Apartments in Tallinn

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 management and operations of such a property.

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 alot of patience, knowledge and research. Knowing when and where to buy, knowing what the likely rental return is, understanding the needs of your potential tenants, reviewing the supply and demand for such a property are all things crucial to a successful investment. Be sure to do your homework!

Budget

When you have established the type of property you wish to invest into, its location, size and correct time to purchase, the next step should be a budget forecast. You do not need to do major number crunching, just a simple plan including total costs, interests and fees, any furnishing, equipment or work necessary as well as any 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 investment 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! Regardless, you must always remain calculating, if the property does not add up, then move on to the next one. Never get hung up on one particular property. 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 you are looking to let the property, 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. 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!