A decision checklist for real estate investments

What you will learn

• How to turn the course content into a written, step-by-step decision checklist
• How to compare direct property, REITs, open-ended funds and crowdfunding on the same criteria
• How to run a simple stress test with the debt service coverage ratio (DSCR)
• How to set personal go/no-go limits before you look at a specific offer

Explanation

A checklist protects you from deciding under time pressure or because a property "feels right". Write your limits down before you view any property or read any offer, then test every opportunity against them. The calculations themselves were taught in earlier lessons; here they become decision rules.

Step 1: Purpose, horizon and liquidity

Write one sentence on why you want real estate: a home to live in, rental income, diversification, or inflation protection. Then note your horizon and when you might need the money. Direct property and open-ended funds suit long horizons; listed REITs can be sold daily but fluctuate strongly.

Step 2: Choose the vehicle

Step 3: Concentration and reserves

Calculate the share of your total assets that would sit in property after the purchase, and the cash reserve left over. A single flat financed with a large loan can easily become most of your wealth. Set your own limits in advance, for example a maximum property share and a minimum reserve in months of expenses.

Step 4: Income after all costs

Use net figures: rent minus non-recoverable costs, a maintenance reserve and an allowance for vacancy. For indirect vehicles, use AFFO, the fund's distribution history and the total cost ratio. Never start from the gross yield in an advert.

Step 5: Stress tests

The debt service coverage ratio (DSCR) compares income with loan payments: DSCR = net operating income ÷ annual loan payment (interest + repayment). Below 1.0 the property does not pay its own loan, and you must top up from your salary. Test at least: higher interest at refinancing, several months of vacancy, and a large repair. For listed shares, test a fall in property values of 10–20% on NAV.

Step 6: Exit, tax and documents

Write down how you would get out: sale, holding to maturity, redemption notice or exchange sale. Note the tax treatment (lesson 12) and check the key documents: purchase contract and land register extract, prospectus or KIIS, key information document of a fund.

Step 7: Decision and review date

Record the decision as "go" or "no-go" with the reasons, and set a date to review it. A "no-go" is a valid result of a good process.

Worked example

Hypothetical example: A household has net assets of €150,000, all in savings and ETFs. It considers a rented flat for €300,000 plus €30,000 purchase costs, using €60,000 equity and a €270,000 loan at 3.8% interest and 2% initial repayment. Rent is €13,200 per year; non-recoverable costs and maintenance reserve are €1,800. The household's own limits: property at most 60% of gross assets, DSCR at least 1.0, and at least €30,000 remaining reserve. Taxes are excluded.

1. Annual loan payment = €270,000 × (3.8% + 2%) = €15,660.
2. NOI = €13,200 − €1,800 = €11,400; DSCR = €11,400 ÷ €15,660 ≈ 0.73. Monthly top-up = (€15,660 − €11,400) ÷ 12 = €355.
3. Stress: at refinancing the rate is 2 points higher (5.8% + 2%). Simplified on the original loan amount: €270,000 × 7.8% = €21,060; monthly top-up = (€21,060 − €11,400) ÷ 12 = €805.
4. Concentration: other assets after purchase = €150,000 − €60,000 = €90,000. Gross assets = €300,000 + €90,000 = €390,000; property share = 76.9%.
5. Reserve: €90,000 remains, above the €30,000 limit.

Result: the reserve test passes, but DSCR (0.73 < 1.0) and concentration (76.9% > 60%) fail. Decision: no-go for this flat. Alternatives: more equity, a cheaper property, or indirect exposure through listed shares or funds within the 60% limit.

Common mistake

Practice activity

Hypothetical: you have net assets of €200,000 and consider a €250,000 flat plus €25,000 costs, using €75,000 equity and a €200,000 loan at 3.5% interest and 2.5% repayment. Rent €12,000 per year; non-recoverable costs and reserve €1,500. Your limits: property at most 60% of gross assets, DSCR at least 1.0, reserve at least €40,000. Apply the checklist.

Key takeaways

• Write your purpose, horizon and limits before looking at any offer.
• Compare vehicles on liquidity, price behaviour, control and diversification, not only on yield.
• DSCR, concentration and reserve tests give clear go/no-go answers; stress them with higher rates and vacancy.
• A documented "no-go" is a successful outcome of a good process.

Next step

To continue your learning with a very different asset class, take the next course, "Crypto Beyond Bitcoin: Ethereum, DeFi & Stablecoins".