HO CHI MINH UNIVERSITY OF TECHNOLOGY

OFFICE FOR INTERNATIONAL STUDY PROGRAMS

FACULTY OF MECHANICAL ENGINEERING
DEPARTMENT OF INDUSTRIAL SYSTEM ENGINEERING

🙞···☼···🙜

TEAM PROJECT
ENGINEERING ECONOMY

TOPIC: A REAL ESTATE PROJECT

CLASS CC01 – TEAM PASSIO - SEMESTER 221
SUBMISSION DATE:

Instructors: Assoc. Prof. Dr. Le Quynh Ngoc Lam

Students’ name Students’ ID
Phan Van Bach 2052865
Huynh Nguyen Khang Thinh 2053457
Trinh Minh Khoa 2052546
Nguyen Dinh Quoc Dat 2052233
Lam Hien Dang Khoa 2053130

HCM city, December 2022

 ABSTRACT

We’ve analyzed a real estate project based on real data, consulted from
real estate agents; and from that, we provide the outcomes of different
approaches. These approaches are considered as independent projects, so it
needs to be compared with a do nothing approach. From the analysis, we can
conclude which approach is the most suitable for the investor’s condition, and
also the best overall approach. Time is the main comparison tool we use to
compare these approaches, and the money flow will be calculated using
knowledge from the Engineering Economics course. There are 5 approaches in
total: one in which the investor funds the project all by his money, one in which
he makes a loan from the bank, the rest are the 2 ways he uses the money, plus
the do nothing approach. When we find out the break-even point and the point
where the independent approach surpasses the do nothing approach, there are
some interesting findings: the approach with the soonest break-even point
doesn’t mean it will surpass the do nothing project the fastest. But eventually,
every approach will surpass the do nothing approach at a certain point.

The article focuses on our project and is divided into 4 chapters:

Chapter 1: Introduction

Chapter 2: Theory fundamental

Chapter 3: Project Analysis

Chapter 4: Conclusion
 THANK YOU

During the study period this semester, our group has received a lot of help
from our lecturer Assoc. Prof. Dr. Le Ngoc Quynh Lam, as well as Assistant
Lecturer Nguyen Duc Duy. Without those help, our team would not be able to
complete the report as it is now. Our team would like to send our sincere thanks
to you for imparting your valuable knowledge with our enthusiasm during our
study. At the same time, we would also like to thank Assistant Lecturer
Nguyen Duc Duy for being extremely enthusiastic in guiding our group to
complete this report through each class session as well as talks and discussions.
Without the teachers' help, our group would not have been able to complete the
report.

Ho Chi Minh city, …………………………………

Best regards
 TABLE OF CONTENTS
ABSTRACT..................................................................................................................i

THANK YOU............................................................................................................... ii

LIST OF IMAGES......................................................................................................iii

LIST OF TABLES.......................................................................................................iv

CHAPTER 1: INTRODUCTION.................................................................................1

1.1 The aim of the project..........................................................................................1

1.2 Data collection and project’s range......................................................................1

1.3 Project's Contribution..........................................................................................3

CHAPTER 2: THEORY FUNDAMENTAL................................................................4

2.1 Future Worth (FW)..............................................................................................4

2.2 Effective annual interest rates..............................................................................4

2.3 Bank interest rate.................................................................................................5

2.4 Bank interest rate when lending...........................................................................6

CHAPTER 3: PROJECT ANALYSIS..........................................................................7

3.1 The investor funds the project all by his money...................................................7

3.2 The investor funds the project all by his money, but the land is renting..............9

3.3 The investor make a loan from the bank, then buying the land and building the
house........................................................................................................................ 11

3.4 The investor do nothing and put his money into the bank for compound interest
................................................................................................................................. 18
 3.4.1 Do nothing (DN) compared to option 1.......................................................20

3.4.2 Do nothing compared to option 2................................................................20

3.4.3 Do nothing compared to option 3a...............................................................21

3.4.4 Do nothing compared to option 3b..............................................................21

CHAPTER 4: CONCLUSION....................................................................................22

REFERENCES...........................................................................................................23
 LIST OF IMAGES

