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How to Properly Analyze an Investment Property (the Key Numbers to Consider)

People from anywhere in the world have a common trait. No matter what the product, the words “on sale” attract everyone (especially my wife, but that’s another story).When it comes to real estate, it’s no different. The phrase “you make money when you buy, you realize that money when you sell” continues to ring true. The challenge is being able to spot that good deal which stands out amongst many poor or mediocre deals.For the purposes of this article, let’s focus on finding a deal on a rental property.Keeping your properties fully occupied with good tenants creates good cash flow. If you have ever owned properties with high turnover, high maintenance and therefore high management, you will appreciate importance of the following checklist I use before I reach for my calculator.You must understand the areas you are buying in. This can be the difference in having a low stress property with reliable tenants or lots of bounced cheques and many trips to the property and your local rental tribunal.1. Employment – must be an area that attracts good working people with local employment opportunities or jobs within a reasonable commuting distance.2. Schools – having elementary and high schools in the area will attract more families. Families will typically stay put longer when there are children going to the local schools.3. Amenities – the property should be close to shopping and restaurants as well as easy accessibility to the main thoroughfares.4. Crime – obviously you want your property in a low crime area. You can check with the local police station as well as ask people in the area about the crime rate.5. Future building – this can be good or bad. If the area is growing and there is new housing development happening, box stores and schools being built, that’s great. If there is a nuclear plant, jail, low income housing projects etc., that’s probably not so great.6. Parking – there must be enough parking to accommodate your tenants. Parking issues are one of the main forms of complaint received by the municipality, so it’s best to stay off their radar.7. Vacancy rate – you can check with the latest CMHC reports as well as local realtors regarding vacancy rate. This rate has a lot to do with the previously mentioned factors.8. Real estate cycle – determining where you are in the cycle should determine if you are buying, selling or waiting. As mentioned previously, the fact that you make money when you buy and realize it when you sell comes down to where you are in the cycle.Getting the above information can also be gathered by checking with the local City Hall as well as talking to renters and homeowners in the area. They are often upfront and honest about any negativity in the area. Visit the area at different times of the day and evening to get a clearer picture.In general, try to choose your properties in middle to lower income areas where tradesmen and possibly some businesses might reside intermingled with houses. You also never want your property to be the worst-looking one on the street as you will not have a huge desire for your property. If you choose a property which visibly needs maintenance, you need to have a budget to correct these issues as soon as possible.Now let’s crunch some numbers. Doing a full property analysis where all income and expenses are calculated is crucial but time consuming. I only engage in the full analysis once the property has passed the “litmus test” as it were. These 3 calculations can be done in minutes and will gauge whether any further number crunching is necessary.The 1% Rule: monthly rents should total 1% of the purchase price. (Factor in any initial repairs into your purchase price)Example:A property for $100,000 should get $1000 per month rent. Therefore a $250,000 property should receive $2,500 per month. If it rents for more than this, you have found a nice cash flowing property.This “rule” has some factors surrounding it. If the property is in a solid area with low vacancy and good economic factors, then accepting slightly less than 1% may be fine. If the property is in a less desirable area, you may want to consider 2% as your standard.Gross rent multiplier (GRM) = market value divided by the annual rental income (The lower the percentage, the better) This calculation allows you to calculate the price you should offer based on the comparable GRMs in the area.Example:A recent comparable sold for $400,000 with an annual income of $36,000. $400,000/36,000 = 11.12%If others in the area were 6.84%, 7.58%, 9.82% and 5.4%, you add these up and divide by 5 (the number of examples you are using) to get your area average. In this case 40.76/5 = 8.15% as the area average.To determine a fair purchase price, take the gross income on the property you are looking at and multiply by (in this case) 8.15%.Let’s say the gross income on your property is $37,800 annually.Calculate GRM x gross annual income. So, 8.15 x $37,800 = $308,070.This is the price which makes sense for the area based on the gross income the property is generating. When calculating this, be sure to note what economic rents are. These may be more than what the subject property is generating and using these numbers may increase your purchase offer amount.Cash on cash Return = annual NET income divided by your cash invested (downpayment, closing costs, initial repairs)Let’s say the purchase price is $250,000. So 20% down is $50,000; closing costs are typically around 1.5% of the purchase price which equal $3,750 plus HST in many provinces, so let’s say $4,200 for closing. Let’s also put in $5,800 into repairs to make it an even $10,000, plus the down payment so you are in a total of $60,000.Let’s say the property meets the 1% rule and generates $2,500 per month. In this example, the tenants pay their own water, heat and hydro, so you must cover:Mortgage = $1,052/month (based on a 4.00% rate for this example)Property taxes = $250/monthInsurance = $98.00/monthVacancy = $125.00/monthMaintenance = $125.00/monthExpenses total $1,650/month so your NET income is $2,500 – $1,650 = $850/month or $10,200 annually.Cash on cash return = NET income/ cash invested, so ($10,200/$60,000) x 100 = 17%. So you are making 17% on your cash invested per year which improves over time as your equity increases.These calculations should be used as consideration for a property purchase. It is necessary to do your full diligence and complete property analysis with actual numbers prior to making any purchase.

