I am going to show the exact steps I take to evaluate a potential investment property. The focus will be on residences, but this method can be applied to other types of property. With the knowledge and tools that you will find here, you should be able to estimate your costs for a real estate property, and consequently, the profit you should expect to make from the deal.

Great, let’s look at each of the steps carefully:

1. Real Estate Market Research

Know the market value of the potential real estate investment property.

Get an estate agent to run a CMA for the development/estate over the last 6 months. The closer and more comparable the sold properties are to the subject property, the more reliable the information will be. Don’t be fooled by asking prices vs actual price sold for.

Know the market rent for comparable investment properties.

Nowletting has comparative details and statistics on the area and rental income achieved. For the prospective investment property provide a Nowletting agent closest to you, the size, number of bedrooms and bathrooms, estate details and / or complex where the real estate is located. Ask them if they have managed any properties in the area, and what they are getting in rent.

Know the regular monthly expenses

Typically, this includes the bond, levies, rates, property management cost, repair and upkeep expenses.

2. Run the Numbers

This is my favorite part. This is where the analysis comes into play, and you find out how low your offer must be for you to make the kind of money you want to make and the time it will take for the investment to be paid for and pay for itself without any input from you. Remember THE ONE KEY to real estate investing – buy right!

1. On the left hand side. input the market value, market rent, and yearly expenses amount excluding the bond for the potential real estate investment property that you have obtained into the appropriate cells of the spreadsheet. Hold off on inputting your offer amount for now.
2. The No of Units cell is reserved for when you are evaluating a complex. Leave this at 1 for residences.
3. The Closing Costs cell is a percentage that you would be willing to spend to sell the property (including commission fees, attorney fees, and any other fees to close the sale of the property) this is for capital gain evaluation.
4. On the right hand side of the input area, input the necessary items per your bond. Be sure you have gone onto a bond calculator to work out the exact cost so that you can count on the accuracy of the items.
5. Input your desired offer amount (I usually start around 20k less than the asking price, and work my way down from there). When the income/profit reaches the level you want in the automatic calculation area, you now have an offer you can feel good about. The time to pay off period provides the number of years it will take for other people’s money to pay for the investment including your investment amount leaving you with a property that will generate passive income for years to come.

Wouldn’t you like to earn income in a decade or 2 that just adds value and growth? What better retirement policy is there? Why not use your own money to invest in the ‘policy’ now just like any other policy but better yet add to the capital growth of the policy by letting someone else have beneficial use of the property while assisting you with the payments. The property will grow in value at a phenomenally higher comparative rate to any retirement plan offered by a financial provider and this then gives you an asset with the main benefits being:

An asset that was mostly paid off by using other people’s money

A fixed asset that is seen by any financial provider as having true value for any future credit you may need – therefore providing you with access to cash & security

An asset that has grown in value at a much higher rate than inflation / economic growth

Has been proven as the primary form of adding real wealth in a world where economic fluctuations can’t be counted on except in the form of real value items that will always offer value and income based on primary needs such as shelter.

Can offer real passive income for many years that doesn’t get smaller but will continue to grow even when you start taking income from it

Can form part of your legacy and be passed on to your children or future generations

Can be used as leverage to buy more property for passive income therefore compounding the entire investment strategy

It takes only a small amount of investment input using mostly your credibility for a maximum amount of output value

It has everything any investment needs to offer real value

leverage | compounded growth | passive income | legacy value | tax benefits

Once you have your offer amount, I recommend submitting a slightly lower offer, just so that you have room to negotiate up if necessary. Be firm though, have a definite top price that you will not go over. Do not get emotional or you will lose.

How to get property and save on the initial purchase price

Transfer costs add at least 10% to the price tag or initial investment that you need to fork out for, taking you much longer to get the most out of the property investment.

The best thing to do is look out for developers. Buying off plan is a great way to save on this transfer cost. When purchasing a property direct from a developer off plan the price is generally more acceptable as the price comes with all the transfer duty costs included. This means that any money you put into the property upfront only benefits you and not someone else like the tax man. Nowletting has partnered with a number of leading developers and can recommend developers for maximum benefit. Stedone Construction in the greater Durban area is a fantastic developer to stick to, as they offer a number of different property investments covering a different range of needs. This provides a greater choice and covers both residential, commercial and holiday.

How to get property that has the Buy right attributes already

Other benefits of buying a property directly from reputable developers, is the amount of work that’s already gone into the exercise of finding the right area, looking for the best position, analysis of a product that’s high in demand. A developer who has grown over the past few years and is continuing to do so even through these tougher times is a developer who does all of these things and more. Good developers pay for a lot of research and development into the products they offer especially if they want to continue to grow themselves. What this means for you is they have a ready made / or are building a product that is in demand and therefore has appeal to a much broader market base for you to find the right tenant.

Wouldn’t you want a home that’s new, well designed, offers lifestyle benefits in an estate? If you do, then so does your prospective tenant who is more likely to look after and keep paying for a property that he’s happy in and in the process make you wealthy.

How to buy property and save on tax both upfront and long term

Tax benefits if you buy a property that is currently being used for income are enormous and save you a huge amount of money upfront, so look out for properties that are being offered by investors, property companies, financial providers that have a property asset base and developers who are renting out properties already.

If both the Seller AND the Purchaser are VAT registered, then the question to ask ‘Is the property sold as a going concern?’
In order for a sale to be one of a going concern, certain facts need to exist, namely:

a)   the Seller needs to be VAT registered at the time of sale and needs to be paying VAT on the income generated from the property;
b)   the Purchaser needs to be VAT registered at the time of sale or may register as such prior to transfer; and
c)   the property needs to be tenanted by a 3^rd party or there must be a sale of the business activity generating income.

If the situation gives rise to the transaction being a sale of a going concern then VAT will be payable at a rate of 0% and a special clause needs to be inserted in the agreement of sale alleging these facts.  If you are unable to prove that the transaction is to be zero rated then normal VAT at 14% will payable. This saves you 14% of the purchase price straight away – what an incredible upfront save of your initial investment costs. This 14% can now go against the property’s actual value. VAT will then need to be paid on a monthly basis on the rental income being achieved.

But having tenants is a headache, how do I get around this and how can I be sure to find the right tenant?

It’s all about finding the right property management company to partner with. Yes, there is a management fee/commission that comes straight off the profit, but at least you can be sure of getting the right tenant for the maximum amount of rental income with just about no input needed except to just sign off agreements and approve general maintenance expenses.

The right property management company makes it their business to maximize the property investment ensuring that they continue to earn income and this is a win win relationship. Property management companies come up with income generating solutions that will best suit the property and don’t always include just a permanent tenant. Other options are available such as Corporate rentals, Furnished rentals for sabbatical purposes and short term rental solutions.

If the property is well positioned and suited for a short term rental income then this will generate a much higher rate of income and will allow you to get partial beneficial use of the property investment should you wish to do so. The maintenance of the property is then completely in your control and the income generated will more than pay for the furnishing required.

It is our business to assist you with finding the right property investment and then delivering a solution to ensure the maximum income return for passive income.

Why invest in retirement policies that fall short on the kind of life you have worked so hard for when investing in property will provide a much better and wealthier lifestyle?

We look forward to your response and welcome an opportunity to action this strategy for passive income.