5 Things to Consider When Investing in Property

The following contribution is from another author.

Are you considering investing in property? With the volatile and bearish state of cryptocurrency and stocks, many investors are turning to property as a more opportune investment.

However, before diving in headfirst, there are a few things you should factor in before perusing property listings.

For many people, real estate takes a sizable portion of their investment portfolio (if not the largest), so it’s important to be well-informed and level-headed before making your decision.

With that said, here are five of the most important things to consider when investing in property.

1) Market Conditions

Research is crucial before making any financial investment, and this is especially true for property. You need to have a firm understanding of the current market conditions before securing a property investment.

One way to see how real estate is performing in your local area at present is by searching through local listings online of recent sales and rentals. This will give you an idea of what types of properties sell for and what people are willing to pay.

But just like in any industry or market, conditions in the real estate market can fluctuate rapidly. Identifying foreclosures and local developments, reviewing historical trends on the local market, and determining mortgage rates of property in your area isn’t only recommended, it’s critical in order to stay ahead of the game.

One more tip. A good way to see how the market is currently performing is to look at the local absorption rate or the rate at which homes are selling in your area. If the absorption rate is above 20%, this would indicate that the demand and prices for houses are rising—a seller’s market. On the other hand, a 15% or lower absorption rate is indicative of a buyer’s market.

2) Property Type

There are two primary property types available for investment: new constructions and existing properties. Both forms of housing have the potential to deliver a decent return on investment (ROI), so it’s up to the buyer to decide which is best for them.

Newly constructed properties often have superior amenities. They may not incur as much maintenance costs, decreasing overhead costs overall. However, they’re usually priced higher than already-established properties.

Existing properties, on the other hand, are more affordable. They may also have pre-existing utilities, lawns and curbs, and furbishing, saving on costs. However, they also come with the potential for higher maintenance costs associated with wear-and-tear.

Ultimately, the best property type for you will come down to your budget and what you hope to gain from the investment.

3) Investment Type

One of the most decisive moments when purchasing property is its money-making potential. There are many approaches for this, such as:

• Flipping (short-term and long term)
• Buy and stay
• Buy and lease

Contrary to popular belief, however, profit doesn’t always have to be the primary goal. Some investors use their property as a way to decrease their declarable taxable income and increase their overall take-home pay. This process is called negative gearing. In this case, the property is not purchased for its potential profit but as a way to reduce the amount of taxes you pay.

However, over time, it’s possible for the property to become positively geared. Joust explains that positive gearing properties don’t enjoy the same tax deduction incentives that negatively geared properties do. Furthermore, this investment approach is contrasted with negative gearing by its better income potential and, more notably, the ability to generate a profit (instead of loss) before tax.

4) Property Location

There’s no getting around it: location is one of the most important factors when it comes to real estate. In addition to the city or town the property is situated in, other things such as the proximity to schools, public transportation, and work opportunities are also key components to a property’s success.

An up-and-coming neighbourhood that’s seeing a lot of development might be a good long-term choice to capitalise on its appreciation. In contrast, avoid areas that are prone to crime or have a high vacancy rate. 

If you’re unsure of the long-term area planning strategy of the area, you can contact the local town hall to get an idea of location viability.

5) Financing

As the famous adage goes, “you have to spend money to make money.” This can not be more true when it comes to real estate.

Not only do you need money for the initial down payment, but you’ll also have to ensure that you can cover all the ongoing costs associated with being a property owner. These include, but are not limited to:

• mortgage payments
• insurance
• taxes
• utilities
• maintenance and repairs

Thankfully, you don’t have to fork it all upfront. 

If you have a good credit score, you’ll have more negotiation power when it comes to securing a mortgage with better interest rates. Conversely, if you have bad credit, you’ll likely have to pay a higher interest rate or have a worse mortgage term.

Regardless, it’s important to have a clear idea of your budget and monthly cash flow before taking the plunge into property investments.