In the world of property investment, numbers are king. Whether you’re an investment veteran with a bursting portfolio, or a novice who wants to dip their toe in, to make the best investments you need to make sure the numbers add up. Whether it’s calculations to find out how profitable a property investment will be or things to ask your investment company, these useful calculations will allow you to find those crucial numbers you need.
- ROI – Return on Investment
Return on Investment is a way of working out how much you can make compared to how much you have put into the investment. The calculation is the annual profit minus costs divided by how much cash you’ve put in. A simple example is:
Annual Rent: £5000
Annual Costs: £2000
Profit = £3000
Purchase Price: £100,000
Mortgage Used: £75,000
Cash Invested: £25,000
£3000 ÷ £25000 = 0.12 so Return on Investment is 12%.
- Stamp Duty
With UK property, stamp duty can make a big impact on how profitable your investment will be. In general, the higher the property price, the more you pay. Certain types of investment like student property are not applicable for stamp duty. Recent changes mean that stamp duty must be paid on a second property owned, and rates for buy to let properties are higher. To figure out the stamp duty on your property, use the RW Invest stamp duty calculator.
- Capital Appreciation
Capital Appreciation is the percentage increase in the value of your property over time. This can allow you to work out when is best to sell, how much potential for profit an investment property has and to compare different properties. To figure out capital appreciation you need to know what the average growth rate in the property’s area is. You can find this out online. For example, in August 2018 the average UK house price growth was 3.6% but in Liverpool it was 7.5%. However, future predictions on capital appreciation can only be estimated based on previous figures.
- Gross Rental Yields
Rental Yields tell you how much you are making from the property you have purchased. This is an essential calculation for working out how much income you can make from your property. To calculate a rental yield, you take annual rental income and divide it by the purchase price of the property. The higher the rental yield, the quicker your investment will pay for itself. For example,
Annual Rental Income: £6000
Purchase Price = £100,000
£6000 ÷ £100,000 = 0.06
Rental Yield is 6%.
- Exchange Rates
If you are buying UK property from abroad then it is essential that you figure out the current exchange rate and figure this into your purchase price. Exchange rates can be found online and up to date information is essential for working this out. Exchange rates are prone to fluctuation, so it is important to keep checking, and savvy investors can make the most of exchange rates to get the best deal possible on their property investment.
Paying attention to the numbers involved in a potential property investment is a key skill for property investors. Doing research, making sure an investment is worthwhile and talking these calculations into account can allow you to plan and make the best investment choices.