** # Entrepreneur of the Week -Ophir Harari # Post 4 *** Calculation of yield and the murderer of returns… **** Hello readers, Wednesday…
** # Initiated week - Over Harari # Post 4
Calculating yield and killing yields… ****
Hello readers, Happy Wednesday! Today we're going to talk about a return!
Many investors choose to invest in real estate because of the stability of the thing (the real asset) and because of the yield - income **
** When it comes to real estate, income is divided into two: fruity income and capital income. **
** Permian income is the monthly income we will receive as a result of rent for our property. **
** Income is the income we 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 purchased a residential apartment in a city in northern Israel, the case was long before I had the knowledge I currently have and you can actually say that I learned a lot from this case. **
** I purchased the apartment in accordance with the Excel inspection I conducted, the cost of the property + brokerage + attorney + renovation taxes, etc .. On the other hand, calculating my expected return by doubling my monthly rental by 12. **
** Of course the property I purchased showed a handsome return on Excel and therefore I purchased the property, it was a neglected house in a very ugly and low cost railway building, what I did not take into account was that:
A. It took me a few months to find a tenant– and the more stressed I was at finding a tenant (I had to pay for the loan I took out) I was more flexible in terms of collateral for the rental, in terms of the rental price and in terms of the quality of the tenant. **
** B. I managed the property– that is, every claim made by the tenant (and there were many) immediately phoned me, which caused me to mess with and waste my long time repairing, once it was ceded in the sewer about an hour before the Sabbath , once the air conditioner stopped cooling and once in winter the sun heater exploded and I was asked to replace it (of course I managed everything over the phone and just point out that whoever replaced the boiler left the old boiler dead and threatening to fall on the roof).
** C. I realized that there was no connection between the Excel table and what actually happened - I reached zero returns and a lot of tinkering and wassle of time and money (air conditioning replacement = rental income) so I knew the concept of “return killer” - the older the house = More wear and wear = the yield eroded greatly. **
** I ended up “getting rid” of the same property and the only reason I finished investing in profit is the increase in real estate prices that year… **
** In this post I will refer to those investors who choose their investment according to the fruity (high) 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 therefore come to the conclusion - to buy or not to buy. **
** Let me open your eyes on this matter. Huxel does not lie, but the data can definitely change and tilt the scales. It is important to check and verify the data that the salesperson or apartment broker will present to you and the existing data in the field, And to carry out what is called “market research” (ie, checking the prices of similar apartments, monthly rents in the area, development of the municipality, etc.), you must calculate and examine all the expected expenses in purchasing the property (including a lawyer, mortgage advisor, appraiser, taxes, etc.) and not beautify the reality and examine the expected return we will receive (it is recommended to calculate by 11 or 10 months of rent per year only) and decide whether the transaction is right for us. **
** Unfortunately, there are interested parties in the market who wish to beautify reality and show a higher return than in practice, through sophisticated manipulations. It is important for me to note that these same marketers can do so by selling an apartment in Israel, in the US and basically anywhere in the world (unfortunately fraudsters exist in every field and everywhere). **
** I will give a simple example of this kind of manipulation: Eli owns an apartment rented for 6000 NIS per month. The landlord 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 an annual calculation the tenant saves NIS 500, (6500 times 11 vs. 6000 times 12) and the property owner misrepresents a high return to the buyer. As mentioned above, in Excel everything looks good. **
** Similarly, the property owner can raise the rental price for the landlord and in return pay municipal taxes, water, electricity, provide the landlord with TV services, a daily internet 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 will be lower than the yield presented to him. **
** Similarly regarding you will pay taxes and more… **
** There are companies that guarantee you at the time of purchasing the property a guaranteed return for one year or more, in these transactions it is necessary to check that the price of the property is the real price and the guaranteed yield is the real rental , be careful in this transaction and I have already heard of properties sold at an exorbitant price and on yields (rent) that are very high than the real yield. **
** In other words - the investor / purchaser paid himself the return… Transferred money from one hand to the other with the reseller standing in the middle and of course cutting an oil coupon… **
** Relatively high yield you can also find in split apartments. There are apartments that have been split into two (or more) apartments, which increases the monthly yield received, that is, 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. Sound tempting? Definitely! Is it worth purchasing? Absolutely not !! It should be borne in mind that most of the apartments split in Israel have been illegally split, which can lead you, among other things, to disputes and fines. In short - it is recommended to stay away! **
** Regarding the fragmentation of apartments abroad - the legality of this should be checked in each country and province. **
** Have you decided to purchase an investment apartment? **
** Check apartment prices in the area. Check the IRS website for recently sold home prices in the area. Check rental prices in the area. **
** 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 is not. Talk to the tenant (!) Try to find out about the rental market in the area - do you see ads about rental apartments for a long time? Is there a shortage or surplus of rental apartments in the area? What's the demand? Is immigration to the region positive or negative? **
** Remember! The seller may be dishonest, misrepresenting us and you are right that he deserves to be punished for this, but in purchasing a property we invest the best of our money and the responsibility is on you! You should check the transaction and understand the net return you will receive. **
** Continue a great day **
** Ophir **
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