Property Investment Deals

Welcome to property deals the investment information site. This site is aimed at giving you the investor the information you need to consider when buying property for investment purposes. So what's a decent investment opportunity? Lets take a look. You get offered a superb two bedroom flat in what you consider to be a fantastic location. It's a two bedroom flat with luxury design interior, en-suite, balcony with a view, heated bathroom floor tiles, gym access, a concierge and garage parking. The purchase price is £200,000 and you have a mortgage of £170,000 on a 85% LTV fixed rate mortgage of 5% paying interest only. This works out at £708.33 per month for the mortgage. The flat rents out for £825 per month. A healthy gross profit of £116.67 per calendar month. Perfect! Or is it? There are many issues to consider here: 1. The Yield. The yield for this property is 4.95%. That is the rental return over a year that you receive versus the property purchase price (£9,900 / £200,000 x 100). I.e is it worth it? No. Why? It's all about minimising risk. A good yield shows that rental demand must be strong over the property price. A yield of over 7% is good and means that the property should always be worth at least 7% of its rental value to other investors. 2. Property Price. You are buying into an area that is mature and well sought after and that is why this apartment comes at such a price. Where is the opportunity for decent long-term capital growth? Even if there is room for further growth, will the yield be there for you be able to sell the property on for investment purposes in the future? 3. Your Capital. £30,000 is the deposit you will have to put down on this fantastic flat. Let me tell you, that's a deposit for three flats/houses as far as I'm concerned! Any financial advisor or accountant will tell you to minimise your capital outlay in your investments. It's common sense. Why have one big property when you can have three smaller ones! The more properties in your portfolio the better the chance you stand at covering yourself during void periods with the profits of the others. We want to make sure that our money works as hard as possible for as little as possible. 4. Return On Investment. Don't confuse this with capital appreciation returns. This is the net profit made from the rental income over 12 months against the total investment cost. Let's assume that we don't have to pay for management and there is insurance at £20 per month for this property. That's £96.67 per month net profit (£116.67 gross profit - £20). Over 12 months that's a £1,160.04 return. Assume the investment costs were just the deposit and nothing else at £30,000 on a 85% LTV. The return on investment is 3.9% (£1,160.04 / £30,000 x 100). Shocking! The best savings accounts offer nearer 6%! What does this mean? It means that you bought this apartment to rent it out but it requires too much investment and offers very little return. 5. Cash Flow not Capital Appreciation. We always try to kid ourselves that it will be ok because it will be “worth twice as much in a year” this is no excuse to blind ourselves from making a bad investment decision. Think about it! If you can’t fill this fantastic property for two months, you have wiped out your profit for the entire year! 6. Don’t buy with your heart. A classic but very good advice. If you went for the property in this example at the start you clearly were buying with your heart. The three simple factors to consider in any investment appraisal are (a) Ratios (b) Return (c) Risk. The three R's. 7. The Three R's. For all investment appraisals you must calculate (a) Ratios (1) The Yield (2) Return on Investment (b) Return Net Profit per month. (c) Risk Once you have calculated the ratios and the return you must determine what risks are in place that will have an impact on you realising those financial goals. Remember, it's not all figures and paper. Some questions to consider are: Do you have a tenant in place? Has there been any payment issues? What are the Political, Environmental, Social factors of your investment? For example, are there any local council restrictions on development that would effect the re-sale? Is the property at risk of flooding? What is the neighborhood like? For more information or to talk to our property investment advisors for free, please email us. To find the property investment deal that's right for you, visit Bright Buy.co.uk or Property Investment Box