Key Financials

Key Financial Indicators

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Financial indicators to consider when looking at a property investment and what they mean.

Rental yield

This is the rental expressed as an annual percentage of the purchase price. A key indicator in demand for accommodation in an area and often a leading indicator of capital growth.

Deficit / Shortfall

This is the amount that you will be funding the investment with. This takes the rental and deducts all the costs involved. This investment premium should reduce annually and is partially tax deductible. Deposits may be utilized to reduce these contributions.

Potential IRR

The internal rate of return is a calculation of the annual return of a cash flow projection. This takes the inputs of a cash flow followed by the outputs and provides a figure which is the effective return on the cash flow inputs. The IRR is based on various assumptions.

Key Concepts and Principles

Gearing

Gearing is a word used to describe a form of financial leverage. It is the process of using a limited amount of cash, plus a facility from a financial institution to a acquire assets. When these facilities are used to acquire an income generating assets that may appreciate, much wealth can be created.

Rental

rental incomeThis is the cash flow generated from the acquisition of a fixed property. Often omitted from real return calculations of fixed property by analysts. It is a fundamental error which adds to the fact that property is an under analysed investment class allowing for increased arbitrage opportunities.

Location, Location, Location

May well be the golden rule in commercial and retail property, but not residential property. In Sirius’s view the number 1 rule is Price, Price, Price. In a perceived good area if one pays double the average price this would probably not be wise. In a perceived bad area to pay half the average price would surely be a gem!

Average’s

If the All Share Index rises 2%, not every share climbs 2%, some may go up 40% and others down 40%. Yet property is basketed too broadly – largely due to lack of information. The property market is very under analyzed and many arbitrage opportunities exist as a result

More links

Where does Sirius fit in?
Key Financial Indicators, Concepts and Principles
Seven good reasons for investing in a second property the Sirius way
Structure, returns and Risk