Most people are operating under the idea that investing in property is a good idea 100% of the time. But the truth is, that’s not always the case. Property can be a great investment – but only if you buy the right property at the right time (and at the right price). Let’s take a look at what you need to know about property investments before making a purchase to ensure your investment ultimately adds to your wealth (and doesn’t put you into a financial hole):
How much rental income will you make?
The first thing you need to know about a property investment before making the leap is your income potential – how much money you can make with the property. Look at the rental market in the area you’re considering buying. What are other similar properties fetching for rent each month? Then, calculate your ROI for that rental rate. So, for example, let’s say you purchase a property for $200,000 and can rent it for $1,000 per month. That’s $12,000 per year, which is a 6% return on your investment. Now, compare that ROI to other investments. Will you make more in rental income than you would investing your money elsewhere? If so, property investment is a good bet.
How much will it cost you?
You also need to consider how much money owning property is going to cost you. Owning property can be expensive; there’s maintenance costs, homeowner’s insurance, property taxes, a mortgage (if you didn’t pay the full cost of the property upfront) and other costs associated with keeping a property up and running. Calculate how much these extra expenses add up to and subtract it from your total rental income to get a better sense of the ROI.
What are the current market conditions?
Another thing to consider before investing in property is the state of the market. The last thing you want to do is buy a property at the peak of the market – only to have it depreciate in value following a market crash. Take a look at the current value of homes and do some research into the market you’re
interested in buying in. Have houses been steadily climbing in value? Do they tend to fluctuate? Do real estate experts predict home prices to go up or down in the future? Ideally, you’ll buy a property at a time when the market isn’t hot; that way, you’ll get a good deal on the property, which will increase your income potential in the future.
What kind of property is the right fit for you?