Figure 1. The cash flow of scenario 1..........................................................................8

Figure 2. The years it takes to meet the break-even point for option 1.........................8
Figure 3. Money gain calculated using Excel function.................................................9
Figure 4. Cash flow for the second scenario, when the investor rents the land rather
than buying it..............................................................................................................10
Figure 5. The simplified cash flow for option 2.........................................................10
Figure 6. The break-even point of scenario 2. The unit of money is in million VND.11
Figure 7. Cash flow for the 3a scenario, where the investor has installment payment
each year..................................................................................................................... 12
Figure 8. The cash flow for paying the loan. The unit of money is in million VND.. 13
Figure 9. Next year debt calculation using excel function..........................................13
Figure 10. Profit calculation using Excel’s function...................................................14
Figure 11. Cash flow for the 3b scenario, where the investor pays all the loan at once.
.................................................................................................................................... 16
Figure 12. The cash flow for paying the debt and regaining the investment. The unit
of money is in million VND........................................................................................16
Figure 13. Net income calculation using Excel’s function.........................................17
Figure 14. Debt calculated with Excel function..........................................................17
Figure 15. Profit calculation using Excel’s functions for option 3b...........................17
Figure 16. Next year profit for option 3b after paying the debt..................................18
Figure 17. Do nothing option calculation formula......................................................19
Figure 18. Do Nothing option with its money gain from years to years.....................19
Figure 19. Money gain comparison between option 1 and DN option.......................20
Figure 20. Money gain comparison between option 2 and DN option.......................20
Figure 21. Money gain comparison between option 3a and DN option......................21
Figure 22. Money gain comparison between option 3b and DN option.....................21

LIST OF TABLES

Table 1. Summary of the project data...........................................................................2

Table 2. Single-payment compound amount................................................................4
Table 3. Summary of the 5 approaches.........................................................................7
Table 4. Summary of the option 1 input data................................................................7
Table 5. Summary of the data of option 2....................................................................9
Table 6. Summary of the option 3a data.....................................................................12
Table 7. Summary of the option 3b data.....................................................................15
Table 8. Summary of the option 4 data.......................................................................18
 CHAPTER 1: INTRODUCTION

In Vietnam, real estate has been a great way for its people to do business and
become wealthy or a way to maintain finance when they retire. Years went by, the
price of lands have increased so high that it is hard to make a decision, thus one false
step can lead to bankruptcy for a small investor. Even large real estate companies face
difficulties when calculating the best options for their investments. To be successful in
real estate, there are many different factors to be considered; and a great start to it is
calculating the right option, right amount of investment, loan, making a suitable
decision, etc. By applying Engineering Economics (EE) into a real estate project, one
can understand the possible outcomes and select the most suitable approach for their
plan and capabilities.

1.1 The aim of the project

The project aims to provide different approaches for one to choose depending on
his/ her initial balance, or their initial investment amount. For instance, one can spend
all his money to buy the land and build the house, or spend his money to rent the land
and build the house, or make a bank loan then rent the land and build the house, etc.
The project also determines if the option is feasible based on the number of years it
will take to gain back the money without inflation, assuming everything (the law, the
market, the policy status,..) works in a perfect condition. Each of these projects is an
independent project, so the result of each project will be compared only to the do
nothing (DN) project.

1.2 Data collection and project’s range

Type of Data Data value Properties/ Description

Initial -1,000,000,000 VND for the Funded by the investor’s own
 investment. house. money or made loan from the
bank.

Money gain +21,000,000 VND a month. Comes from the customers.

Starts from month 4. Is the green cash flow arrows.
+10% per 3 years.
Money lost -5,000,000 VND a month. If the investor rents the land
per month. +10% per 3 years. rather than buys it. Only
happens in option 2.

Maximum 900,000,000 VND Effective interest rate of the

loan from the +9% a year. loan that the bank charges.
bank.
Compounding 1 month. Compounding period =
period (CP). The first CP always starts at payment period.
month 4.
Table 1. Summary of the project data.
These following data are the data for the initial house building cost, the land
price and the initial renting price of the house (income). These data are consulted from
a real work-in-process project and experienced real estate agents. The project takes
place in Di An ward, Binh Duong province, Di An city.

