The Deal Is In The Details
Bali Property Report
Pay Attention to the Numbers When Coming Up with a Price
The only reason to buy a single-family home as an investment is to make money with it. And you can’t make money if you don’t have a tight handle on your expenses. And too many buyers do not put sufficient padding to cover the costs of converting a home from resident-owned to a rental property. Here are some things that buyers miss.
Licenses and Zoning
Pay attention to the details of the paperwork also. While a well-crafted Buy & Sell Agreement will protect your deposit in the event that due diligence falls over, why bother going down that road a crafting an agreement if the paperwork on the villa does not meet your standards? Standards for “acceptable” vary, and you and you agent need to make sure that your standards and the government’s standards have been met. Is your IMB permanent? Is your Pondok Wisata license OK for renewal? Does the zoning on the certificate line up with your intentions for using the property? What is the current status of the annual Land and Building Tax? Ask these questions early in the buying and save yourself a bit of disappointment. And then use the answers to adjust your assessed value of the property accordingly.
Property Management Fees and Real Operating Expenses (OPEX)
Uninformed investors can overlook taking into account the property management fee, and/or fail to realize that this fee is negotiable. Since you may live out-of-state or simply elect to let somebody else handle the renting, collecting and maintenance of the home, you will be paying a property management company to do this work for you. And that’s a significant amount of money in fees. Make sure you have this taken into account or your budget will be very far off.
Even after you have hired a management company to look after the asset, the expenses are still yours. Set a threshold for discretionary spending for ‘at-once’ fixes that you are comfortable with. Any expenditure over that amount needs to be approved in writing after the work has been put out to some form of tender. It is no skin off the management company’s nose if you are overpaying to have your decks re-sealed or roof repaired.
Reasonable Repair & Maintenance Estimates
One problem that some home investors get involved in is to underestimate the repair and maintenance cost of the house they are investing in. One formula that has proven fairly accurate over time is that you should set aside $10 for every 1 square meter of home size as the repair and maintenance budget. For example, a 150 square meter home would have a repair budget of $1,500 per year. Again, this is just a guideline, but it will definitely get you in the ballpark – and is much higher than what a first-time home owner will estimate.
Be sure to use proper estimates in constructing your budget or you may find that you have no way to hit your budgeted rates of return. Since the price you pay is based on the assumptions of net income, if you do not budget correctly for expenses you will most certainly overpay for the home.
Call Patrick for a chat today on Whatsapp +62 817 973 3031; [email protected]