Investment analysis is the process of evaluating a stock, a sector, or the stock market as a whole. Fundamental analysis evaluates a company’s health, while technical analysis uses statistical models to identify opportunities.
If an investor does not understand what he is investing in, it is like he is simply speculating, gambling, or playing slot machines in a casino.
Performing an investment analysis is not always easy. There are many factors to consider.
The following are the most critical parameters for a correct calculation:
1) Own Resources
The most important factor! How much budget you have available, and how much do you want to spend on the real estate investment.
When attempting to invest in real estate, it is important not to always put all of your resources into the investment. Leverage by taking out a mortgage. You pay interest on the borrowed capital, but the return is always higher.
3) Interest rates
Good financing starts with comparing bank interest rates and finding the most attractive formula for your investment. Make sure to consult your bank advisor and compare with at least one other bank.
Analyze the neighborhood and future plans in advance. There are ample potential growth areas. Get advice from real estate agents and developers, and do your research.
Flat, house, new construction, used property, renovation, …… and there are several options. The choices are almost endless. Each option has advantages and disadvantages. They balance each other out nicely.
6) Rental Price
The rental price decision has a significant impact on the total yield. If the rent is too high, the property will not be rented; if the rent is too low, the yield will be low. Be sure to consult with an expert, and do not overestimate the rental income realized.
7) Private Buyer – Company
The choice between buying privately and with a company can be difficult. Each choice will affect your performance in the short and long term. Your banker or accountant can assist you with advice and action.
8) Types of Credit
With a regular mortgage, you have fixed interest rates, variable interest rates, credit terms, …… and there are already several options, including credit that pays only interest. Banks also play an important and advisory role in this regard. Never choose the riskiest option, but choose the one that best suits your current situation.
9) Cash Flow
You can always purchase a property with rental income plus your funds to pay off the loan each month. Always remember that if the entity is not rented out, you will incur expenses and your own monthly expenses and receivables.
10) Value added
Value added is a difficult thing to evaluate in the future. Never think of yourself as rich, but estimate value added realistically. An accurate estimate will save you from surprises in the years to come.
11) Full Ownership or Construction
Buy full ownership or opt for a basic title-right-of-use structure. Again, the implications for the buyer are manifold. Also, consult with your accountant and banker to ensure the ideal purchase.
These are the first eleven parameters that influence the purchase of an investment property. Of course, every investment is considered within all of these factors and parameters. There are many advisors as well who can provide guidance on this.
Never opt for the highest return as it is well known, “the higher the return, the higher the risk.
Do you have any other tips? Do not hesistate to share it with us in the comments below!