Key factors to consider when buying an investment property

Buying investment property with discretion is perhaps a surefire way to build wealth in the long run. Since equity markets are too volatile, the investor is anxious and often seeks refuge in real estate, which unequivocally involves less uncertainty than other investment options. While the real estate industry has slumped a bit from its zenith in the late 1980s, shrewd real estate investments can still generate significant returns. In general, buying an investment property gives you access to three benefits: return, capital growth, and tax advantage through negative leverage.

Investment properties are also known as non-owner-occupied properties. Since every investor is looking for high capital growth, buying an investment property in a developing area makes sense. Experienced investors claim that suburbs located within a 10 km radius of a city center can be considered developing areas. It is recommended that you explore the area before purchasing an investment property. Make sure basic amenities and emergency supplies are easily accessible to prospective tenants. This would lead to healthy returns and minimal availability periods, if any.

When buying investment property, you should consider that renting an apartment unit is much easier than renting a detached house. In addition, the costs of remedying problems, such as the replacement of the heating pipes, are shared between the different owners of the apartment.

Location also plays a crucial role in determining which property to buy. Panoramic view properties are often more desirable than others. Without a doubt, the rental income from such a property would be huge. But there is no point in going overboard and buying an expensive property, before making sure that prospective tenants can afford the rent on said property.

If capital growth is what you are looking for in investment property, look for a property that can sell quickly. Expanded properties, such as a unit with a balcony, garage, or laundry room, are quite attractive and can be sold easily.

When buying an investment property with the key intention of renting it, you should be aware that there may be periods when the property is vacant, either for repairs or a lack of tenants. Therefore, you must have a contingency plan for such vacancy periods.

Real estate investing may not seem entirely messy for the first few years. But after a few years of owning a property, hopefully you will see yourself from being negatively oriented to having a neutral or positive orientation. That is, your returns would be higher than your operating expenses. This is because rental income would gradually increase, keeping pace with market sentiments. Over time, it would also generate additional capital in your investment property.

In general, buying investment property can be a profitable endeavor if done wisely.

Copyright © 2006 Joel Teo. All rights reserved. (You can publish this article in its entirety with the following author information with live links only.)