Real Estate Investor Magazine South Africa Real Estate Investor Magazine - May 2017 | Page 61

tend to be very motivated sellers and will do anything
to exit or sell the property quickly and, in many cases,
at any price. That is where most of your big deals are.
Lesson Six – Understand the numbers
You must buy according to the numbers. Do the math
on each potential investment and be prepared to walk
away if the property doesn’t meet your investment
criteria. Another of Dolf de Roos’s investment rules
is that you make money when you buy. Never overpay
for a property, as there are just too many good deals
out there and always negotiate a better price on the
property.
“Education is a progressive
discovery of our own
ignorance. ” WILL DURANT
There are a handful of terms that you need to
understand and know in real estate pertaining to
numbers. Terms such as return on investment (ROI),
cash-on-cash return, internal rate of return (IRR) or
unlocking the value in an ugly property or property
with a twist. The ROI is the cash flow or yield
(rental income) divided by the cash invested (deposit,
maintenance, etc.). Cash on cash return is the return
on your money invested or rental income (less interest
and expenses) divided by the capital outlay as detailed
in the provided breakdown.
Know exactly what all the upfront costs are for a
property. Cash flow is everything on a property and
is critical to the success of any real estate investment.
The rent has to be sufficient to cover the monthly
cost of bond financing, municipal rates and taxes,
levies, insurance, management fees and landlord
paid utilities. Most importantly it also has to provide
a profit, as well as an allowance for some of those
unexpected expenses.
Maintenance expenses like a new roof, geyser
or bathroom renovation need to be factored in, so
don’t underestimate the cost of maintenance and
refurbishment. When you buy cash flowing properties,
the income is automated in your business and you
are not solely focused on you just making money.
Property investment is a numbers game, so the better
you grasp the basics, the better you perform. There
is software and online spreadsheets and packages to
help you invest smarter.
LESSON
LESSON
LESSON
LESSON
LESSON
LESSON
IN SUMMARY:
ONE – DEVELOP A GROWTH MINDSET
TWO – INVEST IN YOURSELF FIRST
THREE – INFORMATION OR INFLUENCE?
FOUR – HAVE A PLAN AND STRATEGY
FIVE – HOW TO FIND GOOD PROPERTY DEALS
SIX – UNDERSTAND THE NUMBERS
Psychology of creating wealth
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