Investing in real estate is one of the most time-honored and proven means of generating a substantial additional income, but only for those who know what they are doing. It really isn’t as simple as just purchasing property and waiting for the revenue to arrive.

It is, after all, a supreme demonstration of the old adage about speculating to accumulate. Or to put it more simply, a significant financial outlay is required before any monies are recouped, and therefore it is only prudent to develop a good understanding of the process and of the risks involved before proceeding.

Risk of Loss

To begin with, it is necessary to have an idea how much we are prepared to invest. As there is with any financial investment some risk of loss, it follows that any investment made should not exceed the amount that the investor is, in the worst scenario, prepared to lose.

Once this has been established, it would then be wise to learn the market. In each case find out about the location in which the desired property resides – are there are any statutory or other potential obstacles which might inhibit the maximum realization of the property’s potential?

Enhancement Potential

The next consideration is the enhancement potential of the property, with a view to maximizing its economic value. Typically investors will acquire premises which are in some need of modernizing or upgrading, which can be obtained at a lower price for this reason and then renovated and if necessary extended in order to fetch a considerably higher price.

Whilst improving a substandard property is the best option for making a profit on any premises, it needs to be kept in mind that in such a case a small or negligible profit is not really an option. A mark-up which does not reflect the time and effort involved in making the requisite changes is really a false economy.