10 Golden Rules In Property Investment
10 GOLDEN RULES IN PROPERTY INVESTMENT
Here are 10 golden rules to consider before taking the plunge into property investment.
1 Know your budget
Before investing in property it is vital to have a thorough understanding of your cash flow. Also, ask your bank for a preapproval of your investment loan, so you know how much you are able to borrow before you start hunting for properties.
2 Don't underestimate ongoing costs
Make sure you budget enough for rates, insurance and general repairs. And when you have purchased your ideal investment property, do what you can to prevent costly maintenance issues arising, such as replace ageing taps.
3 Buy in a growth areas
Choose an investment property in an area where there is strong demand for rental accommodation. Buying a property close to transport, universities and schools will make it more attractive to renters.
4 Be realistic about your investment goals
Are you looking for fast capital growth or wanting to hold the property long-term? During boom periods, it's much easier to renovate properties and turn them over for a quick profit. In slower economic times, it may take many years to achieve the same growth.
5 Build sweat equity
Paying contractors to renovate your investment property is costly. If you are prepared to get your hands dirty you can save money and increase your profit margin by doing the work yourself.
6 Look for liveable not luxury
Remember a rental property only has to be clean and functional. Don't get tricked into buying a property simply because it has a stylish interior.
7 Buy with your head not your heart
When house hunting it is very easy to get caught up in emotions. While a home on a steep block may have a stunning view, it could be a nightmare to renovate due to retaining or excavation costs. Be sure you weigh the pros and cons.
8 Think carefully before negative gearing
If your repayments on the investment loan won't be fully covered by the rent, your property will be negatively geared. While this can have tax advantages, it can also lead to financial stress if you don't have enough cash flow to cover the loan repayments, rates, or corporate fees, so consider your budget carefully before buying.
9 Still paying off your own home?
It isn't necessary to have your own home fully paid off before buying an investment property, however it is important to be comfortable with your current debt levels. Ideally you would want to have a large portion of your own home paid off and other debts, such as credit cards, under control.
10 Get a building inspection
Before signing a purchase contract, take the time to understand the building report to avoid expensive repairs down the track. Termites are one potential problem to watch out for.
Real estate agent Alexander Woo from Kuala Lumpur said there are many criteria to consider to ensure a good buy.
"Yes there are good properties out there. I have bought a few below market value and have seen many people do it. There will always be some around and it depends how willing are you to look for it.
"Once you are familiar with a certain area, you will immediately recognize a deal that is selling below the normal market price," he said.
In terms of rental returns, Woo said we have to put ourselves in the shoes of the tenants to determine where they would want to rent, and compare rental rates to determine if the place will command a good return.
"For secondary markets, we can see from the track record if a place is easy to rent out and if the rental is high. This saves us some guess work.
"For own stay, families tend to want security and proximity to good schools and to their work place; parents are often willing to give priority to children's education, opting for a place near a good school, even if it mean they have to travel further to work," he added.
Woo said single or younger home owners tend to want some lifestyle is the surrounding area and of course they would want proximity to workplace.
Where distance is concerned, he said the trend has been that people are buying properties further away from the city centre, because some of those developments offer attractive prices and the surrounding is more pleasant to the city centre, as long as it is easily accessible through highways, the distance is not such a major factor.
So, how many properties can one reasonably expect to buy?
"Keep a close watch and be ready when such opportunities come. You do not need to find one every day, or every week, or even every month; if you get one a year and buy one each year, you will make a lot of money after a few years," added Woo.
Here are 10 golden rules to consider before taking the plunge into property investment.
1 Know your budget
Before investing in property it is vital to have a thorough understanding of your cash flow. Also, ask your bank for a preapproval of your investment loan, so you know how much you are able to borrow before you start hunting for properties.
2 Don't underestimate ongoing costs
Make sure you budget enough for rates, insurance and general repairs. And when you have purchased your ideal investment property, do what you can to prevent costly maintenance issues arising, such as replace ageing taps.
3 Buy in a growth areas
Choose an investment property in an area where there is strong demand for rental accommodation. Buying a property close to transport, universities and schools will make it more attractive to renters.
4 Be realistic about your investment goals
Are you looking for fast capital growth or wanting to hold the property long-term? During boom periods, it's much easier to renovate properties and turn them over for a quick profit. In slower economic times, it may take many years to achieve the same growth.
5 Build sweat equity
Paying contractors to renovate your investment property is costly. If you are prepared to get your hands dirty you can save money and increase your profit margin by doing the work yourself.
6 Look for liveable not luxury
Remember a rental property only has to be clean and functional. Don't get tricked into buying a property simply because it has a stylish interior.
7 Buy with your head not your heart
When house hunting it is very easy to get caught up in emotions. While a home on a steep block may have a stunning view, it could be a nightmare to renovate due to retaining or excavation costs. Be sure you weigh the pros and cons.
8 Think carefully before negative gearing
If your repayments on the investment loan won't be fully covered by the rent, your property will be negatively geared. While this can have tax advantages, it can also lead to financial stress if you don't have enough cash flow to cover the loan repayments, rates, or corporate fees, so consider your budget carefully before buying.
9 Still paying off your own home?
It isn't necessary to have your own home fully paid off before buying an investment property, however it is important to be comfortable with your current debt levels. Ideally you would want to have a large portion of your own home paid off and other debts, such as credit cards, under control.
10 Get a building inspection
Before signing a purchase contract, take the time to understand the building report to avoid expensive repairs down the track. Termites are one potential problem to watch out for.
Real estate agent Alexander Woo from Kuala Lumpur said there are many criteria to consider to ensure a good buy.
"Yes there are good properties out there. I have bought a few below market value and have seen many people do it. There will always be some around and it depends how willing are you to look for it.
"Once you are familiar with a certain area, you will immediately recognize a deal that is selling below the normal market price," he said.
In terms of rental returns, Woo said we have to put ourselves in the shoes of the tenants to determine where they would want to rent, and compare rental rates to determine if the place will command a good return.
"For secondary markets, we can see from the track record if a place is easy to rent out and if the rental is high. This saves us some guess work.
"For own stay, families tend to want security and proximity to good schools and to their work place; parents are often willing to give priority to children's education, opting for a place near a good school, even if it mean they have to travel further to work," he added.
Woo said single or younger home owners tend to want some lifestyle is the surrounding area and of course they would want proximity to workplace.
Where distance is concerned, he said the trend has been that people are buying properties further away from the city centre, because some of those developments offer attractive prices and the surrounding is more pleasant to the city centre, as long as it is easily accessible through highways, the distance is not such a major factor.
So, how many properties can one reasonably expect to buy?
"Keep a close watch and be ready when such opportunities come. You do not need to find one every day, or every week, or even every month; if you get one a year and buy one each year, you will make a lot of money after a few years," added Woo.
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