Real Estate Investor Magazine South Africa October 2016

FINANCE How to select the right Investment Property The right vacancy rate in the right area BY GERT VAN STADEN S 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. Among these crucial factors are the sectional title levies or property taxes payable on the property, as well as the affordability of the monthly shortfalls and possible risks to your ability to afford these shortfalls comfortably. Levies and Taxes Property tax – or levies, if you invest in a sectional title property – is an unavoidable reality of property ownership and, thus, of property investment. This expense will always be part of the property investment equation as, in general, landlords are responsible for ‘fixed’ costs such as levies and taxes, while tenants are responsible for ‘consumables’. While a ‘fixed’ cost, levies and taxes are likely to increase year after year, so it is important to understand its impact on your investment returns. There are sectional title developments with very high levies – in some cases, even double the ‘norm’. Be sure to check the levy amount for a sectional title investment, how the levies are spent and how likely special levies and levy increases are. Affordability Another crucial factor in determining the viability of a particular investment is the affordability of the 20 OCTOBER 2016 SA Real Estate Investor monthly shortfall (the difference between the rental income and the property expenses in the first years of a property investment, which the investor pays out of his/her own pocket). Whether or not you are able to afford a certain shortfall depends not only on your personal cash flow situation, but also on a number of risks, such as interest rate increases, rental payment defaults and vacancies. These risks can be managed easily and cost-effectively, but the costs involved will impact the affordability of the shortfalls. In the next article, we will look at the remaining variables in more detail. In the meantime, please feel free to visit http://p3propertyinvestments.co.za for more information and watch a P3 video in which we explain P3’s approach to selecting the right area and the right tenants to manage vacancies, an approach that has ensured property investment success for our 2500 P3 members. 10 SCORECARD VARIABLES 1 Price 2 Rental income 3 Break-even 5 Condition of the property 5 Vacancy 6 Area 7 Levies and taxes 8 Affordability 9 Control 10 Bank valuation RES

Real Estate Investor Magazine South Africa October 2016 | Page 22