Di An city, especially Binh Duong province, is where the sewing industry, wood
industry, electronic industry, etc. are located. Therefore, most of the people who live
here are labor workers. Choosing an appropriate type of building is crucial for the
project to succeed, as there are customers only when they are provided the right
demand. A fancy villa won’t be so appealing if it is abandoned, and an investor won’t
be happy if his investment fails. Hence, the most suitable choice for a project here is
to build a four-level house motel.

We have chosen the size of the project based on real price consulted from real
estate agents:

For the land, it will be a 10x30 meter, with the former being the width. Each
square meter of this land costs 10,000,000 (10 million) VND; so the total cost to buy
the whole land is 3,000,000,000 (3 billion) VND. The cost to rent a 10x30 square
meter land is 5,000,000 (5 million) VND a month. It is surprisingly cheap, but also not
surprising because Di An is an industrial land.

The cost to build the house (motel) is estimated and rounded to be about
1,000,000,000 (1 billion) VND and it takes 3 months to complete. For the layouts,
there will be 14 rooms, with each room is 16 meter square (4x4 meter). Normally the
renting price for the first 2 rooms, which we call them “kiosk”, is higher than the rest;
however, for easier calculation, we will take the average only. Therefore, the renting
price for 1 room equals 1,500,000 (1,5 million) VND. The salvage value is not
considered in this project.

After the house is built, it is determined to cost the customers a total of

21,000,000 VND to rent all of the rooms. The customer will pay their rent at the end
of each month (starting from the 4th month). We’ll assume all rooms will be rented
for easier calculation, and each 3 years the renting price will be raised by 10%. We’ll
also assume that the payment period (PP) is equal to the compounding period (CP), as
the monthly revenue will be put in the bank each month with automatically renewed
principal and interest. Let’s assume one more that he chooses Agribank to invest his
money on, he’ll have an effective interest rate of 4.9% annually when compounded
monthly.

Lastly, when deciding to make a loan from the bank for a real estate project, it is
advised to only borrow up to a max of 30% of the land cost, which is 900,000,000
(900 million) VND. Any higher loan will make the project unprofitable, or the
investor will take very long to regain the investment. Because the monthly income is
compounded monthly, so we need to calculate the bank effective interest rate from its
annual effective interest rate:

Monthly effective interest rate i% = (1+0.049)1/12 -1 = 0.00399 = 0.4% a

month.

From these data, we will continue to calculate different approaches to find the
result of each one.
 1.3 Project's Contribution

This project will help my consulted real estate agents to choose the best
approach for their investment, as they have many options to choose from because their
capability is high. Di An is also a promising land that many real estate investors are
joining in, so this analysis will also help them to plan beforehand.

CHAPTER 2: THEORY FUNDAMENTAL

2.1 Future Worth (FW)

The objective in all time value of money methods is to maximize future wealth,
and therefore, the future worth (FW) is very useful in capital investment decision
situations. The FW of a series of cash flows is its equivalent value at the end of year,
n, at an interest rate that is typically the MARR. Future worth of a project is
equivalent to its present worth as follows:

FW(i%) = PW x (F/P, i%, n) (1)

Furthermore,
n
FW(i%) = ∑ F k (1+i)
n−k
(2)
k=0

Finally,

If FW (i = MARR) ≥ 0, then the project is economically

justified

Notatio Name Find/ Standard Equation Excel

n Given Notation with Factor Function
Equation Formula

(F∕P,i, Single- F∕P F= F = P(1+i)n = FV(i%,n,,P)

n) payment P(F∕P,i,n)
compound
 amount
Table 2. Single-payment compound amount
2.2 Effective annual interest rates

Effective annual interest rates are calculated. Therefore, the year is used as the
interest period t, and the compounding period CP can be any time unit less than 1
year. For example, we will learn that a nominal 18% per year, compounded quarterly,
is the same as an effective rate of 19.252% per year.

