By Tim Wright
When looking to invest in property itís always important to
take a structured approach to ensure you get only what you are
looking for. Over the years Iíve developed the following
structure and Iíll always stick to it so that I know I have
done all the homework necessary to make a sound investment and
reduce any potential risk to a level Iím comfortable with.
Step 1 - Research Research Research
This is possibly the most important aspect of any investment
decision. When I talk about 'researching' a potential
investment, what I mean is to do all the necessary homework to
find out if the investment is right for you and if it will
provide the return you're looking for.
Sometimes it is tempting to overlook research and maybe follow
a tip from a friend on a potential investment. Many people
don't do research because they don't know where to find the
required information and so they may make a blind investment,
hoping on good returns. Even worse, they may put off making
decision (to invest or not to invest) and stay stuck in
procrastination while the asset starts to show strong growth.
So what needs to be researched before investing in property?
Location - such things as the population, main industry, main
employers, future investment in infrastructure, tourism, local
Property prices - average, median, recent sales, potential
rental returns, previous and predicted growth.
Tax and ownership laws Ė country and state laws,
occupier/investor tax rates.
There may be more areas you need to research depending on your
situation but the main objective here is to carry out the
research to a level you are comfortable with. You can never do
too much research.
Thorough research will give you peace of mind to make
Whatever you are trying to achieve, someone has already done
before and the information is out there. It may be in books,
newspapers, special reports, published on the Internet or
available from real estate agents. You can find the
you need to make a confident investment decision.
Step 2 - Know your Numbers
Note: This step primarily deals with rental returns and does
not take a propertyís annual appreciation or depreciation into
Before investing in property itís important to do the numbers
What you can afford to purchase
Purchase and ongoing upkeep costs
Potential rental returns
Monthly cash surplus or deficit
Once you know all of these figures you can then decide how
you can afford to spend within your budget, what rental return
youíre looking for and whether you will gain a monthly cash
surplus or if you will need to contribute towards its monthly
So what are the common numbers to know and calculate?
The Purchase Price
Purchasing Costs Ė items such as Stamp Duty, legal fees, real
estate agentsí commission, legal fees.
Rental Income Ė If the property is rented to tenants, how much
rent can you charge?
Ongoing Costs Ė Management Fees, mortgage repayments, repairs
and maintenance, letting fees, Municipal or Council rates.
Net Return Ė this is the end result once you have accounted
all of the income and expenditure and it will show if you will
have a cash surplus or deficit.
The more properties you calculate returns on, the better idea
you will have of what is available in the market to suit your
requirements. Youíll also protect yourself from any surprise
costs. Itís wise to be conservative with your calculations and
maybe add in a contingency amount.
Please remember, there may be more costs you need to factor
into your calculations according to your situation
Step 3 - Create your Criteria
Before you go shopping for your investment property itís
important to know exactly what youíre looking for so that you
buy a place that suits your requirements. The best way to do
this is to create a list of certain criteria that a potential
property must meet.
You may choose to be stringent on some of the criteria such as
a set limit for the purchase price but then you may be a
more flexible on other criteria like accepting $10 less than
expected weekly rent.
So what would you include in your criteria? Here are a few
Town population no lower than 10,000
Expected rent at least 7% of the purchase price
Brick house on land, no more than 10 years old
Initial repairs to cost no more than $1,000.
Whatever criteria you choose is up to you but it gives you
control over what you buy and will certainly decrease the time
you spend looking for a property. From carrying out your
research and working out the numbers you should find it easy
create your criteria. Now you can go and buy the property
right for you.
Step 4 - Property Insurance and Management
Like any investment, we always look to minimise the risk of
loss or damage and itís no different when it comes to
There are a number of ways to do this including taking out a
suitable insurance policy and finding the right property
Whether you buy a property to live in or rent, it is
potentially at risk for various reasons and so you can insure
the property against these risks. Insurance policies can cover
you for loss in the case of structural damage, theft, flooding
and many other instances.
Landlord insurance policies are also available for extra cover
of instances such as malicious damage, legal fees, loss of
etc. So shop around for the policy thatís right for you.
If you are buying a holiday home or a rental property you
consider employing the services of a Property Manager. The
of a Property Manager is wide and varied and a good one can
save you a lot of time and money.
They can find new tenants, arrange to have your property
cleaned, collect rent, keep an eye on your property, pay your
bills out of incoming rent and much, much more. Finding the
right Property Manager will pay off rather than choosing
someone who wonít look after your property the way you want
Itís important to shop around to seek out the best Property
Manager and you can do this by asking the right questions. A
good Property Manager will communicate regularly with you and
be available to address any concerns you might have.
Additional measures to secure your investment include the
neighbourhood watch, security alarms, window locks and smoke
Step 5 - Tracking your Investment
Once youíve invested your hard earned cash youíll want to know
how itís performing and what sort of return youíre getting.
Again, weíre only going to look at rental returns rather than
growth as the growth is only speculative.
Every month you should keep all receipts of income and
expenditure concerning the property. This includes:
Statements from the Property Manager
Bank mortgage statements
Receipts for repairs
Payment receipts for Municipality or Council rates
Any correspondence regarding the property
All we are doing here is tracking the income and expenditure
we can see what the return is. By tracking the figures
you can see how your investment is performing and this
information can then be filed with your annual tax accounts.
Your accountant will be able to advise you on what extra
records to keep ensuring you get the best annual deductions.
And thatís the final step to Successful Property Investment.
All it takes is one step at a time to become familiar with the
process and although there are many other ways and processes
advocated by many other investors the end result is ultimately
to leave you empowered to make the correct investment choices.
About The Author: Tim Wright is an international property
investor and regular article contributor. He is the author of
"Bulgarian Property - The Overseas Buyers' Kit available at