Real estate or property investment is something I have been extremely passionate about for a number of years. I've done a number of courses, networked with other property investors, and bought and managed property all over the world. I've made some mistakes and learned from them, and gone on to be an even better property investor.

I love chatting to people about property, but many have shared that they have an overwhelming fear of property investment and see it as being risky. I felt motivated to write some hubs, demystifying the property investment industry, providing some real “meat” for people investigating the business for themselves. These are applicable wherever you live in the world, regardless of whether you’re specialised in residential property in the UK, UK buy to let properties, Brazilian investment property, or US investment property.

So don’t get ripped off by generic property courses that promise to make you a real estate millionaire in 6 months.  There are some disciplines and systems involved in property investment (like so much in life), and if you follow those, you will pretty much succeed in property!

This is the first of a number of hubs I will write, providing tried and tested information, systems and practical techniques you can actually use to reduce the risk and to gain some tools to see whether the particular property investment is actually a “good investment” or not.

These are the reasons I love property investment and why I think property is such a unique place to invest compared to things like shares, bonds and mutual funds.

I Can Compare it

I need to be able to compare the property with other investments. By looking at the true rate of return I will be able to do this. I need the right tools to be able to calculate the correct net yield, time to break even to be able to measure objectively if the investment is worthwhile. The best tools are the spreadsheets and I’ll be making these available to all my readers shortly.

I can change it

I have complete control over how I use the property, I can develop it, change its use, subdivide it, add to it, rent out parts of it, and even live in it myself.

A large house for instance, can be lived in by the owner, rooms can be rented out separately and the garage can be converted into a separate flat or business suite for rent.

I can analyse the deal BEFORE even getting into the investment

By using basic formulas and sticking to a property strategy, I know exactly what I am getting into right up front. There is a large amount of predictability in property investment. There are a lot of good, inexpensive property investment software and calculators available, which can be used to plot the results of a selection of variable outcomes. This will reduce the investment risks hugely. In the property investment industry, this is a very important stage; (Does the investment “stack up”?)

There are Amazing Property Bargains available right now

If I know how to look for them and are armed with the figures I need, I’ll know the maximum price to pay for a property. This gives me an incredible amount of bargaining power and control when I go to view the property and negotiate the price.

I can control it

I cannot control politics, inflation, interest rates, changing trends or global corporation’s behaviour, but these radically impact any investment or share portfolio. With property I have a lot more control over how I react to changes in the economic environment. I can sell when I want to and even release equity if needed via remortgage.

I can Manage the Risk

By planning for a variety of predictable outcomes, I can minimise the risk of the property investment. This like interest rate hikes, and damage can be prepared for and minimised. I can insure against most of the risk to safeguard your investment. With most other investments I can't do this and I have to rely on someone else managing the risk. I can calculate the "what if" scenarios by using my property formulas which I’ll share with you in a later hu

I control the financing, the timing, and can even negotiate the mortgage rate downwards to enhance the profitability.  This takes some know-how, but banks can be remarkably helpful when you know how they think.

Property is inflation indexed

The capital as well as the income is linked to inflation. It is the only investment (apart from your own business) where I can index my capital, as well as my income against inflation. As an example; if a fixed deposit earns 10% per year and inflation is also 10%, your real return is 0% (actually less than 0% cause you'd pay tax on the income). For property, if the rental income increases every year by 10%, and the value of the property increases by 10%, the real return is 10% which is much better than 0%!

It is easy to outperform general averages on property

The stock-market requires specialist knowledge and strategies to outperform the average. There are massive fluctuations in the value of shares, both up and down, but the return can still be very mediocre. Often it's just a matter of luck. With property, it's not a matter of luck, but rather skill for finding below market value property and property management. If you find a bargain and exceed the average by just a few percent, your true rate of return is maximised. The graph for property is gradual and stable, not erratic like shares and other stock market instruments.

Property has perpetual succession

Unlike pension funds, property ownership does not necessarily cease when you die; it can be passed on to your children and can continue to earn an income and build their wealth.

