** # Entrepreneur of the Week -Ofir Harari # Post 4
*** Yield Calculator and Yield Killer … ****
Hello readers, Happy Wednesday! Today we will talk about yield!
Many investors choose to invest in real estate because of the stability involved (the real asset) and because of the return – income **
** When it comes to real estate, income is divided into two: fruitful income and capital income. **
** Cow income is the monthly income we receive as a result of rent for our property. **
** Capital income is the income we will receive at the time of the sale of the property – in anticipation of an increase in the value of the property. **
I will start with a short story, before I started with real estate investments abroad I invested in properties in Israel, later I bought a residential apartment in a city in the north of the country, the case was long before I had the knowledge I have at the moment and in fact I learned a lot from this case. **
** I purchased the apartment to add to the Excel check I did, the cost of the property + brokerage + attorney + taxes, renovation, etc … and on the other hand, the calculation of the expected return for me by doubling the monthly rent by 12. **
** Of course the property I bought showed a nice return in Excel ening I bought the property, it was in a neglected house in a very ugly and low cost train building, what I did not take into account was that:
A. It took me several months to find a tenant – and the more I was stressed about finding a tenant (have to pay for the loan I took) I was more flexible in terms of collateral on rentals, and there was a rental price and in terms of tenant quality. **
** B. I managed the property- i.e. every tenant’s claim (and there were many) from the phone to me, which caused me to mess around and waste my time repairing, once it was a sewer blockage about an hour before Saturday, once the air conditioner stopped reading and once in winter That I managed everything over the phone and I will only mention that the person who replaced the boiler left on the roof the old boiler swinging and threatening to fall on someone. **
** c. I came to know that there is no connection between the Excel table and what actually happened – I reached a zero return and a lot of fuss and waste of time and money (air conditioner replacement = two months rent) so I knew the term “yield killer” – the older the house = the more wear and tear = the yield wears down. **
** Eventually I “got rid” of the same property and the only reason I ended up investing in the profit is the rise in real estate prices that year … **
** In this post the reference to those investors who choose their investment according to the (high) fruitful return that is expected to be received on the property. **
** Many investors check the investment offers that were mistakenly offered to them by Excel – income versus expenses, and from this they come to the conclusion – to buy or not to buy. **
** Let me keep your eyes open on this issue. The excel does not lie, but absolutely can certainly suffice and turn the tables. It is important to check and verify the data that the salesman or apartment broker represents to you all the existing data in the area, and perform what is called “market research” (ie, check similar apartment prices, monthly rent in the area, development of the municipality and more), you must calculate and check all expected expenses In purchasing the property (including a lawyer, mortgage adviser, appraiser, taxes, etc.) and not beautify reality and examine the expected return we will receive (it is recommended to calculate according to 11 or 10 months rent only) and decide whether the deal is right for us. **
** Unfortunately, there are stakeholders in the market who want to beautify reality and show a higher return than in practice, by sophisticated manipulations. It is important for me to note that the same marketers can do so by selling an apartment in Israel, the US and virtually anywhere in the world (unfortunately scammers exist in every field and everywhere). **
** I will give a simple example of this type of manipulation: Eli owns an apartment that is rented for NIS 6,000 per month. The landlord can make a contract with the tenant for a rental price of 6500 NIS, and in return the tenant will enjoy the first month free of charge; That is, in an annual calculation, the tenant saves NIS 500 (6,500 times 11 compared to 6,000 times 12) and the property owner presents a false presentation of a high return to the buyer. As mentioned, in Excel everything looks good. **
** Similarly, the property owner can raise the rental price for a mortgage and in return pay for it property taxes, water, electricity, can be used for TV services, daily newspaper and more. All is well and good, but the investor must understand that in return for the return he plans to receive – he will have to continue to provide these services, and in fact his real return is very low for the return presented to him. **
** Similarly regarding you will pay property taxes and more … **
** There are companies that guarantee you when buying the property a guaranteed return for a year or two, in these transactions check that the price of the property was the real price and the guaranteed return is the real rent, be careful in this transaction and I have heard about properties sold at a produced price and all yields (rent) also very But the real return. **
** In other words – the investor / buyer paid himself the return … transferred money from one hand to the other with the continuation standing in the middle and of course cutting an oil coupon … **
** High yield among other things also found in split apartments. There are apartments that are split into two apartments (or more), which increases the monthly return received, ie instead of receiving NIS 6,000 monthly rent on the apartment, we will receive NIS 2,500 per month but from three tenants, which will give us NIS 7,500 monthly. Sounds tempting? Definitely! Is it worth buying? definitely not !! Keep in mind that most of the split apartments in the country have been split illegally, which may drag you between the operation and the conflicts to gain experience. In short – it is recommended to stay away! **
** Regarding the splitting of apartments abroad – the legality of this must be checked in each country and district. **
** Have you decided to buy an apartment for investment? **
** Find out apartment prices in the area. Check the income tax website prices of apartments sold last in the area. Check rental prices in the area. **
** Have you been offered to purchase an apartment that includes a tenant? Great, ask to see the current lease. Check that the contract is for 12 payments. Check if the landlord used additional services for the game, what includes the contract and what does not. Talk to the tenant (!) Try to find out about the rental market in the area – Do you see ads for apartments for rent for a long time? Is there a shortage or surplus of rental apartments in the area? What is the demand? Is immigration to the area positive or negative? **
** Remember! The seller may be dishonest, showing us a “false presentation” and you are right that he deserves to be punished for it, but when buying a property we invest the best of our money and the responsibility is on you! You need to check the deal and understand the net return you will get. **
** Have a great day **
** Ofir **
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