** # Entrepreneur of the Week - Ofir Harari # Post 4 *** Yield Calculator and Yield Killer… **** Hello readers, Wednesday…
** # Initiated 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 in question (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 when selling 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 in accordance with the Excel check I performed, the cost of the property + brokerage + attorney + renovation taxes, 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 on Excel so I bought the property, it was a neglected house in a very ugly train building and low cost, 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 the rent, in terms of the rental price and in terms of the quality of the tenant. **
**B. I managed the property- i.e. every tenant's claim (and there were many) immediately phoned me, which caused me to mess and waste my time repairing, once it was a blockage in the sewer about an hour before Saturday, once the air conditioner stopped cooling and once in winter the solar water heater exploded That I managed everything over the phone and I will only mention that whoever replaced the boiler left on the roof the old boiler swinging and threatening to fall on someone foreign). **
**third. I came to know that there is no connection between the Excel spreadsheet 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 rental income) so I knew the term "yield killer" - the older the house = more wear and tear = yield erodes. **
** 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 I will refer to those investors who choose their investment according to the (high) fruitful return expected to be received on the property. **
** Many investors examine the investment proposals offered to them in the Excel table - 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. Excel does not lie, but the data can certainly change and tip the scales. It is important to check and verify the data that the salesman or apartment broker will present to you and the existing data in the field, 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 do not embellish the 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 6000 per month. The owner of the apartment can make a contract with the tenant for a rental price of NIS 6500, and in return the tenant will enjoy the first month free of charge; That is, in the annual calculation the tenant saves NIS 500, (6500 multiplied by 11 compared to 6000 multiplied by 12) and the property owner misrepresents a high yield to the buyer. As mentioned, everything looks good in Excel.**
** Similarly, the property owner can raise the rental price to the landlord and in return pay for him property tax payments, water, electricity, provide the landlord with TV services, a daily newspaper and more. Everything is good and beautiful, 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 will be lower than the return presented to him. **
** Similarly regarding you will pay property tax 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 is the real price and the guaranteed return is the real rent, be careful in this transaction and I have heard about properties sold at an exorbitant price and very high yields (rent) Than the real return. **
** In other words - the investor / buyer paid himself the return… transferred money from one hand to the other when the marketer stood in the middle and of course cut an oil coupon… **
** You can also find a relatively high yield 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 6000 monthly rent on the apartment, we will receive NIS 2500 per month but from three tenants, which will give us NIS 7500 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 can lead you to disputes and fines, among other things. 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 for recently sold apartments 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 whether the landlord should provide additional services to the landlord, what the contract includes and what 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, presenting us with a "misrepresentation" 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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Excellent post, thank you very much!
Thank you!
Thanks for broadening your horizons from your experience in the local market ????