Real Estate Investor Magazine South Africa June 2016 | Page 29

GETTING STARTED

Choosing the right

Investment Property
10 Point Scorecard for Smart Investment
BY GERT VAN STADEN

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electing the right investment properties is fundamental to the success of your property investment success.
If you choose the right property, you can be almost assured that you will enjoy good capital growth for
many years, and that the property will rarely - if ever - be vacant, which will practically guarantee your
property investment success.
For this reason, the 2500 P3 Investment Group members use the 10-point P3 Scorecard to evaluate each
potential investment property before making an investment decision.
1 Price – Not every property you invest in has to be a
“bargain” but you should 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 property expenses. This is the
break-even point, after which the property starts generating
a monthly surplus. The acceptable period for a property to
reach break-even point depends on many factors. But 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 better the condition of the building, the higher the

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rental potential. There are however exceptions, like inner
city properties which have a totally different dynamic.
Vacancy – The rental demand in the area in which the
property in located is crucial, but even where the demand
is high, smart investors calculate a vacancy factor into their
cash flow calculations.
Area – What is the general condition of the area in which
the property is situated and its longer term prospects for
growth and development?
Levies and taxes – How do the levies, as well as rates and
taxes, compare to other areas, and how your money will be
applied by the sectional title scheme or the municipality?
Affordability – Can you comfortably fund the initial
shortfalls, as well as events such as a series of interest rate
increases, vacancies or a defaulting tenant?
Control – How much control will you have over the property
in terms of implementing changes that could increase the
yield? Can you subdivide, extend the unit or renovate?
Bank valuation – Does the bank validate your decision to
acquire the property by granting a mortgage bond?

These variables are built into the state-of-the-art and custom-designed P3 Property Wealth Manager software,
which P3 members use to evaluate potential investment properties, and are considered for each pre-selected
investment property opportunity, which P3 members receive directly to their inboxes.

RESOURCES

P3 Investment Group
www.reimag.co.za

JUNE 2016 SA Real Estate Investor

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