Find The Right Property To Invest

Finding the right property to invest.The hunt for an ideal investment property can take much time and effort. Then, when you finally find a great deal, you might want to leverage on other people’s money to increase your investment returns.
How to calculate return on investment.
There are two components of returns :
1. Rental Yield per annum 
2. Capital Gain.
Rental yield per annum is the percentage return based on rental income from the property less expenses incurred to maintain the property versus the total purchase price of the property.Here is a simple method to calculate the rental yield on property investment.Assuming you purchase a property for RM650,000 inclusive of legal and other related costs, receive rental income of RM3,800 per month, and in turn, incur total expenses of RM5,400 per year to maintain the property.The Gross Rental Yield would be calculated as follows: RM3,800 x 12 = RM45,600 per annum rental income (RM45,600/RM650,000) x 100 = 7.02% per annumThe Net Rental Yield is computed as (RM45,600 - RM5,400)/RM650,000 x 100 = 6.18% per annumAssuming you take an interest-only loan of RM500,000 to finance the property purchase, and the financier levies an interest cost of 6% per annum fixed for the entire financing tenor. The loan will be repaid on maturity of the financing facility or when the property is sold if it’s earlier. The annual interest cost is RM30,000Net Leveraged Rental Yield takes into account your property financing in calculating the rental yield. In this scenario, your capital cost is the difference of purchase price and your borrowing (ie, RM650,000 - RM500,000). (RM45,600 - RM5,400 - RM30,000)/RM150,000 x 100 = 6.80% per annum.
Capital Gain , on the other hand, is a one-time gain (or loss) when you sell your property. It is calculated by subtracting your original purchase price from the selling price.
Finding Caution: Do note the example above does not take into consideration taxation. You should consult your tax accountant to determine any potential tax liability deriving from such property investment. What to look for in an investment property – location, type, rental returns.A great investment property is one that meets your investment objectives such as your target rate of return, investment time horizon and any other criteria you might have. Main determinants of property value include:Location - this should be assessed with the target market in mind to determine whether there will be demand by the target market for this location. Also research the historical rate of property value appreciation in that particular location for similar properties.Property type and size dimension- residential and commercial properties each have their peculiarities, and dependent on the location, attracts different tenant profiles. Rental Returns - find out how much rent the property can fetch by researching the rental values of similar properties in the area, and ascertain the estimated costs to own and maintain such property.Cash flow - evaluate the property's potential to generate income as against cash outflows. Obvious preference is to have the investment property cash flow positive as soon as possible. 4* Total Return comprises net rental income and capital gain over the fiveyear investment horizon; computed using the internal rate of return formula Personal Fund(s) Leveraged Rental (Net) Yield per annum 6.18% 6.80% Total Return per annum* 11.11% 23.52% Following the same example above, if you were to sell the property 5 years later for RM850,000, the capital gain would be: RM850,000 - RM650,000 = RM200,000 one-time gain, or (RM850,000 - RM650,000)/RM650,000 x 100 = 30.77% over the original purchase priceTaking in to account the leverage (borrowing) effect, the Leveraged Capital Gain would be (RM850,000 - RM650,000)/RM150,000 x 100 = 133.33% over the initial capital The total return yield from an investment property is the rental yield plus the capital gain over the investment tenor.