I am doing a financial planning course, and one of my assignment is to comment on the investment property’s profitability, affordability and ratios, and I have no ideas how to tackle, can any one help? thank you.
I won’t do your assignment for you (you’d probably fail if I did[
]) but consider the following:Profitability: Profit = income less costs.
On the income side, there can be rents and capital gain (when you sell). On the cost side there are loan repayments, insurance, what you paid for the property, agents fees, etc.
Some properties are likely to rise in value quickly, but don’t provide much income, while others will give good income, but might not increase in value much. If you’re really lucky both can happen!
The correct strategy for you depends on what you want: to be a millionaire by 40, or to be financially independent (ie not have to work) by 40?
Affordability: There are all sorts of measures, and it depends if you are borrowing to buy it. Important factors are rental income, interest payments, costs, deductions, you other income, and the bank’s willingness to lend to you.
Most people on this group want to buy property whose rental income exceeds loan repayments, meaning that they could theoretically buy as much property as the bank will let them.
Ratios: There is almost an infinite number of these, depending on what you want to calculate. Affordability is often presented as a ratio. Return on investment is another ratio.
Peter
I won’t do your assignment for you (you’d probably fail if I did[
]) but consider the following:Profitability: Profit = income less costs.
On the income side, there can be rents and capital gain (when you sell). On the cost side there are loan repayments, insurance, what you paid for the property, agents fees, etc.
Some properties are likely to rise in value quickly, but don’t provide much income, while others will give good income, but might not increase in value much. If you’re really lucky both can happen!
The correct strategy for you depends on what you want: to be a millionaire by 40, or to be financially independent (ie not have to work) by 40?
Affordability: There are all sorts of measures, and it depends if you are borrowing to buy it. Important factors are rental income, interest payments, costs, deductions, you other income, and the bank’s willingness to lend to you.
Most people on this group want to buy property whose rental income exceeds loan repayments, meaning that they could theoretically buy as much property as the bank will let them.
Ratios: There is almost an infinite number of these, depending on what you want to calculate. Affordability is often presented as a ratio. Return on investment is another ratio.
Peter
Hi Peter,Thank you for your reply, that helps hips.
Christine
]) but consider the following:The topic ‘property investment measures’ is closed to new replies.
