The acquisition of residential property is a major investment decision simply due to the capital which is required for purchasing a property and the financial obligation that goes with it. It is therefore obvious that regardless of whether a primary residence or a buy to let investment property is being acquired, the investor needs to understand the fundamentals of the transaction and the variables which could have an impact on affordability and investment return.

After acquiring a property it is equally important to be able to measure the effect which movements in key variables have on affordability and investment return. Proper financial planning can only be performed if the information on which decisions are based is readily available.

Residential property investments have always been known as solid long term investments which carry relatively low financial risk. Even though this perception is generally accurate because residential properties are not normally subjected to large fluctuations in market values, the current financial crisis in the United States is a very good example of what happens when these investments are turned into high risk investments through circumstances entirely out of the individual investor's control.

It is therefore becoming increasingly important for investors and home owners to measure the effect which changes in key variables like interest rates, capital growth rates, etc. have on their investments.

Residential Property Variables

• Property Financing (bond amount, bond period, interest rate)
• Transfer & Bond Costs
• Rental Income & Occupancy
• Operational Costs (rates, levies, property management fees, repairs & maintenance, insurance, etc.)
• Selling Costs (agents commission, advertising costs, bond cancellation fees, etc.)
• Capital Growth => Market Value
• Income Tax and Capital Gains Tax
• Inflation (recommended for comparing investment return against inflation over time)

All of these groups of variables need to be taken into account when calculating the investment return achieved from residential property investments. The impact of omitting one of these groups of variables could be significant and result in an incorrect calculation of investment return and possibly an incorrect investment decision.

Home owners and investors need to develop a thorough understanding of each of these variable groups and also need an investment tool to incorporate these variables into a format for calculation of investment return.

A lot of property owners use spreadsheets to facilitate calculations. These solutions could be effective for simple return calculations, but it is virtually impossible to replicate the functionality contained in a comprehensive property software program without having an advanced knowledge of spreadsheets and spending hours on customisation for different calculation scenario's. Spreadsheets are also error prone, especially when used by someone other than the designer of the original version.

A comprehensive property software program will provide a lot more benefits over time when compared to a spreadsheet based solution and any serious property investors should consider purchasing a solution which fit their needs.

When compared to the cost and financial obligation involved in acquiring a residential property, the cost of a comprehensive property software solution is minimal. It is also very difficult to put a value to the life long benefits which can be derived from these solutions and probably even harder to quantify the cost of not having the information available when making investment decisions!

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