With more and more people are looking to create personal wealth by investing in Overseas Property, we asked our experts to take there heads out of clouds and come up with a simple guide that would help the first time investor undertake the journey.
Return on your investment
All investors in property start by looking at the Yield, or projected return on investment, put simply if a property costs £100,000 and the rental income is £500 per month net of running costs.
The yield calculation would be as follows:
£500 x 12 = £6000 per annum rental income.
(6,000 / 100,000) x 100 = 6% Yield
Therefore Yield is the return on your investment as a percentage of the amount you invest.
Calculating the return on your investment including costs
If you use other peoples money to fund your investment, i.e. take out an overseas mortgage on the property or release equity from other property you own then as above for £100,000 and assume you have a cash deposit of 30% and you include insurance and maintenance costs
The key assumptions (inclusions) for an overseas property would be
Purchase costs at 1.5%: solicitors fees and insurances etc. Budget £1,500
Deposit at 30%: £30,000
Mortgage costs are calculated as follows:
A £100,000 property (purchase price including tax depending on country) with a 70% LTV (loan to value) = £70,000 mortgage interest only mortgage at an interest rate of 6.5%.
The repayments would be : £70,000 x 6.5% = £4,550 per annum, or £4,550/12 = £379 per month.
The profit therefore would be;
£500 rent - £379 Mortgage = £121 profit per month
£111 x 12 = £1452 per annum.
The yield is calculated as follows;
Amount invested so far is: £31,500 (deposit + costs)
Annual gross profit is: £1452
(£1,452 / £31,500) x 100 = 4.6% Yield on cash amount invested
Of course, property investors are also interested in equity growth, if a property rises in price at a conservative 5% per annum and you are looking at 5 year investment then
Year 1 = £100,000 Year 5 = 127,500 = £27,500 profit
Therefore 5 x £1,452 = £7,260 + £27,500 = £34,760
Gross return on investment;
(34,760/31,500) x 100 = 110% return on cash invested or 22% per annum
Of course missing from the above is Capital Gains Tax, in some countries such as Dubai this is none, but in most others in ranges from between 18% to 42%, assuming 25% CGT then the gross return would be
(20,500/31,500) x 100 = 65% return on your cash invested or 13% per annum
Using other peoples cash to invest is known as “gearing up” and provided that the rental return, e.g. the funding of the monthly repayment is covered then the yield is higher.
You should always seek the advice of a qualified and regulated financial advisor when making investment decisions.
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Type of Article: Finance and Legal, Property Buying Information
Other Categories: first-time buyers, investment, property calculator, rental guarantee, return on investment
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Other Categories: first-time buyers property, investment property, property calculator property, rental guarantee property, return on investment property
Other Categories: first-time buyers property, investment property, property calculator property, rental guarantee property, return on investment property
Other Categories: first-time buyers property, investment property, property calculator property, rental guarantee property, return on investment property
Other Categories: first-time buyers property, investment property, property calculator property, rental guarantee property, return on investment property
Other Categories: first-time buyers property, investment property, property calculator property, rental guarantee property, return on investment property