Buying French Property – How Much Tax Do I Have to Pay?

When buying a property abroad – whether you will be living there or simply spending holidays or the odd weekend there and renting it out for the rest of time – it is important to know what your tax situation is so that you don’t get hit with any unexpected tax bills.France is no exception. This article will run through the main taxes in France and help explain how they work and if they might affect you.Tax:If you are domiciled in France, you will be taxed on your entire income whether it be from French or foreign sources. It does not matter what nationality you are – if you spend more than 183 days per year in France you are considered as French domiciled and still taxed on your world wide income.For those not domiciled in France, you are still liable for any income from French sources; this includes rent from letting out your property and any income derived from working in the country. The authorities in both the country in which you normally reside and France will be interested in your earnings and if it is above a certain threshold you could be liable in both countries unless there is a double tax treaty between the countries – as exists between all EU members and many other countries. However it is very important to notify the authorities if you are making a permanent move to France before the event in order to take advantage of this treaty.It should also be noted that in France taxes are not deducted using the PAYE system as in the UK; each individual must fill in their own self assessment form whereby taxes are paid the year after in which the income is earned (years run from January 1st to December 31st). To do this, you must first register at the “Centre des Impots” which is the local tax centre.Income tax:This ranges from tax levied on “earned income” which is a progressive tax to tax on “unearned income” such as investment income based on interest from bank accounts and property yields. A separate tax is levied solely on gross rental income if you let out your property in France.France still strongly favours the family unit and there are distinct advantages in terms of reduced tax liability if you are a large family as tax is assessed on a household basis. If you are married and/or have children in the family, you pay less tax as there are more dependants; this is called the “quotient familial”. There are also other allowances such as those for childcare and domestic help all of which go towards making large families in France pay less tax than anywhere else in Europe.If you are unmarried or united only by the PACS agreement (see more about PACS below), then you are likely to pay more tax than married couples – not just with regard to income tax but also inheritance tax.Property tax:There are two property taxes in France: taxe foncière and taxe d’habitation.Taxe foncière is paid by the property owner regardless of whether you live there or abroad – but there is an exemption for two years for newly built properties.Taxe d’habitation on the other hand is paid by whoever occupies the building at the time: hence if it is rented out it is paid by the tenants.Both taxes are similar to UK council tax and are paid the year following the rental period with special allowances for retired residents and derelict properties.Capital Gains tax:This tax is paid on the profits of any property which has been sold, including jewellery, securities, shares and real estate. However, fortunately there are no taxes to be paid on the sale of your principal residence but only on sales of additional property. People who rent their main home are exempt if they sell their second home as well as those who have owned the house for 15 years or more.If a property is sold within two years, then it is subject to 33.3% capital gains. However, this falls by 5% a year and is multiplied by an index linked multiplier of the eventual sale price of the property until 15 years are up. If there has been some renovation to the property, however, the cost can be offset against the profits as can legal and agency fees.Inheritance tax:The system in France is very different to that which you might find in England or anywhere else and it is advisable to talk to a tax advisor BEFORE you buy your property in France to prevent future burdens on your family or partner.Whether you are a resident or not in France, you will still have to conform to french succession law and your family will still be liable to pay inheritance duty in France upon your death. It is also important to note that French succession law will not allow for you to leave out any of your children in favour of your spouse and will ensure that they get their share.There are however, a number of different ways to minimise their burden depending on your situation, for example:- A very popular and useful way of lessening your relatives’ inheritance tax if the tax in France is greater than it would be in your home country is to form an SCI which is a property holding company. The property in question can be divided into shares and these shares can be distributed as you wish with the result that any future inheritance tax on the property will be subject to the laws in the country in which you are a resident. It is also a good solution for those in a complex family situation living with people who are not members of their family. Shares can be freely given to a partner or children whereby inheritance tax will be avoided if done at least 10 years prior to death of the owner of the shares.- For married couples who wish their half of the property to go to the surviving spouse, then the “clause tontine” is a good option. It is like a joint tenancy agreement and essentially suspends the ownership of the property until either spouse dies so that the entire property is owned by the surviving spouse. They will, however, still have to pay inheritance tax on half of the property.- Another way to ensure that your half of the property in question goes to your spouse is to make a change of the matrimonial regime so that your properties are no longer separated. You must have been married for at least two years and prepared to pay some legal charges but it will mean that the surviving spouse will only pay 1% tax on the property as “registration duty”. This system can get complicated if there are children involved from current or past marriages as they still retain certain rights to the property and legal advice should be taken.- In 1999 a new contract called PACS was also brought in under French law giving certain benefits to same and different sex couples which were not previously available. These inheritance and fiscal rights are not as beneficial as those available to married couples but are certainly an improvement on the previous situation.Wealth tax:This is a tax levied on assets that exceed 720,000 Euros and covers a wide range of assets to include your property and bank balances amongst other things. If you are resident in France but not domiciled there, then you will only be taxed on what you have in France. If domiciled there as well then the tax applies to your entire fortune all over the world.For other articles on buying French property, see

