Property Investment Analysis Part 3

There is no doubt that computers have made out lives easier.

However, when assessing property returns, computers are great in that they can look at thousands of variables and provide answers in the blink of an eye - try doing that on the back of a cigarette box!

The benefit of this computer analysis is that all variables involved in owning the property can be considered, and a true reflection of the REAL RETURN can be seen. 

Other important considerations when calculating a properties return include: 

 The time value of money - the effect of inflation eroding a dollars worth.

 Likely changes in rental levels over the holding period.

 Likely changes in expense levels over the holding period.

 The likely capital gain over the holding period.

 The rate of return that you, as an investor, wish to achieve.

All these variables can seem a bit daunting at first, but there are now established methods for calculating a properties REAL RETURN.

These methods have become even simpler and faster with the advent of computer programs. These can calculate a return in an instant, and even consider slight changes in variables such as interest rates, fees and income projections over the term of the holding period.

An example of such is included in the following picture:

 
Look a bit daunting?

It does when you first look at one of these programs. But after you've analysed a few properties using this method, understanding the logic and seeing the results becomes a whole lot simpler.

The benefits of this type of analysis include:

   A more accurate reflection of the property's performance over time.

   The ability to include tax, and to see its affect on performance

   Set the return you require and see whether the property delivers 

   Change variables quickly and see results instantly.

Whether you are analysing the performance of a property investment within your portfolio, or using this type of program to isolate new property investments, the benefits to the property investor of this type of analysis are immense.

I hope you have enjoyed this article.

The above screen shot  is from a program called Rental Analyst. This program has been developed specifically for New Zealand property investors. Click here if you would like further information...