do you measure the performance of each investment?
Let's look at a couple of example properties:
own 2 properties in the same area of the country,
both bought in Jan 07. Therefore similar levels of
capital growth are expected - 10% for the year - and
rental yields are similar as they are both 2 bedroom
1: One is worth £70,000 and rents
for £350 a month You have an 85% mortgage
on this - and your mortgage payments and maintenance
costs each month are exactly covered by your monthly
2: You have bought this for cash. It also
rents for £350 a month - with no mortgage
after maintenance costs you make a net figure of
£2000 over the year.
has performed better? Well different investors may
see it differently - for some the fact property 2
has made £2000 income would put it ahead. I
would look at the return on my investment: Let's assume
buying costs on each were £2000.
property 1, you have invested £10,500 + £2000
= £12,500, and at end of year you have made
no net income, but have made £7,000 capital
growth. So I would calculate this as a ROI of 56%
property 2, you have invested £70,000 + £2000
= £72,000, and at end of year you have made
£2000 net income and £7000 capital growth.
So I would calculate the ROI here as 12.5%
big difference - and shows emphasis is always on high
leverage and capital growth. How do you get this?
Buy in affordable areas - and mortgage as often as
you can - as long as your cashflow is kept to a manageable
level. It is also important to realise like any business
there will be short term issues but these should never
get in the way of your longer term goals. So if you
get an issue with your first tenant, or managing agent,
but had a goal to get to 10 properties by the end
of the year - do not give up at one property, or think
there is no money in property! The only thing that
is for sure is if you stop at one, you will not make
a huge amount of money - you should continue with
your midterm goals - this is important advice on buy
to let investing! I lost money on one deal early on,
but learnt from it, and have had issues with problem
tenants from time to time, but have always had a clear
longer term goal.
I would say when buy to let investing treat property
as a business, review it regularly, and overall measure
the performance of your business by the growth each
year, and the return on investment each year.
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