How to heat water with solar panel?

The use of coal contributes to the formation of poisonous gases and environmental pollution, and that’s why people are looking for an alternative sources of energy. In the face of the challenges of climate changing, we are faced with the need to look for alternative energy sources to reduce environmental pollution. One of them is the use of solar energy in the form of solar panels mounted on the roof. They can be used both for heating domestic water and supporting central heating, or can be used as a photovoltaic source of electric energy. From my post, you will learn how to use solar heat and solar panel to get cheap hot water for the own household.

Solar panels

Solar collectors are in the form of mirrors with very large surfaces or a structure consisting of vacuum glass tubes. Panels are mainly installed on the roofs of houses. They catch the rays of light, thus accumulating the energy needed for conversion into thermal energy.

Such a process of accumulating heat is possible thanks to the absorber placed behind the glass or in a glass tube. It absorbs energy from the sun and is connected to a system of copper pipes. The heating-up solar liquid, propylene glycol solution, flows through them, from which the heat is transferred to the utility water.

Benefits of solar thermal panel

The advantages of solar collectors cannot be overestimated because their installation allows, in a completely ecological manner, to obtain heat necessary to hot tap water and to support central heating. Another advantage of solar panel is that they are working without polluting the environment.

Their third advantage is energy efficiency. Solar thermal panel meet up to 70 percent of the annual demand for thermal energy, which is needed to heat domestic hot water, especially in the months from March to the end of October. In the summer, a properly selected solar panels set will cover up to 100 percent of the demand for domestic hot water.

Another advantage of solar collectors is the convenience of their use and trouble-free operation. Correctly mounted on the roof solar panel, will require maintenance around one time per one-two years. Solar panels are versatile devices that can be installed on the roofs of single-family and multifamily houses, as well. Installation of solar panels will increase the value of your house. Now, when you know more about solar panels, you can decide to use them or not. If you are house owner, it is worth to take positive decision and install solar panels or PV panels.