Working in Property. Knowing your numbers and the importance of it.

Working in Property. Knowing your numbers and the importance of it.

When working in the property sector it is vital that you know your numbers. You need to know the difference between...

  • Your net income and your gross income
  • Your leverage ROI and your un-leveraged ROI
  • Your net yields and your gross yields

Your property deal will depend on the strength of these numbers which is why it is important to understand them. There are various factors that are going to stack up to make your deal a great deal but ultimately when we begin to consider safety, this is where knowing our numbers becomes absolutely vital.

If there are any numbers that you are unsure of and you are doing some due diligence, for example you find that the rental price in the area is £900 per calendar month but you also find other properties that are £1000 per calendar month. It is good practice in the first instance to always assume the worst-case scenario. If you start to overstretch your numbers, then your safety decreases and you may be setting yourself up for a fall. So, my key tip here is if you are ever faced with variants, then always look for the worst-case scenario whilst you are doing your due diligence because it will keep you safe.

This may seem like a simple point, but in this industry, I have seen time and time again people stretch their expectations. For example, If the property value in the area is £250,000 but you are going to do a great job you shouldn’t assume that it will get you to £300,000. If it is the case that, that when it comes to the valuation the property is in fact worth £300,000 then that’s great as you would have gained additional profits. But it is much safer for you and your property business to go with the worst scenario.

In the first instance you need to know your entire costings that sit behind any potential deal.

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If you are in the buy to let space, you need to be aware of your:

  • Gross rental potential
  • Potential voids
  • Management costs
  • Insurance costs
  • Mortgage costs
  • Potential maintenance

If you are working in the development space, you need to do a deep analysis into what costs are going in and out of the deal. Many TV shows such as ‘homes under the hammer’ portray the idea of developing properties to be an easy process by only displaying information like We bought it for this, spent this much, therefore we made this much.’ But the truth is, this is not a reality in this industry. You need to think more realistically and by this, I mean you need to consider much more than the purchase price of the property. You must also take into consideration things such as the…

  • Taxes
  • Stamp duty
  • Insurance
  • Utility bills to pay while developing
  • Finance costs
  • Marketing costs during the exit strategy

So you need to understand and know what your numbers are as not only does it help you to ensure you will be getting a good deal that will work out but when you have potential finance meetings, discussions with brokers and equity partners and investors, you will be giving these stakeholders absolute confidence that you know what you are on about making them buy into and trust you more.

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