Choosing Holdings

Choosing which type of property you would like to hold is the first question a potential landlord should ask him/herself. The choices range from residential property ownership (such as city apartments or suburban houses) to commercial space ownership (such as offices and retail spaces). Some landlords prefer to build a portfolio of land holdings, such as forest land or agricultural land and buildings. Whichever route you choose to take, be sure to understand the general operations of that property type as owning your own property portfolio can be a challenging, yet rewarding business to get involved in.

Do Your Homework

Once you have decided which type of property you are going to hold, be sure to research the property field well before visiting any banks or viewing any objects. Being a successful landlord takes a certain amount of patience, knowledge and forward-thinking approach. Knowing when and where to buy, knowing what the likely rental yield is, understanding the supply and demand for such a property are all things that are crucial to a successful investment. Be sure to do your homework!

Budget

When you have established the type of property, its location, size and correct time to purchase, the next step should be a budget forecast. You do not need to do any major number crunching, just a simple plan including total costs, interests and fees, any furnishing or work necessary as well as any other one-time or repetitive costs. Compare the projected income generated from renting the property to the costs and see if it is still worthwhile continuing.

Shopping

After you have done the research and budget forecast, go to a few local banks and ask for offers on the required capital (if financing is needed, of course). Compare the offers' interest rates, fixed rates and terms for most attractive offer and get the favoured offer agreed in principle. Now it's time to go shopping!

When searching for property, it is important that you view objects mainly with your head and not your heart. However, it is important to remember that if a property doesn't "feel right" to you, it will almost certainly not "feel right" to a prospective tenant or buyer either!

Make a check-list during your search and short-list those properties that score highly. Having a few favourite properties on the short-list to compare is advisable.

Yield

If wishing to let the properties, it is wise to work out the "net" yield as opposed to the "gross" yield. Net yield tends to be used by professional investors as it calculates the profitability of a property more accurately. Net yield is calculated by removing the annual costs from the annual rental income, and then dividing this figure by the property value.

Net Yield = Annual rent – Annual Costs / Property Value.

Example: Annual rent is 6,000. Maintenance costs are 500. Property value is 100,000, the sum would then be:

Net Yield = 6,000 - 500 = 5,500 / 100,000 = 0.055 which is the equivalent to 5.5%

Net Yield = 5.5%

Use this or other yield calculations to work out which of the short-listed properties would be the smarter investment.

The big decision

Now it's time to make the decision whether to buy or not to buy. There is no sure way of telling if the investment will turn out for the best as there are many variables that are not within your control and that will affect the outcome. If your calculations are correct and your research is complete, you will most likely be making a good property investment. Good luck and come back to us should you need any help!