Real Estate Investor Magazine South Africa July 2016 | Page 24

INVESTMENT STRATEGIES

Choosing the right

Investment Property
What is the right price and rental?
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. At the top of the Scorecard
variables are the price paid for the property and the
rental income.

Price

While not every investment property has to be a
“bargain”, you should certainly not pay too much for
a property. To determine what the right price for a
property is, get a Comparative Market Analysis
(CMA). Look at what comparative properties in the
area have been sold for. Look at the values of similar
properties in other, similar neighbourhoods.
Beyond this guideline, remember that the market
price of any property is what a willing buyer and a
willing seller agree to. Always negotiate: in most cases
the seller will be prepared to reduce the price.
Also, be on the lookout for properties being sold
by what is termed ‘motivated sellers’ – these people
need to sell their properties quickly, and the price they
get may not be their main motivation. This is often
the case in divorces, deceased estates, if the seller is
in financial trouble, or if the seller is emigrating or
relocating.
Finding properties at the right price is often easier
when you are part of an investor group. For example,
P3 Investment Group members have access to pre22

JULY 2016 SA Real Estate Investor

selected investment properties drawn from a range of
sources, including new developments, distressed sales
and even instalment sales.

Rental Income

The rental income that can be generated by a property
should be determined by speaking to rental agencies
in the area, who will not only be able to provide an
estimate of the rental achievable, but also the rental
demand for that type of property.
A widely used formula in the world of property
sales is the “rental factor”, which is used to express
the monthly rental income as a percentage of the
purchase price. As a simple example, for a R500,000
property generating a monthly rental of R5,000,
the rental factor is 1%. The higher the rental factor,
the more income in relation to the expenses, which
means a lower initial shortfall. While a handy guide,
the rental factor should not be considered in isolation
when evaluating an investment property, as it is not
a fixed figure, but fluctuates along with changes in
property prices as well as the interest rates.
In future articles, 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 to download a free demo
version of the P3 Property Wealth Manager software.

P3’S 10 SCORECARD VARIABLES

1 Price
2 Rental income
3 Break-even
4 Condition of the property
5 Vacancy

6 Area
7 Levies and taxes
8 Affordability
9 Control
10 Bank valuation

RESOURCES
P3 Investment Group
www.reimag.co.za