Tailored Recommendations for Diverse Investor Profiles

Categories: Taxation

Overview of the Investment Case

Angus Cartwright III, a seasoned investment advisor, found himself at the crossroads of a unique challenge – providing investment advisory services tailored to the distinct needs of clients John DeRight and Judy DeRight. The clients were on a quest for a property that wasn't just a mere investment but one that met specific criteria. This included not only attracting a professional real estate management company but also ensuring a minimum leveraged return of 12% after taxes. As seasoned investors, their major goals extended beyond mere financial gains; they sought diversification of their investment portfolio, protection from future inflation, and a strategic utilization of tax benefits, particularly advantageous for John.

In response to this intricate challenge, Cartwright embarked on a meticulous process of selecting four potential properties, each subjected to comprehensive financial analyses, aiming to align the clients' unique needs with the distinctive characteristics of the properties and their potential returns.

Evaluation of Analyses and Assumptions

Cartwright's strategic approach involved a meticulously crafted three-stage analysis, laying the groundwork for a robust investment recommendation.

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The Preliminary Analysis marked the inception, necessitating the gathering of essential facts and data. This phase was more than just data collection; it was a meticulous process of laying the foundation for subsequent detailed analyses. Risk Analysis followed, providing valuable insights into the financial leverage and operating risks associated with potential investments. This critical phase allowed Cartwright to weigh the level of risks concerning the unique investment objectives of John and Judy. The third and pivotal stage was the Financial Analysis, encompassing a range of effective financial metrics.

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This included capitalization rate, cash-on-cash return rate, Internal Rate of Return (IRR), Net Present Value (NPV), Profitability Index, and a comprehensive Cash Flow Analysis. These financial metrics weren't just numerical indicators but strategic tools aiding Cartwright in crafting a comprehensive investment advisory tailored to the unique needs of his clients.

The assumptions underlying Cartwright's analyses formed the bedrock upon which the entire investment advisory process rested. These assumptions were no ordinary assumptions; they delved into intricate details such as annual cash flow increase, vacancy rates, capital reserve, tax laws stability, and the funding of equity investment. The success of the entire financial analysis outcome pivoted on the accuracy and quality of these implicit assumptions. Cartwright, cognizant of the complexity, opted for a conservative approach. The intent was to simplify the analysis without compromising its robustness. As an ongoing commitment to enhancing the quality of assumptions, there was a continuous effort to scrutinize them. This involved revisiting assumptions with pertinent questions that reflected the dynamism of the current market conditions, negotiation feasibility, and potential changes in government legislation. It was not just an analysis; it was a meticulous process of questioning and refining, ensuring the assumptions mirrored the ever-evolving investment landscape.

Financial Performance and Property Comparison

The canvas of financial performance and property comparison painted a nuanced picture, as Cartwright scrutinized each property against the backdrop of his clients' unique investment objectives. All four properties emerged as strong contenders, meeting the criteria of attracting professional real estate management companies and exceeding the minimum leveraged return of 12% after taxes. Stony Walk, with its highest Capital Rate on Purchase, showcased its potential from the onset. In contrast, Fowler secured the leading position in Capital rate on Sales, promising a lucrative exit strategy. Alison Green, with its impressive Cash-on-Cash Return, stood out due to high cash flow and a remarkably low vacancy rate. Fowler, still under construction, unfolded the potential for a substantial increase in capital value. The analysis extended beyond these initial impressions, delving into discount return measures, including IRR, NPV, and Profitability Index. Fowler emerged with the highest IRR at 15.38, signaling a strong potential for attractive returns. While residential properties flaunted higher ongoing cash flows, the commercial properties hinted at future value appreciation. It wasn't just a comparison; it was a strategic evaluation of each property's potential to align with the clients' unique investment goals.

The numbers and metrics weren't just digits on a page; they were a mosaic of potential outcomes that Cartwright meticulously decoded. Each percentage point, each figure, carried implications for the overall success of the investment strategy. The financial performance and property comparison weren't isolated steps but integral components of the overarching advisory process. The nuanced evaluation reflected Cartwright's commitment to ensuring that the chosen property not only met the quantitative criteria but also resonated with the broader investment narrative crafted for John and Judy.


The crescendo of Cartwright's investment advisory symphony culminated in the recommendations, a strategic alignment of each client's unique profile with the distinctive characteristics of the recommended properties. The process wasn't a mere numerical calculation; it was a delicate dance between financial metrics and client aspirations. The highest IRR might have suggested Fowler as the prima facie choice, but Cartwright understood the need for nuance in his recommendations. The art of recommendation was about more than just numbers; it was about crafting an investment strategy that resonated with the essence of John and Judy's unique goals.

For John, the recommendation leaned towards Alison Green. The rationale went beyond IRR percentages; it delved into the nuances of John's investor profile. As a retired, passive investor, John sought stability and a comfortable life fueled by stable income from his accumulated savings. His interest in taking advantage of the new tax law's favorable capital gains tax rates added another layer of complexity. The breakdown of IRR for Alison Green and Ivy Terrace projected higher steady income streams than the other two properties. Between them, Alison, although with a slightly lower IRR, emerged as the more fitting choice, primarily due to its substantial tax benefits. It wasn't just a recommendation; it was a bespoke investment strategy, intricately tailored to align with John's retirement aspirations.

On the flip side, Judy's recommendation veered towards Fowler Building. Judy, an active executive with an appetite for a more aggressive investment approach, valued growth over steady income. She approached investments with a tolerance for short-term, negative operating risks, confident that her investment would appreciate adequately over time. The recommendation acknowledged Judy's investor profile, focusing more on 'growth' than 'value/steady income.' Fowler, with its highest Profitability Index, emerged as the strategic choice, aligning with Judy's growth-focused investment strategy. The recommendation was a narrative, weaving together Judy's aspirations and the potential of Fowler Building into a cohesive investment strategy.

Updated: Jan 17, 2024
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Tailored Recommendations for Diverse Investor Profiles. (2016, Sep 18). Retrieved from https://studymoose.com/case-study-angus-cartwright-iii-essay

Tailored Recommendations for Diverse Investor Profiles essay
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