Real estate is one of the main vehicles of investment. However, different investors have different approaches to their property investments. Some may buy a property and rent it out straight away. Others may choose to renovate and live in it a while before they flip it over. Whatever the approach, investing in bricks and mortar is a tangible way of creating wealth. For example, a cyberjaya property might be just the thing that can fire up your investment journey.
Here are some golden rules that you should consider before you take the plunge into the world of property investment.
1. Know your budget
Before you fork out any of your hard-earned cash towards property investments, it is vital that you have a thorough understanding of your own cash flow. Have a sound financial plan with clearly though-out budget is key to any successful investment endeavor. Furthermore, you can also check with financial institutions for pre-approval of housing loans. That way, you will know your margin of financing so that you can plan your property purchases ahead of time. Knowing what you can afford is one of the first steps when hunting for prospective properties.
2. Don’t underestimate ongoing costs
Some investors get caught up in the prices that they forget to pay attention to the hidden costs. Make sure there is room in your budget for rates, insurance and also general maintenance and repairs. You can gain some admirable foresight by planning for these things in your budget. This works out in your favor when these issues inevitable arise further down the line. Also, purchasing your ideal investment property is only the start. You need to plan regular upgrades to prevent costly repair issues arising, such as replacing ageing hardware that will inevitably break down after years of use.
3. Buy in a growth area
Look before you leap. Similarly, think before you buy. Doing some research on potential areas of growth can help you out in the long run. Try to choose investment properties in areas where there is a strong, growing demand for rental accommodation. Don’t forget that the sacrosanct economic concept of supply and demand will dictate your future rental prices. Furthermore, investing in a property that has close access to amenities and public transport will give you an edge in marketing your property to make it more attractive to renters.
4. Be realistic
Whether you are looking to invest in property for fast capital growth or if you want to hold the property long-term, you need to be realistic about your investment goals. Think about it. During periods of economic boom, it’s much easier buy a property, renovate it and end up doing a lipstick flip for a quick profit. However, during recessions, it may take you twice or thrice the time needed to pull of the same achievement. Thus, take other factors into account when investing in property, whether for the short-term or long-term.
5. Build sweat equity
The property you’ve purchased and seek to rent or flip is bound to need some repairs or upgrades. Paying people to renovate your investment property can end up being a costly affair. Why not work your own sweat into your equity? Roll up those shirt sleeves and get your hands dirty with the work yourself. You can save some money by doing the work yourself – not to mention increasing your profit margin.
6. Think livable not luxury
While it’s alright spending some money on essential upgrades and repairs, don’t spend too much on things that are unnecessary. Remember that a rental property need only be clean and functional. Don’t put money into a property investment unless you know it can add to the value of the property. Also, don’t get sucked into buying a property simply because it has a stylish interior, this can end up adding up to enormous costs.
7. Buy with your head not your heart
House hunting can require a lot of emotional investment. Of course, if you’re buying your forever home, it pays to be emotionally connected to your purchase. However, a rental property is the exact opposite. Keep the emotions at bay when hunting for a property for investment. Be sure to think with your financial head rather than your emotional heart. Weigh out the pros and cons of the purchase soundly before you make any big decisions.
8. Think carefully or end up negatively geared
If you have financed your property investment via borrowing, you need to be sure that the repayments on the loan can be covered by the rent. Otherwise, your property will end up being negatively geared. While there are certain tax advantages to this, the financial stress you face will be enormous if you don’t have enough cash flow to cover the loan repayments, as well as the rates and fees. Thus, take all foreseeable factors into account before dipping into your savings to finance property investments.
9. Think about your debt levels
Ideally, an investment purchase works to build wealth, and not get you tied up in more debt. While having your own fully paid off can be a plus, it isn’t necessary. What’s important is that you need to be comfortable with your current debt levels before buying any investment property. You should have all your debt under control. The best case scenario would be to have a large portion of your own home loan paid off. Deal with your outstanding debt, such as credit cards or study loans, before you sink your funds into another potentially debt-incurring endeavor.
10. Get a building inspection
Before you sign any contract for purchase, analyze and understand the building report thoroughly. This helps you avoid extensive and expensive repairs that might be needed in the future. Watch out for potential red flags, such as termite infestations or structural issues. Keep an eye out for these potential problems to avoid jumping into a dead-end hole.