Property Investment 101: What to Consider Before Buying a Property
Whether you are looking for a home for your family or property as an investment, there are a few aspects that need consideration before you start viewing houses or condos. We have put together a list of the areas you should be focussing on to ensure you get the property you desire.
Before you start browsing the internet for a property you would like to buy, you need to plan for what you can realistically afford. For those who run their own business, you need to figure out what your future earnings will be as companies have good and bad periods; you should be prepared for the times when cash flow is in a downturn. If you are employed, planning your budget is a lot simpler. You need to work out how much money you have available for paying the mortgage and your living expenses, and then you can start to calculate what you can reasonably afford to buy.
You do not need to get the highest priced property your budget will allow, rather put some thought into what you actually need. For property investors planning a budget will either be determined by how much you can lease the property for or what you expect to sell it for if you flip it. You should make allowances for renovations and understand that the property may be empty for short periods in between tenants.
Build Your Credit Score
Your personal credit score is an essential factor when it comes time to get a home loan or any type of credit, for that matter. Banks will look at what your score is, and this can give them a snapshot of how able and trustworthy you will be to repay any loans. By having a high credit score, you will be able to access lower interest rates, which could save you thousands over the term of a loan. To get your credit score in the best possible shape, you should first check your credit score online, and this will let you see what needs to be improved.
If needed, you should dispute any inaccuracies. Pay off all existing debt and try to keep your credit card payments up to date, a missed payment can cost you. Many credit card companies try to sell their cards to people by mentioning that this will help your credit score, however, this is not the case. Try to limit how many loans and credit cards you apply for as each application counts as a hard inquiry, and these will negatively affect your credit score, should there be a rejection.
There are plenty of lenders offering favorable loans and rates for buyers, and you will need to research each of them to find the one that suits you the best. Of course, the interest rates lenders offer are what get you interested, but time should be spent to understand if the loans are right for you. If your credit score and income are good, you could be eligible for some of the latest favorable interest rates on offer. Having a good-sized deposit ready when buying a property will eliminate the need for you to take out Lenders Mortgage Insurance, which protects the lender should you fail to repay the debt. The LMI is determined by the loan to value ratio. Lenders will want to know that if they need to sell the property, they can reclaim all the money that was loaned.
There are various loan types that need careful consideration before committing to one. Fixed-rate lets you know precisely what the interest rate will be for a fixed period, something that is good for first-time buyers who want to know their total costs in advance. Variable-rate loans will have fluctuating interest rates that increase or decrease as the rates are raised or dropped at your central bank. Having a variable rate loan may be great for some people but not advisable for those on a limited income that may lose their home should rates rise beyond expectations.
Location and Condition of the Property
Buying a property, whether for an investment or to live in, is perhaps the most significant decision most people make in a lifetime. A typical home loan duration is twenty-five years, so you want to make sure you are spending your money on the right property for you. Investors want to find a property that will be desired by tenants, so they may prefer to look at city-center locations or areas near universities and business districts where there are always lots of people looking to lease property.
For young families, you may want to look at local schools, amenities, and infrastructure to help ensure the area will be suitable now and in the long term. Before agreeing to buy, you will want a thorough inspection of the property to check the foundation, roofs, and general condition of the property. An in-depth property inspection covers many details that you may miss. Never skip an inspection as the money you spend for the inspector to check everything will save you thousands in the future; it may also help you negotiate a better deal on the buying price. All properties should have a pest inspection to ensure there is no woodworm or other invading pests, which may cause further damage in the future.
Property has and will continue to be the number one investment whether you plan to live in it or lease it, but it does need some thought. Take care to understand all the pitfalls you may face on your journey to buy your property. Our guide above strives to cover many important aspects you will need to consider, however, there are numerous details you should ideally investigate with your local council or governing body before proceeding further in your real estate adventure.