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The need for property softwareThe complex nature of residential property investments and the number of variables that influence investment return necessitate the use of a property software solution by all home owners and property investors. |
This page covers a number of important issues that should be considered before investing in residential property, especially in relation to calculating accurate investment return projections. |
Calculating Investment ReturnThe calculation of the investment return associated with residential property investments is relatively complicated due to the number of variables which have an influence on investment return. It is however of utmost importance that all these variables are taken into account when considering an investment in residential property. |
Residential Property: 10 Year ReviewThis case study reviews the estimated return on investment derived from an averagely priced South African residential property over the past 10 years. Our intention is to highlight the remarkable returns which could have been achieved from buy to let residential property investments over the past decade and to illustrate the methodology used to measure the investment return achieved. |
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The Property Reality SoftwareThis property software program is the most comprehensive solution for the SA residential property market specialising in property calculations and the measurement of investment return. We provide 29 demo files which details all software functionality. |
Calculation MethodologiesThere are various calculation methodologies which investors use in measuring investment return achieved from residential property investments. Some of the most commonly used methodologies are.. |
Return on Equity CalculationThe term equity is most commonly used in relation to residential properties in reference to the amount that the market value of a property exceeds the outstanding bond amount. Even though this terminology is generally accepted and used widely in the residential property industry, it is not entirely accurate. The calculation of the equity amount associated with a property investment could be very complicated and the calculation of the Return on Equity ratio is therefore by no means straight forward. |
The Concept of Negative EquityAfter the sub prime crisis in the United States, every property owner should understand the concept of negative equity and the financial risk which is associated with its occurrence. Property growth in South Africa has diminished over the last year which will ultimately result in more home owners facing the risk of a negative equity position. |
Property Calculation Input VariablesAn essential component of calculating the investment return derived from property investments is an understanding of the variables which influence investment return. In this section we cover all the variables that have a significant influence on investment return and provide guidance on how these variables should be included in a property investment return calculation. |
Average Annual Capital GrowthThe most important variable in forecasting the investment return achieved from a property investment is probably the average annual capital growth rate. This variable has a profound effect on the investment return which is ultimately achieved and should therefore be carefully considered. |
Average Inflation RateA comparison between the investment return derived from a residential property investment and the average inflation rate during the period of investment is useful to determine whether an investment provides a higher return than the inflation rate. When this calculation is performed, it is important to use the correct inflation rate. In this section, we provide guidance on this calculation. |
Budget 2010 EffectsThe Minister of Finance delivered his annual budget speech recently (February 2010). The regulatory amendments that were announced by the Minister have very little impact on residential property investments. |
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Residential Property Calculator TypesThere are two main groups of residential property calculators, namely bond calculators and investment return calculators. Bond calculators are widely available on the internet, but finding a suitable investment return calculator could be more problematic. |
Home Loan AmortizationMost home owners understand the principle of home loan amortization, but few consider the timing and amount of capital reduction over the entire bond term. We review the structure of home loan amortization and also provide an Excel template for performing your own calculations. |
Bond Statement vs Amortization TableThere are a number of home owners who find it difficult to reconcile the entries on their bond statements to calculations based on amortization tables. We have performed a case study comparing a typical amortization table calculation to the methodology used by banks to calculate interest and monthly bond repayments. |
Effective Interest Rate CalculationThe calculation of the effective interest rate associated with a bond is not a simple one. The reason for this is that most bonds are linked to the prime interest rate which is subjected to continuous change. We have created an Excel model which enables the user to calculate the effective interest rate of a bond in a few simple steps. |
Tax & AccountingThe accounting and tax treatment of buy to let properties could be very complex depending on the nature of the entity and the number of properties owned by the entity. |
Income Tax & PropertiesThe income tax treatment of residential properties differs between primary residences and buy to let properties. Property owners should also be aware of the implications of section 20A of the Income Tax Act which ring fences losses incurred from buy to let properties. |
Capital Gains TaxThe nature of the entity who owns a residential property has a significant impact on the capital gains tax which will be incurred when a property is sold. We review this aspect along with the calculation of CGT on residential properties. |
Property ManagementThe property management requirements of buy to let property investors are determined by a number of factors such as whether a letting agent is used, the number of properties being managed, the legal entity in which the properties are registered, etc. |
Investor TypesResidential property investors can be separated into two categories, namely home owners and property investors. Each category has their own requirements when it comes to a property software solution. |
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