The three generally accepted reasons for Property Investment are:
:: Yield
Cashflow should be analysed to compare specific properties, and types of properties to assist in your planning and your decision to purchase. You can use either Gross Yield or Net Yield.
Gross Yield
= (Weekly Rental x 52 weeks) divided by the Purchase Price.
Net Yield
= (Weekly Rental x say 48 weeks - to allow for vacancies) less operating expenses (Rates, Insurance and an allowance for Maintenance) divided by the Purchase Price.
It is essential that you can calculate the cashflows (Income less Operating Expenses & Debt Servicing) of your business to see what positive or negative impact the business will have on your personal income.
:: Taxation
You are buying a business when you purchase an Investment Property. The start-up costs and operating expenses of that business are offset against the income generated by your business. However, there are additional deductible expenses known as Non-Cash Items.
Depreciation of both the Dwelling and the Chattels of your investment property are also deductible from your income to calculate your Taxable Income.
