Your First Investment Property Purchase: What Are The Financial Factors You Need To Consider?
One of the best investments you can ever make comes in the form of real estate properties. This is even more true when you purchase is a commercial or rental property. You can earn a passive income and they are unlikely to go lose their value as long as you’re able to manage them properly. There’s just one problem… you need a lot of money to buy a property.
Even if you have the money to purchase a property, you’re going to want to make sure that you follow the right process. While it’s a sound idea to let someone who’s more qualified and knowledgeable handle the process for you, it’s your responsibility as the would-be property owner to know everything that might affect your decision to buy a property.
As with any purchase, the very first thing you need to consider is the amount of money that you’re willing to spend. Even if you’re able to pay for the property outright, you need to consider that if you spend too much, you might wind up compromising other aspects of your life.
Lenders will generally ask for a minimum deposit of 10 to 20 percent of the market value of the property. You also need to account for other fees such as legal, inspections, insurance, and maintenance fees. Don’t forget to account for interest rates.
This goes beyond a technical description of the property. Whether you’re purchasing the property in order to make income immediately or you’re buying it as a long-term investment, you need to do your research on the property — particularly the property’s potential for capital growth, rental income, and ongoing costs.
You also need to determine if there are any repairs or replacements that need to be performed on the property and how much these are going to cost. This should also be factored into your budget, when you try to determine if you’re still within your set limits.
Management and Maintenance
Maintaining the property to keep it functional and viable as a source of income is another recurring cost you should always consider. However, this is a task that also requires you invest a lot of your time, either to oversee the maintenance you outsource to someone else or that you perform yourself. You also need people who have a background in real estate law and are knowledgeable in what your rights as a landlord are.
You also need to plan for success. If you’re able to let your business grow, you’re going to need to be able to add improvements to your property. These can include anything from better facilities to home additions. In this case, you shouldn’t treat these as costs but rather, as investments. And like any investment, it’s best to deal with reputable professionals, like the builders from pwhomeimprovement.com.
Since you’re buying what is essentially a business, you need to make sure that your investment is going to net you the income that you expect. The reason why you need to consider these costs first is so that you’re able to gauge how long you can sustain yourself while you’re trying to get your money’s worth. Remember that adage about putting all your eggs into one basket?