What do you need to consider while buying an Investment Property?

What do you need to consider while buying an Investment Property?

Posted on November 20, 2019 by Mirren Property Investment

Investing in real estate is often considered wise. If you take a look at the top 1% wealthiest people in the world, you’ll see that most of them started investing in real estate to build their wealth before they even owned the giant companies they own now. Therefore, it just makes sense for us to find real estate a worthy first investment. However, just like all kinds of investments, there isn’t always a guarantee of a significant return.

To succeed in your real estate investment, you have to think strategically. And because there’s a lot to consider when choosing and purchasing your property, you have to be patient and brave to take a few calculated risks. 

People who don’t take their time to learn about investing are missing out a lot on a great opportunity. It’s not that people don’t have the money, most who think of investing, have the money, but are not committed enough to put time and effort in learning about real estate or do not take the first step to engage with an investment properties expert.  

Why Invest in Real Estate? 

Before the stock market and gold even existed, the land was the most sought after possession in ancient times. Today, we can all agree that real estate is perpetually evolving. As technology creates modern customers, their needs also change, real estate is no exception. As an investor, you have to learn to adapt. You have to seek ways to improve your properties not just by having a sturdy roof or clean bathroom.  

Buying a property for investment can feel intimidating for the average person. For many, purchasing a property can be a substantial financial risk, something they may not afford, especially if they’re low-income and living from paycheck to paycheck. However, if you have money to spend and a good source of income, it’s the best investment option for you. Despite being pricey upfront, real estate investment remains the fastest way to build wealth in our time. 

Although other forms of investment such as fixed deposits or gold are much less risky, they don’t guarantee an increasing rate of return every year. For time deposits, you’ll also have to wait for years before you could spend your funds. Are you thinking of investing sometime soon? Here are things to consider: 

The Cost of Owning a Property

As one of the most significant financial decisions you’ll have to take in life, you need to rethink all your business goals before prioritizing an investment. Do you have enough deposit to buy a property? What kind of investment loan can you afford right now based on your income? It’s essential to know the real cost of owning a property. 

Source: imf.org

As shown in the image above, the sad truth is that most house prices have grown higher than most people’s incomes. If you can’t afford to pay outright, you can buy a home by paying a deposit which is generally around 20% of the original price. There are also other options, such as a loan application fee or a lender’s mortgage insurance if your deposit is less than 20%. 

That’s not all. Real estate investment comes with many expenses. You also have to take note of government charges, legal and conveyancing costs, as well as tax, communal fees, building, pest, inspection fees, and more. For people already owning a property, you might want to check your equity and see if you can secure additional finance from your lender.  

You can also try borrowing from your bank, and that’s if your bank will lend you money. When you’re starting a new business and have no stable income, banks may be hesitant to loan you money. If you have a job and have been working there for a few years, it’s most likely that the bank can lend you money. 

Location 

A good location is another incredibly important factor in choosing your investment property. Many people think there’s a criterion for a suitable location; however, it’s very subjective and can vary from one investor to another.

First of all, you have to consider what kind of property are you trying to get and what buyers you’re trying to attract. Are you planning to turn the property in an available rental home or a peaceful holiday house? As a property investor, your decision will significantly impact how much money you could make in the short and long term. 

Your location will also help you decide the appearance and amenities you may want to build on your property. It will also reveal your home’s price growth potential. If you buy a property in areas under development, your house might increase in value in just a few years. Similarly, if you buy properties in regional areas, you can also take advantage of its affordability and lifestyle perks. 

When choosing a location, it’s not just the present that matters, but the future as well — research about public infrastructure plans in your area. Find out government buildings, transportation, or hospitals are planned on being built in your location. 

Is the property near a college? Is it located in a good community? Is there an increased demand for apartments during this time of the year? Location is the first important thing to consider when evaluating your potential investment, simply because you cannot change the location of your property once bought. 

Type of Property

After deciding on the location, you can now pick a suitable type of property you want to buy. Even though residential investment properties is the right choice, renting out single-family homes can be difficult. Aside from they require more maintenance (especially if they have yards), your only income for that property would be your tenant’s payments which have to cover the expenses of your mortgage, insurance, and taxes. It also has to be occupied at all times. Otherwise, you’ll be losing a significant amount of money.  

Aside from residential investment properties, you can also opt for commercial properties. Commercial properties are rented out to businesses who may need spaces for their stores, office, or warehouse. 

Types of Residential Property

  • Single-family home – house for one family
  • Multi-family home – a kind of house that has separate living spaces and can house two or more families
  • Apartment building – building with multiple apartments of varying sizes. 
  • Condominium – a kind of building which has shared spaces and amenities, most have a gym, pool, lounge, and dining facilities. 
  • Townhouses – These are residential investment properties that tend to come in rows of identical houses. If you own a townhouse, you can live in one home and rent the other one for passive income.

Diversify

Another essential thing to consider is diversification. Diversification has always been a part of a healthy investment portfolio. Want to know some tips to grow your investment property portfolio. It’s even more critical today due to the fast fluctuations in the real estate market.  

Today, it’s not just essential to locate a property within your price range or in the location you want. You also want to purchase a property that will look good on your investment portfolio and will most likely give you a healthy return on investment if you decide to rent it out. 

In real estate investing, you shouldn’t allow yourself to become too fixated on specific property types or areas. Since the real estate market is continually fluctuating, it’s crucial to have a broad range of property investments in your portfolio, preferably in different locations too. 

Don’t think you can afford more than one property right now? You can always opt for buying cheap property for the price of two. It will depend on your current investment strategy and your skills as an investor. Investing in different properties help you diversify and not put all your eggs in one basket. In the long run, diversification will reduce risk and even increase your returns. 

Understand the Current Real Estate Market

Of course, it’s also important to understand and have knowledge about the current state of the real estate market in your location. If you’re selling during a recession, then don’t be surprised if you’re not having the easiest time. If you have the money, it’s better to hold that property and sell it until you can have profit. Here are some tips to make your investment properties profitable.

For this reason, you should also look for properties with high resale value. What kind of properties are always in demand and can be easily bought regardless of the current state of the market. When looking for properties to invest, look for these first and treat them as your priority.

The Bottom Line 

Real estate investing is a long-term investment, so don’t expect to get rich overnight. Smart property investors who succeed are those who can use their resources wisely and be patient when it comes to generating their income. They’re the property investors who know how to manage risk and decide strategically before investing whilst ensuring the highest possible returns. 

References:

https://www.investopedia.com/financial-edge/0410/the-5-factors-of-a-good-location.aspx

https://www.imf.org/external/research/housing/

https://www.yourinvestmentpropertymag.com.au/buying-property/five-things-to-look-for-before-investing-in-regional-areas-268137.aspx

https://money.usnews.com/investing/investing-101/articles/why-diversification-is-important-in-investing


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