Equate the two expressions for F and solve for ia. The effective annual interest
rate formula for ia is
m
i a=(1+i) −1=¿ (4)

The symbols used for nominal and effective interest rates are

r = nominal interest rate per year

CP = time period for each compounding

m = number of compounding periods per year

r
i = effective interest rate per compounding period =
m

i a= effective interest rate per year

Equation [4] calculates the effective annual interest rate i a for any number of
compounding periods per year when i is the rate for one compounding period.

If the effective annual rate ia and compounding frequency m are known,

Equation [4] can be solved for i to determine the effective interest rate per
compounding period
1 /m
i=(1+ i a) −1 (5)

2.3 Bank interest rate

Interest rate is the price of the right to use a unit of borrowed capital for a unit of
time (maybe 1 month or 1 year). This is a special kind of price, which is formed on the
basis of use value, not value. The use value of a loan is the ability to bring a profit to
the borrower when using the loan in business activities or the degree to which one or
several needs of the borrower are satisfied. Unlike commodity prices, interest rates are
not expressed as an absolute number but as a percentage. Interest is also considered as
the rate of return that the owner earns on the loan.

For commercial banks, these two interest rates form the main income and
expenses of the bank:

● Bank deposit interest rate: The interest rate the bank pays for deposits in the
bank. Bank deposit interest rates have many different levels depending on the
type of deposit (no term, savings...), deposit term and deposit size.
● Bank credit interest rate: The interest rate that the borrower has to pay to
the bank when borrowing from the bank. Bank credit interest rates also have
many levels depending on the type of loan (commercial loan, installment loan,
credit card loan...), the relationship between the bank and the customer, etc.
agreement between the two parties.

2.4 Bank interest rate when lending

Bank loan interest is the percentage of interest on the loan amount, the interest
rate is usually calculated within one year. Although, the interest rate for bank loans
will be regulated by banks, but must always comply with the limit regulations of the
state bank. Simply put, after borrowing from the bank one of some money to use, you
have to pay some more interest. The amount of interest will be calculated on the total
amount that the customer has to pay monthly. Common types of bank loans:

● Unsecured loan: a form of bank loan that does not need collateral and is based
entirely on the borrower's reputation.
● Mortgage loan: have collateral to get a loan. Bank loan interest rates of
mortgage loans will be divided into different interest rates depending on the
loan purpose.
● Mortgage interest to buy real estate
● Consumer mortgage interest
 CHAPTER 3: PROJECT ANALYSIS

Now, before starting a real estate project, an investor can choose to fund the
project all with his money or he can choose to get a loan from the bank. After that, he
can decide whether he wants to own the land by lifetime or just by years with a
renting contract.

Approach/option Description
1. The investor buys the land and builds the house using his own
money.
2. The investor rents the land then builds the house using his own
money.
3a. The investor makes a loan from the bank then buys the land and
builds the house, then he pays the loan each year.
3b. The investor makes a loan from the bank then buys the land and
builds the house, then he pays the loan all at once.
4. The investor doesn’t invest in the real estate project but instead
puts his money in the bank. We compare this approach with
approach 1, 2, 3a, 3b to see which one is better.
Table 3. Summary of the 5 approaches.
Either way, we’re going to give him the movements and result of their cash
flows, starting with the easiest one.

3.1 The investor funds the project all by his money

Type of Data Data value Properties/ Description

Initial -3,000,000,000 VND for the land. Funded by the investor’s own
investment. -1,000,000,000 VND for the money.
house.
Money gain +21,000,000 VND a month. Comes from the customers.
Starts from month 4. Is the green cash flow arrows.
+10% per 3 years.

Compounding 1 month with i = 0.004 Compounding period =

period (CP). The first CP always starts at payment period.
month 4.
Table 4. Summary of the option 1 input data.

15
 Figure 1. The cash flow of scenario 1.
In scenario 1, the investor funds the project all by his money. He buys the land,
builds the house and lends it for rent. We’ll calculate how long it will take him to
regain the money spent without considering the inflation.

