|
As a property investor you will have to face various activities that sometimes can be challenging. First you will have to find the deal that suits your needs and financial situation. Personal preference and circumstances are of high importance when buying an investment property. As we say on Property Investor Network, you should make your money when you buy, not when you sell. This is very important. The deal must be good for you at the time of purchase. As we stress, over and over again, property investing is about calculating the numbers, not about the tiles, or the nice windows. Not even about the neighborhood. Though I am sure a lot of investors and particularity "emotional property investors" would love to argue the neighborhood subject. Because of this, it stands to reason that one should buy as cheap as possible. Many investors ask what is cheap enough? Is R300,000 okay? Or maybe R500,000 or maybe one should go for the lowest prices in the worst places of R100,000.
The answer to this question is always shocking to beginners: it does not matter. In property investing, the price must be low enough to make returns. Some like to call this BMV – below market value. This also means that a property worth 1,000,000 may be able to make far more returns than a property worth 100,000. This is also the reason why the numbers need to be calculated to see if the price is right, not the price itself is what matters, but the returns that the property makes to the investor. If the purchase of an investment property is correct and done by the numbers with correctly calculated returnd, one has to make every mistake in the book thereafter to get into a financial disaster. This is possible but it is not likely if the deal was correctly evaluated. Because we keep getting these questions of what is the right price for an investment property is, we decided to make this small example. Let’s say you bought a property that gives you R350 per month income, which means that the rental of the property covered your bond repayments and your taxes and rates (levy if it is in a body corporate). For this deal, perhaps you are managing the property yourself to ensure that you are cash positive and alleviate the letting agents costs until the property affords you the 10% management. The next essential task would be keeping track of the numbers in property investing. In the example above, just imagine what happens if you need to spend R1,500 for some repairs. This will put your monthly income back by some 4 months. That said, if you purchased correctly and had maybe R500, R800 or even R1,000 profit per month, repairs would not set you back all that much. That said, when looking at the numbers, you may find that investing in the property a further R15,000 will increase your rental per month by R800 or more. This would mean that you make more cash and you would return your investment in under 2 years. By then the rentals will have increased and you will be making even more profit. As a response to articles like these, we always get the regular answer "you can’t find properties like this". Not only that this is not true in any market, but now is even less applicable because the sellers market in residential is in a downward trend (for avoiding the word "slump" because the high bubble prices are gone and so are the buyers with it). In summary, what is the right price? The price that will make you income is the right price. This should include in your offer any discounts if you need to make further renovations to a property. The exact amount offered on the property does not matter. What matters is that the price will give you some profits. Even if occasionally not much and even if some repairs may set you back slightly, you have to calculate all of the considerations and make sure you can sustain some repairs along the way. Bottom line; like with all investment properties and all types of property investing, including commercial and residential: you need to do the numbers before you make the offer. Make budgets and keep track of the numbers in the entire period that you are holding the asset. A warning note: once you start doing the numbers you may find yourself slightly depressed. Most of the properties that homeowners buy and estate agents say are good property investments, will not really be a good investment from a property investors perspective. The calculation of numbers on a property will put a clear, unemotional perspective on what an investment property is, and also a perspective on how your financial future will look. Once you learn how to calculate profits in property investing and understanding the numbers you are good to go. There is no rocket science in this, just a bit of learning and then a lot of research to find the right property. If you want to learn and understand how to calculate buy-to-let property deals you may also want to attend the Calculating Residential Buy-to-Let Investment Deals .
|
