the highest cash-on-cash returns as well as
BTCF IRR partitions, these are more attractive investments
for John.
For Judy, since she is not retired, the pre-tax investment
multiple and increase in capital value would be more rel-
evant for her. Assuming this is her goal, it would be most
beneficial to consider the IRR partitioning of income tax and
futures. In regards to future value, Stony Walk and Fowler
Building have the highest future value IRR partitions. Re-
garding income tax IRR partitions, Ivy Terrace and Allison
Green seem to be the most attractive as they have the low-
est returns which means they have the lowest taxable in-
come with respect to the equity invested. For the pre-tax
investment multiple and the increase in capital value, Ivy
Terrace is the best option.
Overall return wise, Ivy Terrace does not have the highest
IRR. However, the properties’ IRRs are all very close in val-
ue to each other and thus, the ranking of Ivy Terrace in re-
gards to this return factor is not as important.
Qualitative risk and return factors:
The older investor (John) is better suited to cash flows from
operations because he does not have as much time as Judy
to wait for the appreciation in property value. Additionally,
he is retired so the cash flow from operations would be more
beneficial as it can be used for his day-to-day expenses.
There are a number of other qualitative risks that should be
considered as well including the building moratorium, build-
ing construction, land leases, property types, location, and
recession proof investments.
For Ivy Terrace, we should consider the qualitative factor
of the building moratorium, building construction, and land
leases. Moratoriums occur when supply is constrained in
the short term within these areas of the country. There-
fore, if demand increases, we can create a monopoly for
a moment in time by raising apartment rents and prices.
This means that for Ivy Terrace, we can expect to achieve
the projected occupancy or even better. Additionally, this
means that we can potentially also expect higher gross
rents, depending on how much of the investor chooses to
capitalize on the monopoly. Additionally, we need to consid-
er the fact that the building is still under construction. There
is greater risk for Ivy Terrace because the developers are
building on-spec as they are unable to pre-lease to tenants
years in advance. Lastly, for Ivy Terrace, we must consider
the pros and cons of the land lease. While the land lease is
able to provide a tax deduction, the flip side of the coin is
that the leasehold agreement is also a fixed financing cost
for the investor. This would be an attractive feature for Judy
in particular due to the fact that it satisfies her idea of tax
sheltering.
Next, we discuss qualitative factors that can be applied to
all properties in consideration, which is the property type.
Generally speaking, office buildings have a longer lease
term than multifamily. This is because multifamily leases
will typically last only one year while office leases are usu-
ally for 3 to 5 years. Therefore, residential properties like Al-
lison Green and Ivy Terrace will have higher turnover rates
and be slightly more risky than the office properties over the
course of the 10 year investment period.
19
Next, we will discuss the area in which the property is lo-
cated and the projected supply/demand for the type of
property within Montgomery County, MD and Arlington
County, VA. In Montgomery County, the backbone of the
economy are biotech firms. The county as a whole is one
of the wealthiest in the country and many of the school dis-
tricts are therefore, very highly rated. As a result, I believe
that demand for residential/multifamily properties would be
higher than office buildings, making Allison Green a more
attractive choice than Stony Walk. In Arlington County, VA,
the area is very urban and the backbone of the economy is
the federal government’s presence. Therefore, demand for
office properties would probably be higher than residential,
making The Fowler Building a more attractive choice than
Ivy Terrace.
Another qualitative factor that can be taken into consider-
ation is how recession proof a tenant/type of commercial
real estate may be. During a recession, individuals and
businesses are both likely to be impacted in a negative
manner. Individuals are at a higher risk of losing their jobs
 and therefore, their spending power goes down. They are
no longer interested in buying homes during recessions and
oftentimes, they are unable to pay their mortgages or rent.
The housing market follows the economy very closely, and
therefore, home values and the residential real estate mar-
ket will drop during recessions.
Businesses, likewise, experience negative effects from the
recession. For instance, during COVID there was a steep
drop off in demand for office properties in particular. Many
businesses failed to make their rental payments and office
properties experienced a large sell-off as well as a steep
decline in prices.
Lastly, the number of tenants is a factor of risk. Within the
multifamily apartments, Ivy Terrace is riskier simply be-
cause the property has fewer units than Allison Green.
Within the office buildings, Stony Walk is riskier than The
Fowler Building. This is because the properties have less
rentable square feet and less units, which means that per-
centage wise, tenants are taking up more space within their
lease. Therefore, if a tenant were to leave, proportionally,
20
the investor is losing more of their gross rent.
highest COC return as well as the highest BTCF IRR par-
tition.
For Judy, Ivy Terrace had the tax sheltering and apprecia-
tion in value that would be most relevant to her needs. The
property had the highest value appreciation and highest
pre-tax investment multiple. Additionally, the IRR partition-
ing of the futures and income tax are the best out of the four
properties.
Risk-wise, Ivy Terrace is still under construction. However,
we must also factor in the fact that there is a moratorium in
this area of the country which will decrease the risk of be-
ing unable to pre-lease and actually enable the investors to
create a monopoly for a moment in time. The property also
provides a tax shelter for the leasehold portion of the land.

Investor profiles: John and Judy DeRight are cousins of An-

gus Cartwright who both earn enough and have enough in
net worth to consider purchasing real estate property. The
three key reasons behind this decision are to first, diversify
their portfolios, second, to protect themselves from infla-
tion, and lastly, to reap some of the associated tax benefits.
However, key differences in John and Judy’s backgrounds
are that John is currently retired while Judy is still working.
John is currently receiving approximately $1 million per year
from a combination of dividends, retirement, and other in-
come. Judy’s company, on the other hand, has consistently
been earning around $2.1 million after taxes per year.

Final recommendation: My final recommendation would be

to have both investors choose Ivy Terrace. Although both
investors have different needs and thus, different risk and
return measurements were considered, Ivy Terrace seems
to fit both of these investors’ needs. For John, since he is
looking to mainly benefit from the CF, Ivy Terrace had the