Sam Leelee
Why would you buy investment property without seeing it?
The answer is simple. It’s a numbers game.
Whether or not you see the property before you make an offer isn’t nearly as important as making sure the numbers make sense.
Some investors constantly make offers on multiple properties at the same time, usually offering 15% less than the asking price on each one. Occasionally a motivated seller will accept the offer.
The investor never had to look at the homes beforehand. Including an “inspection and approval” clause in the offer means he could always back out of the deal later when viewing the property. Meanwhile, he efficiently identifies the truly motivated sellers.
This demonstrates that with a good clause or two in the contract, you don’t have to worry about making an offer before you see a property.
It’s true when you buy investment property or your next home. When it isn’t everything the seller says it is, you can reject the deal with little or no loss.
So why wouldn’t you want to look at the property?
Buy investment property by numbers
The main reason you might skip looking at a property before making an offer is time. This is certainly true if the property market is hot.
If you don’t get a price that makes sense, why spend your time to look at property investments? A good price and terms that make sense – this is what is important.
Of course, you’ll probably want to look at the actual property eventually, but looking at the numbers is how you invest.
Investors value income property according to current cash flow (or should if they want safe and viable investments), so start by verifying income. Get the actual income figures for the past 12 months. Always consider the potential income if rents are raised etc., but base your offer on the current income.
If you can’t find cash flow positive properties in Macau in the current market due to high capital values, you can also consider investing overseas markets such as the UK or Portugal.
Verify all expenses with investment properties. If any expenses listed by the seller seem unusually low, they most likely are. Just substitute your own best guess in place of any suspicious numbers.
After you determine the net income, calculate loan payments (talk to your banker), and see how much cash flow you’ll have. Then you can figure your cash-on-cash return based on how much of your own money you put into the deal. Just divide the cash flow by your investment.
When the numbers work, you can safely make an offer.
Inspections will tell you if there are problems that will affect the cash flow. You can always renegotiate if there are such problems (assuming you made your approval of all inspections a contingency of the offer).
Of course, you can even go take a look now that you are truly ready to buy that investment property.
Sam Lee is a marketing manager and property consultant at JML Property. JML was established in 1994 and offers Investment Property & Homes. It specializes in managing properties for owners and investors, and providing attractive and comfortable homes for tenants.
www.JMLProperty.com
info@JMLProperty.com
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