Question Tag: Property Investment

Bolombo Property Investors Ltd. is a property investment company that is involved in the renting of commercial property to various commercial interests throughout the country. Their modus operandi is to purchase existing property, renovate them and rent them out, or to develop property from the scratch and rent them out. Occasionally they sell out property to improve their cash flows. Bolombo Property Investors Ltd. is a company owned by Mr. Joshua Broson, aged 62 and his wife Mabel, aged, 52 holding 60 % and 40 % shares respectively. The couple have been wedded for the past five years and have three children of school going age. Management roles in the company are shared between the couple who are both qualified Civil Engineers by profession. Joshua serves as the CEO whilst his wife serves as General Manager and Accountant. To support them they have employed an accounts clerk Kwesi Mendson, aged 35 who has a diploma in accounting from the University of Ghana, Legion. Bolombo Property Investors has five properties in Accora, one in Takoradi and three in Kumasi. The company has identified a ten-storey property in Takoradi that has been put on sale by an expatriate Property Developer who is leaving the country. The price on offer is GHC 5.000.000.00. They think they can quickly renovate the property andThe unit is in a poor state of repair but Bolomb is believes it could fetch a good price if properly renovated. The building is located in the heart of the city and along the main high street of the city.

Bolombb’s plan is to rent the ground floor to a bank or savings and loans company, and the units in in the upper floor to various types of businesses including supermarkets, restaurants and business oon. His estimates for the renovation are as follows:

Estimated Rental for the property is as follows: | as follows| as follows| as follows| as follows|| as follows| as follows| as follows| as follows| as follows| as follows| as follows| as follows| as follows| as follows| as follows| as follows| as follows| as follows| as follows| as follows|5,000.00.00| as follows| as follows|CIB GH 10-22

He brings the proposal to you for consideration. He proposes that the building would serve as security. In addition a joint and several guarantee would be provided by the directors of the company. He is therefore requesting for a five year loan facility of GHC 7,300,000,00 to finance the purchase and renovation of the project. He is expecting a rate of return of 25%

Critically examine his proposition.

[30 Marks]

Note on Table Correction: The table in the attachment contains errors (e.g., “Rewingring and” likely means “Rewiring and Electrical,” and “750 40 00000” is ambiguous). I assume “750 40 00000” is a typo for GHC 750,000.00, as the total renovation cost (GHC 2,000,400,000.00) seems inflated for a single property. A realistic total of GHC 2,300,000.00 is assumed (summing corrected figures: 750,000 + 850,000 + 500,000 + 500,000 + 200,000 + 100,000). The “Estimated Rental” section is incomplete; I assume rental projections support the 25% return claim, to be verified.