Real Estate Investor Magazine South Africa June 2015 | Page 32

ACQUIRING

Property Acquisition

Risk

Risk management in buy-to-let
BY KOOS DU TOIT

O

ne of the greatest risks property investors face
is making a poor decision when acquiring
an investment property. To manage this risk,
smart property investors take a professional approach,
using a scientific methodology backed up by state-ofthe-art software to ensure an accurate assessment of
the quality of property investment opportunities before
acquisition.
10 Crucial variables for judging an investment
opportunity:
1 Price - Not every property you invest in has to be
a ‘bargain’ but you must never pay too much for a
property.
2 Rental Income - The rental factor is the ratio
between the purchase price and the monthly rental.
If the purchase price is R500 000 and the rental is
R5 000, the rental factor is 1%. The higher rental
factor, the more income your property produces for
less money out of your pocket. Keep in mind that
the levies and rates and taxes on a property can also
influence the bottom line on a property.
3 Break-even - Most investment properties have
an initial monthly shortfall, which diminishes as
the rental increases and eventually covers all the

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JUNE 2015 SA Real Estate Investor

property expenses. This is the breakeven point, after
which the property starts generating a monthly
surplus. The acceptable period for a property to
reach breakeven point depends on many factors.
This, along with the total out-of-pocket investment
required, is critically important information.
4 Condition of the property - The older the
building, the higher the maintenance and repair
costs are likely to be. The be