Learn some basic real estate maths  

Calculating a home’s potential to generate a profit will give a clear picture of how well a property performs as an investment, helping you decide whether it’s worth holding onto, selling or upgrading.
Explaining it in simple terms, Adrian Goslett, the regional director and CEO of RE/MAX of Southern Africa, says a return on investment (ROI) calculation helps homeowners evaluate how much income the property can generate compared to the costs of owning it.
“This is an important calculation if you plan to use the property to generate rental income, now or in the distant future,” he notes.
The first thing to do is to determine your total investment cost.
“Start by adding up all the expenses related to the property. This includes the purchase price, transfer fees, bond registration costs and any renovations or repairs done before you start renting it out,” says Goslett.
Next, find out what you can charge in rent – a local real estate professional will help you here.
“Once you know what you can charge in rent, multiply the monthly rental income by 12 to determine the total income for the year. For those who already have a tenant, if the property was not fully tenanted throughout the year, adjust this figure accordingly,” says Goslett.
Then, you must account for ongoing costs like rates and taxes, insurance, property management fees and maintenance. Subtract these from the annual rental income to get your net rental income. To get an ROI percentage, divide your net rental income by your total investment cost and multiply the result by 100.
Example: Assume you buy a property for R1 500 000, spend R50 000 on renovations, and incur R75 000 in transfer and bond costs. Your total investment cost is R1 625 000. If the monthly rental income is R12 000, the annual income is R144 000. After deducting annual expenses of R24 000, your net rental income is R120 000. Using the formula: ROI = (120 000/1 625 000) x 100 = 7.4%. This means your investment generated a 7.4% annual return.
“You typically want the ROI to be higher than inflation. A strong ROI indicates a profitable investment, while a low ROI might signal the need for adjustments like increasing rent or reducing expenses,” Goslett explains.
While ROI is a valuable metric, Goslett also stresses considering other factors like property appreciation, market trends and the economic climate.
“It is always advisable to do regular research by consulting your local property professional to ensure your investment strategy remains on track,” he concludes.