Real Estate Investor Magazine South Africa February 2014 | Page 24

STRATEGIES

BY KOOS DU TOIT

Make Money In Buy-To-Let
Purpose-design software at your disposal

W

hat should you pay for an investment
property? This is a far more crucial
question than it may seem at first
glance, because in property, you make money
when you buy, not when you sell. The reason
is simple: you have no control over the market
conditions that may prevail when you sell a
property, but when you buy, you are 100% in
control – and this means the power to make a great
deal and a good profit is completely in your hands.
Of course, in the case of buy-to-let property
investment, where the intention is not to sell but
to hold the property for the long-term benefit of
ongoing, inflation-linked passive rental income
and the long-term capital growth, the price at
which you buy is even more important. From
a buy-to-let perspective, the price you pay for a
property determines everything from the rates and
taxes over the years to the initial shortfall between
the income and property expenses and from the
breakeven point and the return on investment.

FIGURE 1

Using the latest version of the P3 Property
Wealth Manager software, smart investors can
determine precisely what difference the purchase
price will make to a property investment.
When comparing two similar properties, one
(Figure 1) at R500 000 and the other (Figure 2)
at R550 000, both with a rental income potential
of R4 000 per month, an investor using the P3
Property Wealth Manager software will be able
to see, at a glance, the impact of paying R50 000
more for a property.
Firstly, the monthly shortfall is increased
by R500, which equates to R6 000 more outof-pocket investment just in the first year. The
rental factor (the monthly rental as a factor of
the purchase price) drops from 80% to 73%. The
return on investment drops by a significant 12%
from 140.33% pa to 128.30% pa in the first year,
while another 12 months are added to both the
time required for breakeven (when the property
becomes cash f low positive) and the time
required for the investor to recoup the investment
made in terms of the shortfalls paid out of the
investor’s own pocket. Furthermore, the amount
invested from the investor’s own pocket is
R40 000 more.
22

February 2014 SA Real Estate Investor

FIGURE 2
With this information at your fingertips, it is
easy to judge whether it is worth your while to
pay R50 000 extra for an investment property
that will generate the same rental income as another
property that can be acquired for R500 000. It
certainly demonstrates the benefits of looking
for a better priced property or negotiating a
lower purchase price, to ensure the property falls
within the green zone of the P3 Score barometer,
which is a quick guide as to whether the property
meets the P3 Investment Group criteria for a
solid investment.
SUBSCRIBE

Of course, if the more expensive property will
yield a higher rental, it may well be worth investing
an additional R50 000. With purpose-designed
software it is easy to make such a call, because the
guess work and emotional decision-making are
completely eliminated by instant, accurate numbers
to ensure you always make the best investment
decision. Download the demo version of the P3
Property Wealth Manager software free of charge
from www.hope.co.za and try it for yourself.

RESOURCES

P3 Investment Group

www.reimag.co.za