Recently, I attended an interesting Real Estate presentation that lasted many hours. It was supposed to be a segment of a larger seminar, but due to the interest generated, it was extended and it was packed with people wanting to know more. That presentation aroused my interest in Real Estate investment, and suddenly I see myself researching into the many different aspect of property investment, locally and internationally.

Looking back at the few property investments that I have made over the the years, I realised a few critical success factors, some of which I will share with you here.  

If you are considering using Real Estate Investment to generate Surplus Income for you and your family, you will need to consider one very important aspect of your investment, i.e. positive Cash Flow. You might be wondering, why is cash flow so important?

Well, the reason is simple, once the deal is setup , it requires little or no further monetary inputs from you, the investor. What do I meant by Positive Cash flow property investments? They are those property investments that bring in a higher rental yield than repayment requirements.

So, when you buy a property, you might want to structure your repayments to the bank at say $1,000 per month (or $250 a week - in some countries the rental is collected weekly). This means you should be asking $1,200 or more per month (or $300 per week) in rental return to make sure that your property gives you positive cash flow. The extra $200 per month (or $50 a week) can be put towards reducing the mortgage and it  will lower or shorten your overall payments in the future.

When you purchase a property with positive cash flow, you will more likely to hold it through the tough times when economical growth slows. This is because you have a certain margin built in. So, even during bad times, when your property did not provide you with much capital gains, your cash flow will help you pull through the tough time and gain equity faster.

The other thing you should look closely at is the maintenance cost during the life of the property investment. Do a careful calculation before purchase. Allowances for increases in these costs should be calculated into your budget or forecasted returns. With the recent inflation and high cost of commodities, the maintenance cost would likely be going up for most properties.

When you buy your investment property, the purchase price is far more important than the future selling price. This is very true because the future selling price can only be speculated upon whereas the initial purchase price is known at the time of purchase. Most gains can be realised at purchase. It is here that you based your calculation of the return vs cost. 

It may be difficult to know which particular properties to invest in when you first starting out in real estate investment. You see many people making money from real estate , and you know that there is money to be made, but sometimes you are concern about the risk - Will the property price drop after I buy due to some unforseen circumstances? Well, the answer is that you can make a good income if you are able to choose the right real estate investment. Yes, the right investment is very important. There are ways to determine if the investment is a good one.

The first thing you must consider is the market value of the property. This is more than just the appraisal value on the valuation report. The valuation can sometime be wrong, you need to know. Just because the property is valued at $330,000, doesn’t mean you will get that price in the open market. The market value is the actual amount the property will fetch you in the market right now. This could be tens of thousand dollars less than what the valuation actually says.

To determine the market value, you will probably need to do your research, in some countries, you can get in from the statistics board website. Otherwise, speak with a professional real estate agent, who is familiar with the area you are looking to purchase your property in. Find out how much  comparable properties have been selling for, not what they have been listed for. You will also need to know the selling price of the other equivalent properties in the past few months. Choosing the right real estate investment also means knowing what is in demand.

Yes, there are many other areas and aspect of property investment (such as its location, the quality of the developers, traffic convenience, nearby amenities etc..) that you will need to understand and properly researched in order to choose the right property investment that will help you generate  positive Cashflow and add to your surplus Income.  

Kelvin T.