By the late 1990s the craze for investing in property abroad caught the imagination of seemingly every Brit with a pocket full of disposable income. Several years on, this craze has proved more than a mere phase, especially when it comes to emerging property markets. On any given day there are budget flights jetting around Europe full of Brits doing their property sums, planning on investing, desperate to get in on the act. So, is making money from emerging property markets like taking candy from a baby? Jump on a plane, investing in the first 'bargain' you see then lay back and watch the cash roll in? Er, no...

It's certainly not as simple as saying that established property markets have reached maturity and emerging markets haven't, hence you won't make money in the former but you'll make bucketfuls in the latter. And yet, generally speaking, property prices in the established favourites have increased by 50 to 150 per cent within the last decade, and prices in many emerging markets abroad haven't, so the potential is there and can be capitalised upon by a smart investor. But if you're to avoid being a speculator – someone who is making no money from assets in the present but hopes to make some in the future – and instead become an investor – someone who is genuinely making money out of their assets – there are some fundamental factors to consider.

Firstly, research key economic pointers. There are various indicators of a country's economic prospects, from inflation dropping to a healthy level to sustained growth in gross domestic product. Often, if actual wages increase then the domestic property market strengthens, and private home ownership increases. Admittedly, this is more typically the case in and around major cities but a growing urban middle class will also be in the market to snap up bargain resort properties. Strong fundamentals displayed by a hitherto stagnant economy could, in turn, attract direct investment, foreign companies and an influx of highly skilled foreign workers. In fact, this is generally what happens when a country joins the EU, but just because it happened when the EU expanded in 2004 it doesn't mean that it will happen again. In short, you have to get to know local market conditions and not make assumptions on the basis of what's happened elsewhere.

Secondly, improvements in infrastructure can herald a property boom. For example, low-cost air routes opening usually means an increase in tourism and, shortly thereafter, an interest in buying property in the area. The staging of big events abroad can also signal an improvement in infrastructure and, with it, publicity, which brings more tourists into a specific area – and the same cycle of tourists and homebuyers can be kickstarted. But even if you read all of the signals perfectly, you still can't rush in investing in the first property you see. The property will have to offer value for money, not just be cheap, and appeal to either holidaymakers, tenants or another buyer at some point in the future. As ever, when buying property abroad – whether in emerging or established markets – the mantra is: Right property, right location, right price, right time.

And when it is the right time for you to buy, make sure you manage your money properly. Investing in a property abroad will almost certainly require you to exchange pounds sterling into another currency. While the purchase price of the property is fixed, fluctuating exchange rates can make a huge difference to the price you finally pay – so it's wise to use a leading exchange company like HiFX. For example: A property in Bulgaria priced at Lev 500,000 would have cost £252,448 (Lev 366,049) at the beginning of December 2006. Due to currency movements, that same property would have been £8,172 (Lev 11,849) more expensive at £260,620 (Lev 377,899) just three months later. Hence, buyers are exposed to a foreign exchange risk between their offer on a property being accepted and the completion of the sale. People often overlook the currency transfer. However, it needs serious planning, especially if you are buying a new 'off plan' development where several 'stage payments' are required during construction.

Currency specialists like HiFX will give you a better exchange rate than the high street banks and can offer a number of options. Essentially, your currency strategy is semi-dependent upon whether you have access to all or part of the money at the outset. If you have full funds available, you have two choices: one 'risk free' and one 'high risk'. The 'risk free' solution would be to buy all of the euros (for example) now, thus fixing the cost at the outset (because you will not only know the price of the villa but also the cost of the euros to pay for it). This is called buying currency for 'spot'. You can then deposit the bought currency to earn some interest and send payments to the developer as requested. The 'high risk' strategy would be to buy the euros each time that you are required to send them to the developer. This means that you have no idea what the property is going to cost, which could induce some sleepless nights. But what happens if you want to 'play safe' but do not have all of the money at the outset? There is a solution that is used daily by international businesses to protect their profit margins: 'forward contracts'.

In essence, a 'forward contract' means that you can buy the currency now, and pay for it later (when you need to make the individual stage payments). You will be required to pay a 10 per cent deposit now and the 90 per cent balance upon the maturity of the contract. If the exchange rate moves at all in between paying the deposit and balance this will not affect you at all, as you have bought currency at the originally agreed rate. You may fix a rate on all your currency requirements up to 18 months in advance.

Remember: You would never agree to buy a property in your country of residence if you didn't know how much it was going to cost you. If you agree on investing in property abroad without fixing the exchange rate at the start, you are taking a gamble. Successful property investment abroad isn't about gambling, but about managing your risk by making intelligent decisions at the right time. So go ahead: Make a splash!

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Article published July 2007