How to analyse a deal

Togather analyse a Deal

There are many alternative ways in deciding the profitability of your property investment.

Increasingly you will find investors achieve varying degrees of profitability from their investments, ranging from 10% profit levels to deals realising 30% and above. It becomes very individual to each investors requirements.

There are a number of basic questions which need to be answered to fully understand the makings of a profitable investment.

Question 1

Can I borrow money from a lender to make the purchase? For a Buy-To-Let mortgage to be approved an assurance on approximately 130% rental coverage is needed. At this point you need to contact local letting agents to receive their assessment on rental valuations, after which your mortgage broker can calculate the sustainability of the monthly mortgage repayments required to purchase the property at the present market value.

Question 2
Do I have the required 15% deposit available? 

You will be required to provide a 15% deposit to meet the 85% loan to value. This can be provided either as a cash amount or as 15% equity in the property.

Question 3
Is the property 20% or more below market value?

Majority of the profit made on an investment is through the purchase.
You may need to negotiate the purchase price to at lease 20% BMV. Should you need to, this will allow you to release the equity out of the property at a later date to realise as much of your investment in cash as possible. This will increase my ROI (Return On Investment). Should you decide to sell up anytime in the future, there should be a healthy profit after tax.

Question 4
Will I be able to sell the property quickly?
You need to research the area to establish that should you wish to sell quickly, will you be able to do so? This is important as you may want to release the funds from the investment to purchase further properties.

Question 5
Will I be able to rent the property quickly?
You need to also research the rental market to establish that should you wish to let the property, will you be able to do so? This is also important as you may want to rent the property out over a period of time to benefit from a positive cashflow.

Question 6
What will be my cash-on-cash return?

When calculating the cash-on-cash return to establish your ROI, you should usually plan for at least 25% ROI – anything more is a bonus.

Question 7
When will I break even?
Taking into consideration the number of months or years, calculate the length of time it will take you to recover the cash injected into the property including deposit, purchase costs, refurbishment etc.
Keep your cash flow forecast positive yet realistic.

Question 8What is the Net Yield?
When calculating the net yield, anything less than 4% will prove cash flow to be minimal and not worth investing in for rental purposes. The answers to the previous questions will need evaluating in detail. A positive or negative picture will form to help you decide whether the property is worth the investment.

Use your time productively, viewing properties that do not stack up can waste an awful amount of time. Request the relevant information from estate and letting agents, together with your own research.
This will save you time and money. Prior to viewing potential property investments use the information to calculate the profitability, thus you’ll only be viewing properties that have potential profit. This may well prove crucial in the future as you progress as a property investor when you will be dealing with multiple investments in building your portfolio.

Maintenance Replacement Projects

Large replacement projects such as having a communities roofs replaced, siding replaced, streets repaved, or various other replacement projects can involve very complex decisions that can impact the community for years after the work has been completed. There are many considerations that should go into the final decision. Materials and cost are certainly not the only aspects that need to be considered, but they typically are among the larger factors in making a final decision. While looking at both the materials and costs we need to focus on how the durability, upkeep and the life cycle can affect the decisions. We will use a siding project for our examples, but keep in mind that the same types of considerations can be used for other replacement project.

Finding the right materials and products for your replacement project can affect the HOA, not only in the short term, but for years or even decades to come. For most projects there will be a variety of material types and qualities. For example, there are several different types of siding material (Masonry, Wood, Fiber Cement, Wood Composite, or Vinyl) that can be used for re-siding buildings and there are variations of qualities within each of the material types that should be considered. While considering what materials to use for a replacement project, we need to look at the durability, upkeep, and the length of the lifecycle of each product. Some materials may be inexpensive up front, but the cost of high upkeep and/or a short lifecycle may mean the project could become even more costly over time, than going with a more expensive material up front that has lower upkeep and a longer lifecycle. A good way to compare material types for your project is to look at the manufacturers recommendations of the different products you may be considering. The manufacturer's warranty is a consideration for their products, but it is also a good idea to look at the manufacturers recommendations for how long their products should last before they need to be replaced again and also their recommendations on how to maintain their product over its useful life cycle. Once you have this information it will be easier compare all of the products and materials you are considering to determine what material types and/or qualities will be best suited for your replacement project.

