BFA612 Team assignment – 2nd semester 2018 Due: Week 10
Suzy Lehman recently purchased a 3-bedroom residential dwelling; 2 Goodheart Place, Sandy bay, Hobart, TAS for $750 000. The dwelling was purchased as a residential property to be occupied by Suzy and her family. The property was until recently being let to students for $600 per week. She is very keen to generate additional cash in-flows to make her home loan repayments more affordable. She is considering letting out a small section of the property. Her financial adviser commented that she must seriously consider converting her unused lockup garage (40 square metres) to a studio apartment to be let through Airbnb. The development will be financed through an increase of her home loan. She recently read an article in the local newspaper, The Mercury, which discussed the pitfalls associated with letting out residential properties in Hobart through Airbnb. She is very concerned that she will end up with an increased home loan while not being able to let out the property.
She has now approached you, a highly capable and reputable team of management and cost accountants. Your team is based in Hobart. She chose your team because of your excellent reputation and knowledge of local council regulations. She provided you with the following cost estimation (including General Sales Tax) of converting the single lockup garage to a studio apartment:
Building contractor $25 000
Decking, paving and patio materials 20 000
Structural improvements e.g. windows, floors and ceilings 35 000
Subcontractors e.g. electricians, plumbers and civil works 20 000
Total conversion cost $100 000
She advises you that she can choose from 3 types of fittings and furniture for the bathroom, kitchenette and bedroom spaces: budget at $10 000, standard at $25 000 or premium at $40 000. All estimated costs include GST. Suzy estimates that she will have to replace the budget and premium furniture and fittings every 5 years while the standard furniture and fittings need to be replaced every 10 years. Suzy wishes you to research the financial viability of the proposed project. Suzy also holds a number of concerns regarding permissibility of letting through Airbnb in the Hobart City Council jurisdiction and the environmental impact of the proposed conversion.
Your team is required to:
1. Research the daily costs associated with running the proposed studio apartment through Airbnb, bearing in mind the choice between finishes. Consider environmental costs in your calculations.
2. Research appropriate daily, seasonal letting rates for the studio apartment, bearing in mind the location and choice between furniture and fittings.
3. Compile an Excel workbook incorporating the daily running costs and seasonal letting rates. Clearly show the breakeven point in dollars and number of days for the various options.
4. Draft a business report, including an executive summary, advising Suzy on:
i. Which furniture and fitting option is best, considering the relevant letting rates.
ii. Regulatory pitfalls
iii. Financial (include brief comments on Income and Capital Gains Taxation) considerations
iv. How the proposed development impacts the capital value of her property.
v. How she can maximise the return on the proposed conversion, bearing in mind (i) to (iv) above. Also consider other options.
5. As an appendix, briefly reflect on the leadership style your group followed in coordinating the team effort. All members must sign the appendix electronically as proof of their contribution and to show agreement that all members contributed to the team effort.
Please note: All references must be clearly shown (At least 2 textbooks and 1 academic article). Refer the excel workbook to the business report - do not copy and paste sections of your excel workbook into the business report! Word count = 2 500 words including executive summary and list of references. The report and accompanying spreadsheet are marked strictly according to the marking rubric supplied. Information not supplied in the case should be obtained from industry sources and appropriately referenced.