Before you buy: five numbers every South African property investor should run

Good property investments are usually decided long before the viewing. They are decided on a spreadsheet, by investors who know which numbers matter and are disciplined enough to walk away when those numbers do not work.

1. Gross yield

Annual rent divided by purchase price. It is the quickest filter and the most misleading if used alone, because it ignores every cost of ownership. Use it to discard obvious mismatches, not to make decisions.

2. Net yield

Annual rent minus rates and taxes, levies, insurance, maintenance, management fees and an allowance for vacancy, divided by the total cost of acquisition. This is the number that tells you what the asset actually earns.

3. Monthly cash flow after finance

Rent received minus all monthly costs including the bond repayment. A property can have a respectable yield and still cost you money every month. Know which situation you are buying into, and whether you can carry it.

4. Interest-rate sensitivity

Run your cash flow again with the interest rate two percentage points higher. If the investment only works in today's rate environment, it is a bet on rates rather than a property decision.

5. Total acquisition cost

The purchase price is only part of the cost. Add transfer duty or VAT as applicable, conveyancing and bond registration fees, and any immediate repairs or furnishing. Check current transfer-duty rates on the SARS website; they change from time to time.

None of these calculations is complicated. The discipline is in running all five, honestly, for every property on your shortlist. Our rental yield calculator on the Property & Real Estate page is a good place to start.

TLR Corp Insights · Sandton, Johannesburg