Figure 2. The years it takes to meet the break-even point for option 1.

16
 For the first year, n = 8 explains the time it takes to build the house and then wait
for customers to pay their rent at the end of the month. After the first year, n will
always equal 12.

Figure 3. Money gain calculated using Excel function

The money gain is calculated with the excel function: FV(rate, n, A, present
value) and we add the minus sign so that the money is a positive value.

In conclusion for scenario 1, the project is highly feasible as it only requires 12

years to regain the money invested. A very good real estate project takes around 10
years to regain the investment, 15 years is normal and 20 years is very slow.

3.2 The investor funds the project all by his money, but the land is renting

Type of Data Data value Properties/ Description

Initial -3,000,000,000 VND for the land. Funded by the investor’s own
investment. -1,000,000,000 VND for the money or made loan from the
house. bank.

Money gain +21,000,000 VND a month. Comes from the customers.

Starts from month 4. Is the green cash flow arrows.
+10% per 3 years.
Money lost -5,000,000 VND a month. If the investor rents the land
per month. +10% per 3 years. rather than buys it. Only
happens in option 2.

Compounding 1 month with i = 0.004 Compounding period =

period (CP). The first CP always starts at payment period.
month 4.
Table 5. Summary of the data of option 2.

17
Figure 4. Cash flow for the second scenario, when the investor rents the land rather
than buying it.
In this option, the investor chooses to build the motel on the rented land rather
than owning the land forever. This option is the most suitable for investors who don’t
want to pay a lot of money or lack capital for the start of the project. The renting cost
of the land cost 5,000,000 (5 million) VND a month, and it increases by 10% each 3
years. The only large investment he has to make at the start is the cost of building the
motel, which is 1,000,000,000 (1 billion) VND. Because the land renting cost (money
loss) is cheaper than the motel renting price (money gain), so each month the investor
gains profit.

Figure 5. The simplified cash flow for option 2.

18
 The money gain of the cash flow is just like in scenario 1, so we take the
previous calculated method to continue calculating in this scenario. However, there is
some difference now.

Figure 6. The break-even point of scenario 2. The unit of money is in million VND.
To meet the break-even point, the total profit must equal or exceed 1.020 billion
VND. This is because the house/ motel cost is 1 billion VND and the land renting cost
is still charging from the start to month 4 to a total of 20 million VND. As can be seen
in the figure, at year 5, the investor is able to regain the investment.

3.3 The investor make a loan from the bank, then buying the land and
building the house

a. Installment payment each year

Type of Data Data value Properties/ Description

Initial -3,000,000,000 VND for the land. Funded by the investor’s own
investment. -1,000,000,000 VND for the money or made loan from the
house. bank.
Money gain +21,000,000 VND a month. Comes from the customers.
Starts from month 4. Is the green cash flow arrows.
+10% per 3 years.

Maximum 900,000,000 VND Effective interest rate of the

loan from the +9% a year based on the loan that the bank charges.
bank. residual debt.

19
 Compounding 1 month with i = 0.004 Compounding period =
period (CP). The first CP always starts at payment period.
month 4.
Table 6. Summary of the option 3a data.

Figure 7. Cash flow for the 3a scenario, where the investor has installment payment
each year.
In this option, the investor will not fund the project all by his money; instead, he
will make a loan from the bank. The bank willingly lends their money, however, only
to a percent of the project. For short-term projects, the investor can borrow up to
100% of what he needs; but for long-term projects, the bank only allows him to
borrow up to 70% of the project, according to Agribank. Most importantly, as a real
estate investor, he knows that he should not have a debt over 30% of the value of the
land, if he ever wanted to regain the money invested. This means that he can only
make a loan maximum of 900,000,000 (900 million) VND.

Furthermore, the bank will charge an effective interest rate of 9% a year, and
payment will be made at the end of each year. For this reason, we will calculate the
money gain using the future worth method but it resets each year until the debt is paid.

