Real estate investment can be a very lucrative business. However, there are a number of points that you need to consider to achieve the maximum return and success out of this venture, and these cover several areas.

FINANCIAL

The first step is deciding upon the financial commitment that you will be making to the venture. It is important that at least part of the starting capital for the business comes from your own funds and you will need to decide how much this will amount will be. Lenders charge a high premium for taking all the risk. Similarly, whilst the commonly held belief is that property always appreciate in value, recent financial and mortgage markets events have shown that this is not guaranteed to be the case. Therefore, your investment has to be capital that you can afford to risk, not funds that you might have put aside for children's education or another similar reason.

The next step is to produce a financial plan. With this plan it needs to be borne in mind that the costs of real estate investment do not only include the capital purchase price. There may also be monies needed to improve the property and, if you are intending to rent the property out, the cost relating to this aspect will need to be included. Added to this will be all the legal and other charges.

Because of the cost of property it is likely that you will require some external funds in the form of borrowings to assist with your funding levels. It is essential in this respect to ensure such borrowings are of a manageable level. For example, do not borrow up to the maximum possible in the belief that your property will be rented out from day one and at the rental premium you desire. Similarly, do not borrow on underestimated improvement costs as this could lead to you making a loss on sale because you have not been able to achieve the standard of improvements required.

Make sure that any borrowings are cautious and that you can afford the repayments from the capital set aside from the business as well as a conservative estimate of the revenue you are hoping to achieve.

PROPERTY SELECTION

For the sake of this illustration, let us assume that you have a total capital facility of $500,000 to invest. Armed with these funds, do you go out and invest in a $500,000 property? The answer is definitely not! For a start you need to take into account all of the fees that purchasing a property attracts and, secondly, you need to remember the need for working capital to fund

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