Investment Property Analysis

It is important to undertake investment property analysis before taking the plunge...

Investment property analysis is the process by which investors calculate and predict their income and expenses based on the market, their current situation and several worst case, best case scenarios. It is a way to plan for the future or determine how profitable their chosen investment property might be. Investment property analysis depends on the type of property (e.g. if it is for selling or renting), what maintenance it needs (older properties often need a lot of work done), and the various fees and taxes associated with real estate.

Below is a basic example of how somebody might go about investment property analysis; but remember everybody’s portfolio is different, the figures here are completely made up:

One Year Analysis from newly bought 2 Bedroom Apartment

The above investment property analysis shows that the investor will be in the red by $1,640 at the end of the first year. If they were looking for a quick fix, then they probably shouldn’t take this option. However if this is a long term deal, they will eventually recoup their money after the mortgage is paid off and begin to make around $8,000 a year depending on the market.

If the investor wanted to calculate for the worst case scenario, they could cut out rental income for 30% if the time and boost maintenance costs by another percentage. If they wanted to do a best case scenario they could increase rental income by a couple of hundred per week and reduce any maintenance related costs.

Ultimately there is no solid way to predict how the market is heading, if you’ll fill every week’s worth of rental income or what expenses you may incur from unforeseen accidents. This is just a rough way to forecast your earnings so you get a basic idea of if the investment will give you a return. Of course there are several tax breaks you can factor in that may completely alter the outlook of the investment.