How Do I Know If A Property Will Work As A ‘Buy To Let’ Or Not?
You have decided to jump into the property market with a little buy to rent flat in a popular suburb. Makes perfect sense right? You justify it by telling yourself it will be a good investment, think of the long term benefits, the capital growth.
There is a process behind researching any property and if followed correctly, the property will tell you whether it is a good buy or not. Professional Property Investors only buy with their calculators, never with their hearts.
Follow these easy steps to keep emotion out of the equation:
Step 1: Calculate the gross yield on the property by taking the annual gross rent and diving it by the property price. A yield above 15% is worth further investigation. It is a safe bet to ignore anything less than that.
Annual Gross Yield X 100 = Gross Yield
Simply log onto www.privateproperty.co.za to check the value of properties in the area. You can check up on expenses such as levies, water and lights and electricity here too. If you are looking at a two bed, one bath flat, make sure you actually compare prices of other two bed, one bath flats – not houses in the area. If the property offers a gross yield above 15% and looks like a good buy relative to other properties in the area, move onto Step 2.
Step 2: Log onto www.ooba.co.za and use their handy Bond and Transfer Costs calculator to find out what bond registration and property transfer costs will be.
Step 3: Determine the cashflow by taking all projected expenses from your projected rental income. Don’t forget to include 10% management fee and a 10% maintenance/voids cover!
If the figure is negative, it is not a good investment, even if you plan to live in it yourself in a few years’ time. Even if capital growth is predicted to be off the charts. The aim is to buy for NOW, not for later.
It is worth spending time doing the research in order to find the right property. Don’t let impatience push you into making an investment you will regret in years to come.
Golden Rule: Look for a property that puts money INTO your pocket,
not takes money OUT of your pocket.