Doing effective rental property investment analysis is essential to the success of a landlord or of anyone thinking of becoming a landlord. This article will give you some guidance in the right way to do it and the things you should be looking out for.
Below is a list of the sort of things you need to keep in mind when assessing any property deal.
- Return on Investment – you need to know when you are going to recoup any money that you have put into the project. In some situations you might be able to structure a property deal in such a way that you don’t actually have to put any money in and in fact you take money out straight away. This is the goal. This will give you an infinite return on investment.
- Gross and Net Yield – Net yield is what you really have to be focused on because this tells you what you cash flow is after costs have been taken into consideration. Gross yield and can be deceptive.
- Break even Point – This tells you how many months it will take you to recoup your initial investment i.e. deposit plus any other costs.
- Rental Cover – rental cover will tell you how much your rent covers the mortgage by as a percentage. In the UK you want to be aiming at at least 125% rental coverage; however, this is not always easy to achieve, but if you know what you are doing it is possible and in fact, rental cover of more than 150% is still achievable.
These are just four things to keep in mind when you are doing rental property investment analysis. There are many more and you need to have your finger on the pulse in regards to what is going on in the property market so that you can get the best finance deals as well as purchase the right types of property at the right time.
For example, it can be very costly to buy off plan properties in a property market that is not rising.