20
 Figure 8. The cash flow for paying the loan. The unit of money is in million VND.
Here in the table we have 5 important columns: year, debt, profit, monthly
income, number of monthly income periods and annual income. Monthly income and
number of income periods are calculated as in scenario 1, where in the first year we
have to minus 3 months of house-building and 1 month of waiting for the customers to
pay their rent at the end of the fourth month. Annual income is calculated using the
formula F=A*(F/A, i, n) or FV(rate, nper, pmt, [pv], [type]) in Excel. We calculate
annual income because the money accumulated each year is lost after paying the debt
annually.

The debt is calculated as the remainder after the investor has returned an
amount of the loan each year, plus its effective interest rate of 9%:

Figure 9. Next year debt calculation using excel function

Next-year debt = Debt n +1 = ( Debt n - Annual Incomen) × (1+0.09)

21
 Notice that: the ( Debt n - Annual Incomen) × (0.09) is described in the figure 7 as
the small red arrows (*).

This means that when the debt goes below zero, the investor has succeeded in
paying the debt. From the table above, we see that the debt at year 6 is below zero,
which means that the investor completes his bank loan payment. Then he will move to
the second phase that is to regain the money he funds the project (3.1 billion VND).

In the second phase, he needs to gain back 3,100,000,000 (3.1 billion) VND
(because the project cost 4 billion in total and he made 0.9 billion loan).

Figure 10. Profit calculation using Excel’s function.

In year 6, the debt is paid so we take the absolute value of the debt and add the
annual income to transform it into profit. The profit of year 6 calculated by:

Profit year 6 = Abs(-95.59) +283.38 = 378.97

Then, the profit of the next years is calculated using the future worth method, as
the money starts to stack again:

For example, to calculate the profit of year 7 & 8:

22
 Profit next year = Profit year 7 = -FV (rate, n, Aof that year , pv pvis the profit of last year ) = -

FV(0.004, 12, 25.41, 378.97) = 709.28

Profit next year = Profit year 8 = -FV (rate, n, Aof that year , pv pv is the profit of last year ) = -

FV(0.004, 12, 25.41, 709.28) = 1,055.81

From year 7, we do not need to consider the annual income of the table.

When this money is greater than or equal to 3.1 billion VND, the investor will
meet his break-even point, which is at year 13 (3,229.25 billion VND). As mentioned
above, 13 years to regain the investment is considered normal speed for a real estate
project.

b. Paying all the loan at once

Type of Data Data value Properties/ Description

Initial -3,000,000,000 VND for the land. Funded by the investor’s own
investment. -1,000,000,000 VND for the money or made loan from the
house. bank.

Money gain +21,000,000 VND a month. Comes from the customers.

Starts from month 4. Is the green cash flow arrows.
+10% per 3 years.
Maximum 900,000,000 VND Effective interest rate of the
loan from the +9% a year. loan that the bank charges.
bank.

Compounding 1 month with i = 0.004 Compounding period =

period (CP). The first CP always starts at payment period.
month 4.
Table 7. Summary of the option 3b data.

23
Figure 11. Cash flow for the 3b scenario, where the investor pays all the loan at once.
In this scenario, the investor wants to repay all his debt at one point rather than
paying a specific amount each year.

Figure 12. The cash flow for paying the debt and regaining the investment. The
unit of money is in million VND.
Here in the table we have 6 important columns: year, debt, profit, monthly
income, number of monthly income periods, annual income and net income. The net
income is calculated just like in option 1 money gain.

24
 Figure 13. Net income calculation using Excel’s function.
Because the debt is not paid annually, it keeps stacking with the interest rate of
9% per year. From that point the debt is calculated as:

Figure 14. Debt calculated with Excel function.

Debt n +1=Debt n ×(1+ 0.09)

When the money gain using option 1 approach surpasses the debt, the investor
will be able to gain profit, which is in year 7.

25
 Figure 15. Profit calculation using Excel’s functions for option 3b.

Hence, the profit in year 7 is 1718 - 1509 + 338 = 547 (million VND).

This means that the future worth has just been resetted. The next year profit,
year 7, starts the future worth again with the present value of year 7:

Figure 16. Next year profit for option 3b after paying the debt.
Year 8 profit = -FV(0.004, 12, 25.41, 547.47) = 886.05

Later years are also calculated like year 8, with adjusted A and pv.