It is a tangible asset

It's called Real Estate for a reason! Banks say that cash in the bank is safe, but look at Lehman’s and Bear in the US and RBS in the UK. Nothing is 100% risk free not even money in the bank.

You can improve the investment with very little cost

Property is one of the few investments where by changing the nature of the property; for instance house into flats, subdividing, rezoning, cleaning up and cosmetic work, I can greatly improve the value.

I can negotiate

With property one can negotiate with almost every participant: with the seller (price), the agent (fees), the bank (term, rate and credit limit). You can even negotiate the amount you pay back and this can enhance your investment flexibility. Eg interest-only loan, or overpaying, or an initial rate discount for say 2 years.

I can predict Economic Cycles

Economic cycles are predictable. Exactly when they happen is not, but the pattern is pretty predictable. By understanding this and timing your strategies properly, you can gain great benefit. Buy when others are selling. You can act against a cycle when it suits you, or with a cycle when it is on the way up.

The market price of a property is usually not the true value of a property.

This is a secret property investors understand, but most people don’t.  So it’s worth saying again; think about it...the market price of a property is usually not the true value of a property.

Market prices go in cycles, depending on supply/demand and host of other factors. Greed and fear play a big role in this cycle. If you can understand this and buy below market value, you will immediately have made a profit in this cycle.

I can use other people’s money

Using other people's money is one of the principles of property. Although banks are no longer throwing money at you, banks still prefer to lend you money against a real asset. The current tight lending situation will change soon. You do not even need a deposit – there are ways to get this together, see my later hubs on how to do this.

I can gear up

Remember gearing/leverage is a “multiplier of your money”, but can also be a multiplier of a bad decision if you make a bad investment choice based by not looking at the numbers.

I can use other people's efforts

Property is a completely scalable investment.  In other words you can grow the business, and you don’t even need to be there.  You can use qualified and respected agents worldwide to manage your investments for you.

Even Bad Investment Decisions can turn out ok

Unlike with shares and mutual funds, even a bad investment decision can often be solvable. With a share you have 3 choices, buy, hold, sell. With property you tend to have lot more choice.  If you struggle to rent it to a particular target market, you can change who you market to, as you have a choice of rent to young professionals, seasonal corporate lets, family lets, students, rent by room, rent to retired folks.

But you can also change the mortgage, develop multiple income streams off one property and repackage what you are offering to make it more attractive to renters.

I can get multiple income streams off one property

Take the emotion out f how you look at property.  Think to yourself, “How can I practically generate extra income off this property?”  Then brainstorm and write down the ideas that come to you, even the crazy ones!  Think laterally; let the creative juices flow.

Possibly consider:

• Subdividing a large room into 2 and rent out both rooms
• Adding a loft for extra room space
• Renting out your parking bay or garage if you don’t use it
• Renting out any extra storage space.

These are just some basic examples, but there are loads of them.  I have a friend who saw on old pub in London, which wasn’t doing very well, even though it was in a very good area with lots of demand.  It was too “old school” and completely outdated, but it had loads of space and plenty of rooms upstairs above the pub.

He renovated and ended up with a smaller much modernized pub, a gastro-pub restaurant area, Thai take away which was open late into the night.  You then sub-contracted out running of each section to a separate specialist company.  In addition he rented out the upstairs rooms as serviced apartments.  Talk about multiple income streams!  So you get the idea?

I can easily get hold of my money

A lot of people would say that property is an illiquid investment. That their money is “tied up in property”. This can be the case, but if you buy wisely and ensure that you buy below market value property, you will find that you will have an almost immediate surplus of “equity”. (Equity is basically the difference between your mortgage on the property and the market value). Provided there is sufficient equity the bank will be comfortable lending you extra cash, borrowed against this equity.

Well I hope you’ve found this useful! I will shortly be writing more about property, so link up as a fan, if you want access to those tips “hot off the press”.

Forthcoming Hubs:

• How to find the right property.
• How to find a property that puts extra cash in your pocket each month.
• Finding below market value property

• The secret formulas every property investor needs to know.

• Click here to find cashflow positive property deals that pay for themselves immediately!

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