Not too long ago, it’s fair to say, pretty much any old property stacked up as a buy to let. More than a few investors probably used the ‘seat of your pants’ approach to property investing. In other words if it ‘looked’ OK – if the rent exceeded the mortgage by a fair margin – it was probably good to go.
But things have changed, really changed, in property investment over the last few years.
Today not necessarily every property will work as a buy to let or a buy to sell. While there are still many great opportunities out there, there are also many traps awaiting the unwary investor.
That means today it is absolutely essential to use a more scientific approach. Property deals need to be carefully analysed to ensure that they will make money, or even to avoid a potentially expensive loss.
In this post we will look at what you need to consider when analysing a prospective investment purchase, and how to do it efficiently and effectively.
What should you look for when analysing a property deal?
Viability. Quite simply, will this property make me money? Carefully analysing the basic financial fundamentals are crucial when considering any deal.
Yield is a basic tool for assessing returns from a buy to let. Simply divide annual rent by purchase cost to find percentage yield.
Net yield is a more comprehensive figure to use. Other financials you might need include profit allowing for costs and expenses, return on investment or ROI and return on capital employed or ROCE.
This blog post looks at these and How Much Will I Make From A Rental Property? in more detail.
Affordability. Analysing whether a mortgage is affordable, based on your own finances plus normal mortgage lending criteria, is also important. It can help you identify those deals which can be financed in a cost effective and robust way with the appropriate rent cover.
Tax efficiency. Section 24 in particular has meant that a deal that will work for one investor may not work for another and vice versa. It’s essential to analyse how tax will affect your investment according to your own tax status.
Location, location, location. This old adage in property is now more true than ever. Beyond whether the financial fundamentals themselves add up it’s essential to analyse whether the location is suitable from an investment point of view.
Amongst the information you will need to analyse is: Local price levels and price trends – are prices on an upswing with potential for capital appreciation, or are they flatlining or even falling? Demand levels – what’s the demand for property to rent or buy there and from whom?
Other information you may feel you need to analyse includes local transport connections, local amenities, the quality of local schools and crime rates. All these can of course have a major impact on the desirability, demand for, and price or rent levels in an area.
How to make deal analysing simple and effective
Analysing a deal properly can be complicated and time consuming. It can involve many hours (or even days) with paper and calculator, or poring over spreadsheets.
A professional deal analyser tool, however, can collect all the necessary data, crunch the numbers, and present the information you need in a simple, clear format. PaTMa offers several different tools to help you analyse prospective property deals.
Firstly, PaTMa’s free browser extension shows quick profit calculations including yield and ROI overlaid when searching for properties using Rightmove and Zoopla.
Secondly, with PaTMa’s free Buy to Let Property Profit and Tax Calculator you just input some basic numbers and then investment needed, yield, ROI and forecast monthly profit are calculated for you automatically.
PaTMa’s Property Prospector, however, is a truly powerful and professional property deal analyser.
With Property Prospector all you need to do is add a property as a prospect, add some relevant figures including price and costs, then customise to suit your own personal investment scenarios. Prospector then instantly calculates the essential financial information you need including yield, monthly and annual profit, ROI and more.
Property Prospector analyses mortgage affordability. It also analyses and shows the impact of Section 24 according to your tax band.
Property Prospector shows likely profit after tax per year for every property. It can even provide a five year profit forecast (before tax) including your estimated capital gain.
You can even see different figures based on the asking price, offer price and likely purchase price and so see where your optimum offer point is.
Property Prospector can also show you an extensive range of price and other important information about the area. You can even see the property on a map and on Google Streetview. With Property Prospector you can check local price and rent comparables too.
Powerful yet practical property deal analysis
Property Prospector is not just a powerful financial forecasting tool it is a user-friendly and practical one too.
In practical terms, Property Prospector means you can ‘test’ prospective purchases against your own investment criteria quickly and easily. You can filter out deals which are not viable then home right in on those which are potentially profitable. Property Prospector then presents and stores all the facts, figures and background information you need to guide your investment decisions.
You can even compare different properties back to back to find the best-of-the-best, ensuring that your money always goes into the most profitable investment.
Property Prospector works for both buy to let and buy to sell or flip projects alike.
Unlike in the past, in these more challenging times for property investors, professional investors just can’t afford to invest on a hunch anymore. Using a professional analyser tool can help you find and analyse the most promising, most profitable property deals and avoid expensive mistakes. It can help you do it quickly and more efficiently too.