What do you need to consider when buying income property?
The risk profile of the property should be comprehensively assessed as part of a "due diligence", i.e. a simple consideration of the gross yield (annual rent : sales price x 100) is certainly not sufficient. This involves a large number of assessment steps, which are only presented as examples in the context of this blog.
Essential examination steps could be, for example:
- Location analysis: SWOT analysis with assessment of future development opportunities.
- Examination of income levels: are these in line with the market or is an over- or under-rent to be considered?
- Quality of the property: construction quality in general, defects and/or damage, maintenance backlog, assessment of management costs
- Quality of the tenant structure: assessment of income security
- Legal assessment: examination of contractual relationships
- Tax assessment: comprehensive examination with presentation of exit strategies
The information gathered is often presented in various scenarios: Base, Worst and Best Case Scenario.
