Choosing the right investment property

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The right vacancy rate in the right area

By Gert van Staden

Selecting the right investment properties is fundamental to the success of your property investment success. If you choose the right property, you can be almost assured that you will enjoy good capital growth for many years, and that the property will rarely – if ever – be vacant, which will practically guarantee your property investment success.

For this reason, the 2500 P3 Investment Group members use the 10-point P3 Scorecard to evaluate each potential investment property before making an investment decision. The area in which the property is situated is as important as the property itself, and the area will also influence the vacancy rate in the area.

10 Scorecard variables

  1. Price
  2. Rental income
  3. Break-even
  4. Condition of the property
  5. Vacancy
  6. Area
  7. Levies and taxes
  8. Affordability
  9. Control
  10. Bank valuation

Vacancy

Vacancies are a major risk faced by buy-to-let investors, but can be effectively managed by investing in areas with a strong and ongoing demand for rentals. This is a key success factor for P3 members: buying properties that are in high demand by renters. This is to a large degree dependent on the area in which the property is situated.

In addition, P3 members – using the advanced P3 Wealth Manager Software – still factor in a vacancy rate of 5% into their cash flow calculations, even if the vacancy rate for the area is lower, thereby managing the risk.

Area

P3 members focus on areas with a strong and ongoing rental demand. You can usually get a fair idea of the demand by speaking to the local letting agencies, and fill in the picture with a common sense assessments regarding the proximity of the property to amenities, such as schools, shopping centres and employment opportunities. Also consider the number of new and planned developments in an area, the type and condition of existing properties the area and the industries that will provide long-term and sustainable work opportunities.

In future articles, we will look at the remaining variables in more detail. In the meantime, please feel free to visit http://p3propertyinvestments.co.za for more information and watch a P3 video in which we explain P3’s approach to selecting the right area and the right tenants to manage vacancies, an approach that has ensured property investment success for our 2500 P3 members.

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