Real Estate Investor Magazine South Africa June 2014 | Page 28

FINANCE
some property investors, indicating that the property is
a great investment opportunity.
Obviously, a higher rental factor means more income
in relation to the property value, as well as more income
in relation to the property expenses. In fact, a property
with a rental factor of 1% or higher could indicate a
so-called “infinite return” transaction, which means
that there is no shortfall (the difference between the
income generated and the expenses of the property) to
be funded by the investor at any stage.
However, to base a long-term property investment
decision only on the rental factor is not wise, because
the income from a property is not all that is important:
the costs are equally important. Even if a property
has a high rental factor, disproportionately high taxes

and/or levies could still result in a poor investment.
For example, many properties in the inner cities have
high rental factors, but because the buildings are old
and require a lot of maintenance, the levies can be
extremely high. As such, the monthly shortfall could
be unacceptably high, in spite of the property having a
high rental factor.
When evaluating a property as a potential investment,
ask yourself: “What is it going to cost me?” (the
purchase price and monthly costs), and “ W hat
am I going to get out of it on a monthly basis?” (the
rental income and projected capital appreciation).
These figures will ultimately determine the return on
investment (ROI).

RESOURCES
P3 Investment Group

Maserati_QP-Coastal (EstateLiving 210x275) 02-14ctp.indd 1

Fig 2. The same property with a rental factor of 1% but higher levies produces a higher initial monthly shortfall
of R1 305.
As can be seen from the screen shots above, the rental factor is only one of the many aspects calculated by
the P3 Wealth Manager software, which is designed to draw together all the financial variables related to a
buy-to-let property investment to ensure investors can judge whether a particular property is an intrinsically
good investment. Download the demo version of the P3 Property Wealth Manager software free of charge
from www.hope.co.za and try it for yourself.
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June 2014 SA Real Estate Investor

www.reimag.co.za