Analysis of your business
The three generally accepted reasons for Property Investment are:
Cashflow should be analysed to compare specific properties, and types of properties to assist in your planning and your decision to purchase. You can use either Gross Yield or Net Yield. Gross Yield = (Weekly Rental x 52 weeks) divided by the Purchase Price.
Net Yield = (Weekly Rental x say 48 weeks – to allow for vacancies) less operating expenses (Rates, Insurance and an allowance for Maintenance) divided by the Purchase Price.
It is essential that you can calculate the cashflows (Income less Operating Expenses & Debt Servicing) of your business to see what positive or negative impact the business will have on your personal income.
You are buying a business when you purchase an Investment Property. The start-up costs and operating expenses of that business are offset against the income generated by your business. However, there are additional deductible expenses known as Non-Cash Items.
Depreciation of the Chattels of your investment property is also deductible from your income to calculate your Taxable Income.
For more information visit www.ird.govt.nz.
This is the most subjective part of investment and is the greatest unknown aspect of a particular property. The ability to correctly assess potential Capital Growth can be learned from others and by reading various publications, but there is also no substitute for a developed and experienced “gut feeling”.
It is hardest to plan for and sometimes easiest to achieve. The only really valuable investment adage which applies here is “Time in the market is your Friend”.
It is important to the success of your business to be able to analyse the effects of these 3 factors over time.