We have just published a new article for the Property Reporter: "What do you need to think about when analysing a new property deal?".
In this post we would like to show you how you can implement the tips we mentioned in the article by using Lendlord's Deal Analyser:
1. Be conservative: The purchase price is not your only cost when purchasing a new property, make sure you consider Stamp Duty, legal fees, mortgage fees, inspections fees etc. as well as any costs of refurbishing a property and getting it up to lettings standard. On top of this, you should always ensure you have a buffer as there are always likely to be unexpected costs.
The way to so it while using Lendlord is to specify all the purchase costs in the Purchase Details box:
2. Take into account all monthly operating expenses, including managing agent fees, landlords’ insurance, ground rent, service charge etc. Take a conservative approach and always allow a buffer:
3. Asses your expected mortgage costs - make sure you perform the right research to understand which mortgage products are available for you, the mortgage cost is usually the biggest cost involved in property investment.
You can use the Lendlord mortgage engine to get the relevant products based on your profile:
4. Make long term assumptions: Make assumptions for the long term. What do you expect the occupancy level to be on an annual basis (92% occupancy, for example, means that every year you will have one month where the property is vacant). What are your assumptions for property price appreciation, rental appreciation and inflation? Carry out research on the area in terms of historical prices growth, rental and property demand and more.
5. Calculate the short term and long term metrics. What will be the return on your cash investment in the next 12 months and what will be the long term return? Is it worth holding the property for 5 years, 10 years or more? Metrics like Equity Multiple and IRR (internal rate of return) will help you to make better decisions:
6. Check both worst case scenario and best-case scenario. What will be your return in both cases? In the worst-case scenario assume low occupancy rate, property appreciation and rental appreciation and see where it takes you? Do you have enough margins to keep this property profitable even if the outlook is negative?
Carrying out proper diligence is crucial before purchasing any new property. Fortunately, there are technologies available, such as Lendlord, that can help you to analyse any new deal instantly as well as carrying out analysis on your existing portfolio of properties and its potential for the long term.