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Implementing a Profitable Property Investment Strategy

November 12th, 2009

Before investing in property, it is fundamental to set out a strategy congruent with your financial objectives. These aims depend on your individual circumstances. If you are looking to consolidate your income, cashflow is essential (rental income – costs). If your primary aim is to profit from the re-sale of property, then the key will be to invest in areas with good capital growth prospects and buying at prices below that of local comparable properties.

Here is a breakdown of the two elements which invariably form the cornerstone of any investment strategy:

Buying at a Discount

The discount on a property is the difference between the purchase price and the value of the property, usually based on a Royal Institute of Chartered Surveyors (RICS) valuation. The discount is an essential factor as it represents instant equity and, crucially, enables to drastically reduce the capital input when the right deal structure is in place. In current market conditions discounts typically range between 15 and 30%, depending on the number of units for sale and the motivation of the vendor.

Using Appropriate Finance

Finance is the backbone of the great majority of property deals. The most important components of a mortgage are the loan-to-value (LTV) ratio and the type and level of its interest rate (tracker, fixed…etc). A higher LTV reduces capital input (thanks to a larger loan amount) but decreases the cashflow (due to higher mortgage repayments). A lower LTV boosts the cashflow but raises the initial capital input.

Result: A High Return on Investment

  • Low capital input
  • Ongoing positive cashflow
  • Instant equity
  • Long-term capital growth prospects

A successful investment strategy generally entails buying properties below market value using financing options striking the right balance between initial capital input and ongoing cashflow. A well-structured portfolio provides a constant income stream as well as long-term capital growth prospects.

We wish you successful investing in 2009!

Alpha Property Investment Ltd

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