Property Investment VS Traditional property purchase

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The fact that you are visiting our website would suggest that you understand the potential of property as future investment and in particular want to take control of your finances by building a portfolio of properties to provide for a secure retirement.

Through our experience with clients however we concluded that whilst many people understand the investment power of property, they tended to view property investment through the same eyes as they would a traditional property purchase – an understandable, though potentially expensive mistake.

Consider the following example:- Mr and Mrs Jones have $100,000 to invest as do Mr and Mrs AsiaTax and they have both decided to invest in the same area.

Mr and Mrs Jones take the TRADITIONAL approach which is to look for properties within their budget.
They purchase a property for their $100,000 with a view to letting it out during the 12 weeks peak holiday season, They will achieve a weekly rental of %400

Therefore they receive an annual rental income of $400 x 12 = $4800
As the property was purchased outright there are no mortgage payments so the $4800 per annum is profit.

Assuming a moderate figure of 8% per annum as the capital growth in the property value After 5 years
The property would have a realistic value of $146,930 of which the profit is $46,930

5 years rental income of $4800 represents profit of $24,000
Total gross profit $70,930

They were very pleased with their profit, but let us now look at how Mr and Mrs AsiaTax get on with a more modern approach to property purchase.

Mr and Mrs AsiaTax understand the principles of property investment and take a different approach. They become PROPERTY INVESTORS.

They understand the concept of “geared” investment and decide to invest their capital in “off plan” property.
They have also decided to invest $100,000 but understand 2 key points.

1/ off plan property is marketed at the developers “incentive price” to encourage take up of the off plan project and in all probability a property costing $100,000 would have a current value in the region of $120,000 to $130,000 were it available as a completed property.

For this illustration we will assume it would be worth $120,000 if completed.

2/ Off plan property can be purchased usually with an investment of around 30% of the purchase price, with nothing further to pay until the property is completed. However, the majority of developers will reduce this figure to 20% or 25% for multiple purchases. For the purposes of this example we will assume a 2 year build period and the investment required is 25%.

Therefore, their $100,000 fund allows them to invest in 4 off plan properties at $25,000 each, although it could have been possible for them to purchase 5 properties with the same amount of capital by negotiating a 20% deposit.

2 years later the properties are completed and the balance of the purchase price has to be met by securing a Spanish mortgage which is far easier and less expensive than one secured in the UK. There is often pre arranged mortgage on offer with the constructors bankers although AsiaTax will help to secure you the very best value.

The combined mortgage costs for the 4 properties would be $1,475.98 pcm or $17,711.76 per annum. Please bear in mind that for the purposes of this illustration we have assumed a repayment mortgage over 25 years.

Assuming the same rent is secured over the same 12 week period as Mr and Mrs Jones then the annual rental income is $4,800 x 4 properties or a total of $19,200 per annum of which $1,488.24 is profit.

Over the same 5 year term (2 build period and 3 once completed) and assuming the same moderate 8% growth, each property would have a value of $176,319 of which $76,319 is profit

4 properties with this level of profit equates to $305,276

Together with 3 years rental profit of $1,488.24 = $4,464.72

Total gross profit $309,740.72