These 3 Things are Critical to Consider When Buying Investment Property
Last updated on March 3rd, 2022
Property investment is considered to be one of the best ways to acquire wealth either by gaining passive income through rental or selling of property in its appreciated value. With its wealth-acquiring potential, many are following this route, others even following blindly. But as with any investment, there are success stories, and there are those that experienced significant loss through property investment.
Taking from those experiences, here are three things you need to consider before buying investment property:
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Purpose
As with any investment, may it be financial, real estate, or business, success comes from fully understanding your purpose. Having a clear objective will help you identify the best investment strategy that will help you gain more.
While the ultimate reason for investing is to gain wealth, there are still those that buy property investment for other reasons. One of which is negative gearing. It is a tax deduction scheme wherein an investor will buy an investment property where its gain is lower than its cost. As such, he can offset the loss from the tax he needs to pay from his other income. This effectively saves him from paying taxes. However, while negative gearing may save you funds, this does not increase your income.
Others buy an investment property because others are doing it and some are getting successful because of it. This abrupt decision can be financially harmful to some as they are only focused on the gain while forgetting the gritty parts of property investment like finding the right location and being financially stable.
For those investors who are clear in their purpose for buying property investment, it is also crucial to know the proper use of the property. Will it be used for rental purposes or will be used as a family home or will you just sell it in the future? Knowing the purpose of the property you are buying is essential as it a prerequisite to the other equally important considerations: location and financial capacity.
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Financial capacity
Knowing your purpose and developing your investment strategy is just one part of the pie, you also need to plan out how you will acquire the property. As in any investment, you need financial capital to make it move. Property investment is no different. Before investing in properties you need to know first your economic status.
Do you have enough funds to acquire the property? If not, are you financially stable to sustain a loan for the acquisition? Do still have funds for the renovation or construction of the structure? Do you have the patience to wait for the return of your investment? If your answer is “no” to all of the questions, then it’s better to not invest in properties. Remember, funds are used to gain more funds. Time can either be your ally and foe in investing.
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Location
After being clear in your purpose and having enough financial capacity to acquire investment property, the next step is finding the right location for your desired purpose. A huge percentage of success in investment property lies in its location. Aside from the potential value of the property when you sell it in the future, location can also determine the range of the rental price you can ask from your tenant if your property is to be used for rental. Besides, location can determine other expenses like the real estate tax.
While property investment can help you achieve your goal of financial growth, success from it can only be achieved if you consider the main factors that come with it.
