Buying an investment property in 2012 requires significant knowledge to obtain the best deal. The financial commitment related to maintaining an investment property is slightly different from a primary property. Building insurance, taxes and other details must be considered when planning to purchase an investment property. Mortgage brokers are recommended to teach investors the process.
Items to Consider Before Buying an Investment Property
Tax Concerns and Other Costs.Ã‚Â Potential buyers should consider costs for maintenance and interest. Depreciation is another concern. As the property depreciates in value, owners will have to make upgrades to keep the property marketable.
Determine which expenses will be tax deductible. Taxes are generally higher for investment properties. Higher taxes should be factored into the cost of the home. When interest costs, loan repayments and mortgage fees exceed the rental income, this situation is called negative gearing. The difference in the two creates an allowed deduction. This will effectively lower taxes on income.
Investment Plan.Ã‚Â Buying an investment property can help clients build wealth in equity over a period of time. A long term investment plan should be devised to maximize the amount of equity wealth accumulated before selling a property. A financial planner or accountant can evaluate an investors’ portfolios to determine if investors are financially prepared to invest.
Combine Resources.Ã‚Â Investment properties in prime locations may carry significantly more income potential than other property types. Experts advise purchasing a property with family and friends to reduce expenses associated with investment property. An investment partner may later use the equity in the investment property to purchase another home.
Perform Adequate Research.Ã‚Â Consumers should research news articles, reports and business updates. This information may be used to determine the current value of the property, and the potential value of the property based upon future development in the area. Adequate research will help investors get the best price possible and also determine if the investment is a good one. Ensure the property is one others want to purchase if flipping is the goal.
Obtain Building Insurance.Ã‚Â Obtain building insurance while renovating or building a property. Building insurance is also necessary when renting out a property to protect it in the event of fire, flood or other major disaster. Do not lose an entire investment because the building is not properly insured.
Know Comparables.Ã‚Â Rental comparables and sales comparables are essential to purchasing a property at fair market value. For instance, an investor may want an investment property near public transportation in a gated community. To obtain the best price, check all the comparables in the area to determine the amount similar properties sold for in the area.
Loans.Ã‚Â The type of loan chosen can make a difference in the amount paid on the loan. A mortgage broker can help investors find the best loans for an investment property. Potential rent gained from the property will be a major factor in the loan.
Other Items to Consider.Ã‚Â Factor in the costs of hiring a property manager to maintain the property and collect the rents. If the property is not maintained, the value of the property will decline. The rent collected should cover the property costs and the maintenance for an ideal investment.
Reputable contractors are recommended to ensure the property is maintained optimally. When the property is maintained, the investor may request higher rents and earn a larger profit on a home. When someone else is paying the rent on an investment property, ownership becomes easier.
In general, an investment plan is necessary to map out the goals of the property. Investment brokers can devise a long term plan for investors to ensure the property will be profitable. Always involve experts to avoid losing money on the investment. Building wealth with real estate is viable if approached wisely.