Is buying property the best investment for you? Buying investment property is both an art and a science. With property investments, you’ll want to keep some principles in mind. Most who buy investment property do so with the intention of holding it and hoping it appreciates, but this cannot be called investment; it can only be called speculation. The best property investment advice one can get is: “never try to predict.”
Be sure, when looking at investment property for sale, that it will be both safe and profitable beyond any reasonable doubt.
When you are looking at buying investment property, you’ll want to figure out its intrinsic value. The intrinsic value is what the property should really be worth; it is not the same thing as its price. We, as investors, are concerned with the investment’s value rather than its price. When the price dips below eighty percent of the intrinsic value, you should buy. This difference between intrinsic value and purchase price represents the margin of safety. This will allow the price to dip to 20% below the value of the investment property before any loss in value occurs.
Profiting is of upmost importance when it comes to buying investment property; otherwise, the investment is pointless, no matter how safe. Investment property loans should not be taken out unless one can be assured of returning back to him or herself more than the amount borrowed; this applies to both local and overseas property investment. Find investment properties for sale which are in need of repair, and estimate the repair expenses. