12 Buy and hold (rentals) Flashcards
(42 cards)
What is the main idea behind the ‘buy and hold’ investment strategy?
Buying a property and renting it out while it appreciates in value
What are the two primary ways to make money from rental properties?
- Capital appreciation (capital gains)
- Positive cashflow returns
What is a residential rental property?
A home leased to a tenant in exchange for rent
Give examples of residential rental properties.
- Single family houses
- Duplexes
- Flats
- Units
- Apartments
What defines a commercial rental property?
Real estate leased to a business
What types of commercial properties exist?
- Offices
- Retail sites
- Industrial sites
- Hotels and motels
- Caravan parks
List some other types of rental properties that don’t fit into residential or commercial categories.
- Self-storage facilities
- Rural and farm land
- Vacant land
- Retirement accommodation
- Holiday accommodation
- Public housing
What does capital appreciation refer to?
Profit from an increase in property value over total acquisition, holding, and selling costs
What is the common mistake investors make regarding capital appreciation?
Many investors buy, hold, and hope for market increases without proactive strategies
What is the secret to manufacturing capital gains?
Add more perceived value than actual cost
What drives price growth in the property market according to the text?
Scarcity, not location
What is the 1 Per Cent Rule in property investing?
A formula to determine the minimum return on investment by adding 1% to the interest rate you can borrow at
What are the four steps of the 1 Per Cent Rule?
- Determine borrowing interest rate
- Add 1% to the borrowing rate
- Calculate target property’s ROI
- Compare property’s ROI with the 1% Rule
What is the formula for calculating Return on Investment (ROI)?
ROI = Annual rent / Purchase price
What should you do if the property’s ROI is greater than your 1 Per Cent Rule?
The project is likely to have positive cashflow and can progress to further due diligence
What assumptions underpin the 1 Per Cent Rule?
- Borrow 80% of purchase price on interest-only loan
- 7% of annual rent for management fees
- 2.5% of annual rent for repairs
- 5% of annual rent for other costs
How can you create a positive cashflow property?
- Pay down debt
- Increase rent
- Use multi-step investment strategies
- Rent out by the room
What is an asset in accounting terms?
Something that generates income when used
Fill in the blank: The two ways to profit from rental properties are _______ and positive cashflow returns.
capital appreciation
True or False: A commercial rental is a home to a business.
True
What is the primary focus when applying the 1 Per Cent Rule?
To filter properties for further investigation
What is the weekly rental income generated from the six-bedroom house?
$700 per week
What is the positive cashflow return after costs for the property?
$600 per month
What was the rental appraisal for a single tenant renting the property?
$290 per week
