Whether building a property portfolio worth several hundred thousand pounds – or several million pounds – it’s true to say every investor will have finite resources. Most likely your financial resources are limited, but so are other resources such as your time.
That means it is sensible to put your money (and time) into those property deals which will produce the very best return.
That’s simple in theory, but not always easy to do in practice. However, one of the best ways to ensure you put your resources into the very best property deals is to carry out careful analysis and thorough comparisons between the different deals you are considering.
What aspects of a deal should you compare?
Whether your project is a buy to let, a buy to flip, a light refurb or a major redevelopment there are several areas which offer useful comparables to help you analyse your property deals.
These include both financial and non-financial comparables:
Financial comparables to consider
Compare the returns each deal offers. Yield and ROI or return on investment are standard measures of returns that can provide useful comparables.
This blog post – What Is A Good Buy To Let Yield? – looks at exactly what yield and ROI are, and their uses (and limitations) as comparables.
Compare the profits each deal offers. You may find that examining profitability offers a useful comparison between deals. This might be monthly or annual profit per property after expenses, or perhaps longer term profit over several years to include capital gains.
When analysing these comparables bear in mind your investment objectives and the balance between them: If you are investing for income you’ll probably need a higher yield and/or profit figure. If you are investing for capital gains a project could be perfectly viable with lower rental returns.
Compare the cash outlay each deal requires. Including what you will require for a deposit, repair costs, fees and Stamp Duty etc.
Bear in mind that, for example, a property that is ready to rent will have very different financials to a project that needs work. While a larger project will have very different financials to a small one.
Also compare risk versus return: Larger projects may offer a larger return but will likely pose a larger financial risk. Smaller projects may offer a smaller return but will be safer.
Compare mortgage affordability – including rental cover and stress rates. Deals that only just meet mortgage affordability criteria may pose more risk but may offer much higher leverage. Deals that are well within affordability criteria may provide less leverage but will be more robust. A lower LTV mortgage may benefit from a lower interest rate which affects the financials and vice versa.
Other comparables for analysis
In any deal there will be factors that impact it that are not about money. But again, there are certain areas that provide comparables which allow you to contrast different deals:
Compare different types of property. For example, a one bed flat or a five bed house are very different propositions even if the financials are broadly similar.
Compare different local areas. Every area is different even where the financials might be similar. Aspects you might consider include how lettable or saleable the area is, or what the potential tenant/buyer profile of the area is. Also consider factors such as local schools, local transport services and crime rates.
Compare different local property markets. Again, every local property market is likely to be a different proposition, even where the area appears to be similar. You may wish to compare whether local prices are rising, falling or static. Is it a ‘hot market’ with good buyer or tenant demand etc.?
Compare other project risks. For example, are there any planning restrictions, significant local planning applications pending or perhaps council licensing requirements that involve extra costs or represent a risk to each project?
Here’s a useful blog post looking at What Property Investors Need To Know About Landlord And Property Licensing.
How to make property deal comparison simpler and more effective
Deal comparison is something that’s best not left to guesswork .... especially if you are trying to compare several possibly very different projects simultaneously. Ideally, you need to use a method that allows you to properly analyse the comparables.
PaTMa offers some tools that make it easier to compare property deals effectively:
PaTMa’s free Buy to Let Property Profit and Tax Calculator allows you to just input some basic numbers and then investment needed, yield, ROI and forecast monthly profit are calculated automatically.
PaTMa’s free browser extension shows you instant yield and ROI figures and local price and rent comparables when searching for properties using Rightmove and Zoopla.
PaTMa’s Property Prospector provides an extensive range of comparables for every deal. Not only that, it allows you to compare one or many prospective deals side by side to find the best.
Prospector instantly calculates the essential financial information you need for each project including yield, monthly and annual profit, ROI and more.
Prospector shows likely profit after tax per year for each project. It can also provide a five year profit forecast (before tax) including estimated capital gain.
Prospector analyses mortgage affordability too.
Prospector also shows you an extensive range of important information about each area. You can check and compare local price and rent comparables and demand trends. You can carry out analysis to see how schools, transport links and crime rates compare too.
Prospector is fully customisable to suit your own personal financial circumstances and investment scenarios such as buy to let, buy to flip and so on.
The benefits of deal comparisons
The benefits of comparing different deals versus not comparing them are many. Careful analysis and comparison can save you time and money. It can help filter out unsuitable properties, avoid expensive mistakes and maximise your chances of success. Above all analysing the comparables effectively can help ensure that, even where deals appear to be the same, your time and money always goes into the most rewarding investment.