Key factors to consider when buying an investment property

Buying investment property discreetly is perhaps a sure-fire way to build long-term wealth. Since the stock markets are too volatile, the investor is anxious and often seeks refuge in real estate, which clearly implies less uncertainty than other investment options. Although the real estate industry has fallen somewhat since its zenith in the late 1980s, astute real estate investments can still yield significant returns. In general, buying investment property gives you access to three benefits: yield, capital growth, and a tax advantage through negative leverage.

Investment properties are also known as non-owner-occupied properties. Since all investors are looking for high capital growth, it makes sense to buy an investment property in a developing area. Experienced investors say that suburbs located within a 10km radius of a city center can be considered development areas. It is recommended that you explore the area before purchasing an investment property. Make sure basic services and emergency supplies are easily accessible to potential tenants. This would result in healthy rental yields and minimal vacancy periods, if any.

When buying an investment property, you should keep in mind that renting an apartment is much easier than renting a separate house. Also, the costs of rectifying problems, such as replacing heating ducts, are shared between the various 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. No doubt the rental income from such a property would be enormous. But there is no point in going overboard and buying an expensive property, before making sure that potential tenants can afford the rent on said property.

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

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

Real estate investment may not seem like a success during the first few years. But after a few years of owning property, you may find yourself going from a negative orientation to a neutral or positive orientation. That is, its returns would be higher than its operating expenses. This is because rental income would rise gradually, keeping pace with market sentiments. Over time, you would also build additional equity in your investment property.

Overall, buying investment property can be a profitable venture if done smart.

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

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