The cost of a replacement project is certainly one of the key elements to be considered. The HOA should consider not only the upfront cost for the project, but also the lifecycle cost or cost over time. Typical, the more durable a product is, the more it will cost up front, and the less it will cost over time. Using a less durable product may be less expensive upfront, but could be more expensive to maintain over time. An example would be the cost of a Fiber Cement siding vs a cost of Wood Composite siding. The initial cost of Fiber Cement is more than the initial cost of the Wood Composite, but the upkeep cost of painting, caulking and repairing the Wood Composite every few years along with a shorter life cycle can cost considerable more over the life cycle than the cost of upkeep for Fiber Cement which requires less upkeep and has a much longer life cycle. The Fiber Cement siding also has some additional benefits that can be taken into consideration such as being termite and rot resistant among other things. If the costs of upkeep over time are not considered, the HOA could spend much more for a project over its life cycle than the HOA had anticipated. On the other hand, more expensive cost upfront may be more than the HOA has to spend for the project or the aesthetics of a certain product type may be a better fit for the community, so it can be in the HOA's best interest to take on the lower cost up front with more upkeep costs over time. Each HOA has to weigh their individual circumstances and needs to determine what is best for their community.

The best way to address you maintenance replacement projects is to start preparing now for what is ahead, and one of the best ways to do that is to have a Reserve Study for your HOA. Reserve Studies are typically done through a Reserve Study Specialist. They will give the HOA an unbiased, professional opinion on how long it should be before replacement projects need to be addressed. It will also show approximately how much the replacement project should cost long before the project becomes due and how much the association needs to start putting into reserve funds now, in order cover the replacement costs when the time comes to start on your replacement project. It will give you an unbiased view into your community's future and professional guidance to help your HOA meet its goals.

Be financially prepared, weigh your options for the materials or products, and understand the full life cycle costs so that your community will be prepared for its next Maintenance Replacement Project.

 

Questions To Ask A Rental Property Manager

 

Investing a rental property is a wise decision for investors. For one, even if the housing market becomes unstable again, the investor can still see dividends on his or her investment due to the rent. Also, a housing market collapse can mean more people being forced out of their homes thus making rental properties hot commodities.

Unfortunately, managing a rental property is not as easy as some people may paint it to be. There are a lot of things that a rental property manager has to oversee including background checks for prospective tenants to advertising the property to paying attention to small repairs.

If you are therefore an investor and you cannot afford to oversee the operation of the property at a regular basis, you might need to hire a rental property manager. Since you will be giving them an almost free reign on your property, it is strongly recommended that you take your time and learn as much as you can about a particular company or individual before hiring them to manage your investment.

Once you sit down and have a talk with them, there are several questions you should ask them so that you would glean as much information as possible to help you make your decision. One of the more important things to ask is how much would they be charging you. Usually, the fee is determined as a percentage of the gross rent for the property. Make sure that during the initial conversation, you would already have a clear picture of what you will be paying them.

An experienced rental property manager would be great to work with as you can easily ask other investors working with them about the services being rendered. Ask the property management company what other properties they are managing and if you can visit them. It would also show you what type of properties they are managing. If they are handling a property similar to yours and they are doing it exceptionally, you can have a better feel of how they are going to treat your business.

If you are just starting out in the rental property business, it would be a good idea to ask them how they will handle the advertising of the property. It would be a good idea to know beforehand what options are open to you and how much these advertising options would cost you.

There would always come a time when something would need fixing in your property. In some cases, the rental property manager would be given plenty of freedom in these matters. You could opt though to set a limit on how much they can spend without needing your approval. This is especially helpful if you want to handle major repairs in the property which would need more funding.

Reporting is also very important. It should be clear from the get-go how often they would send their reports to you. This way, both parties can avoid miscommunication. Plenty of rental property managers and owner relationships have gone sour due to simple misunderstandings due to lack of communication.

Make sure to ask these questions and you would have clearer picture of who you would be dealing with and what kind of company you will be giving access to your business.