There are a few numbers that are important in your investing journey and you need to calculate, to compare investments against each other to enable you to select the best ones.
Equity: Equity is the difference between the current market value of a property less the liabilities you have against it.
Net worth: Tells you how much you are worth overall and is the difference between all your assets (properties and otherwise) and all your liabilities.
Cash Flow: It is simply the difference between all the money that comes in from rental income and all outgoings such as financing and operating costs.
Return on Investment (RoI): The higher the RoI, the more efficient your investment and you make your money work harder. There are two ways to calculate RoI – based
on the total investment (Gross RoI) and based on how much of your own money you have invested into the deal (Cash-on-Cash, or CoC in short).
Yield: Yield measures the income you get versus the market value of the property. The higher the yield is, the better for you.
Gearing ratio: Gearing ratio means how high you have leveraged your investment. There is no optimal number for your gearing ratio as it depends on your personal situation, but if it is too low you don’t make efficient use of your money and if it’s too high, you are taking a big risk.
The Buying Process
Now that you are ready to buy your property, you might be asking how to start. How does the process work? The answer is it might vary depending on which country you buy the property in, which type of property you are buying and whether you buy it from a seller, developer, or at auction.
Which Additional Costs Are There?
When you are doing your calculations, you will not only need to factor in the actual purchase price of the property, but also any additional costs, fees, and taxes that are applicable which sometimes can be rather substantial. It’s better to know the costs up front than be surprised by a hefty bill later.
Buying At Auction
Property auctions can offer great opportunities to buy properties cheaply, but at the same time have potential pitfalls. First, you need to be clear about who is the party that is selling the property at the auction. Beware though, that for properties bought at auction, you might not have a chance to assess their conditions and in many jurisdictions there is no regress against the seller.
Other Ways To Acquire Property
Apart from buying a property direct from the seller, developer, or at auction, there are few more ways to acquire property. You can co-share with other investors if you don’t want to, or can’t afford, to buy a particular property yourself. In the case of the Lease Option strategy, you might decide during or at the end of the option validity period, to exercise your option and buy the property. Or you might just get a call from a lawyer whom you have never heard of before that you have just inherited a property.
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