After paying the debt, he needs to gain the remaining 3.1 billion investment to
meet the break-even point. Surprisingly, with this single-pay debt approach, the
money gained in year 14 is 3,538 million VND, which means that he meets the break-
even point at the same year with the previous approach (Annual Payment).

3.4 The investor do nothing and put his money into the bank for compound
interest

Type of Data Data value Properties/ Description

Initial investment. 4,000,000,000 VND into the The money is stacking from
bank, compounded monthly. year to year.

Compounding 1 month with i = 0.004 Compounding period =

period (CP). payment period.

Table 8. Summary of the option 4 data.

26
 In this last scenario, the investor will invest into nothing; instead, he will put his
money into the bank for compound interest. The money he put in will be equal to the
money that he invests in the project, which means 4 billion VND. Then, we will see if
this approach can gain more profit than the previous approaches.

The compounding period will be one month, thus the money he have the next
year will be:

Total money year n+1= Total money year n ×(1+0.004)12

or -FV(i, n, A, pv) with i = 0.004, n = years × 12 months, A = 0, pv = 4000

(million VND)

Figure 17. Do nothing option calculation formula.

From that we have the following data:

Figure 18. Do Nothing option with its money gain from years to years.
Now we will compare with each option from previous approaches:

27
 3.4.1 Do nothing (DN) compared to option 1

Figure 19. Money gain comparison between option 1 and DN option.

As can be seen in the figure above, the option 1, in which the investor funds the
project all by his money, is inferior to the DN option until year 20. This can be
explained by the high interest rate, because there are some volatilities in the economy
so that the banks have to raise the interest rate.

3.4.2 Do nothing compared to option 2

Figure 20. Money gain comparison between option 2 and DN option.

In comparison with option 2, the DN option is superior until year 28. This can be
considered slow for option 2, quite surprisingly when option 2 is the fastest option to
meet the break-even point.

28
 3.4.3 Do nothing compared to option 3a

Figure 21. Money gain comparison between option 3a and DN option.

Because the investor has to pay a high interest rate for the loan, it is not
surprising that it will take him 26 years to surpass the DN option. However, this
option surpasses the DN option faster than option 2 - the option that meets the break-
even point the soonest.

3.4.4 Do nothing compared to option 3b

Figure 22. Money gain comparison between option 3b and DN option.

In this option 3b, where the investor pays all the debt at once, the result is quite
the same as option 3a versus DN option. owever, we can anticipate that this option
will be longer to surpass the DN option.

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 CHAPTER 4: CONCLUSION

In real life, the real estate project can be a lot more complex, with changing
interest rates, maintenance costs, late rent payment or missing customers, etc. and
even pandemics. However, in this simplified analysis, we can see there are many
critical and interesting points.

The investor can determine how his plan will go based on these 5 approaches,
then choose the most suitable option. If he wants to regain the investment soon, he can
choose either option 1 or option 2. Or if he is in need of money, he can either choose
option 3 or option 4. The interesting thing here is that even though option 2 requires
the least years to meet the break-even point, option 1 requires the least years to
surpass the DN option.

Overall, the best option might be option 1, where the investor owns the land and
the house using his own fund; or DN option, as the interest rate right now is above the
sky.

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 REFERENCES

1. Studocu, Present, Future and Annual Worth Analysis, access:

https://www.studocu.com/en-us/document/umm-al-qura-university/engineering-
economy/lecture-3-present-future-and-annual-worth-analysis-uqu/9332172
2. Nguyen Van Duong lawyer, What is interest rate? Types of interest rates and
factors affecting interest rates, access: https://luatduonggia.vn/lai-suat-la-gi-cac-
loai-lai-suat-va-cac-yeu-to-anh-huong-den-lai-suat/
3. Leland Blank, P.E. and Anthony Tarquin, P.E, “Engineering Economy”, 8t h
edition, McGraw Hill, 2018
4. Agribank website, access: https://www.agribank.com.vn/

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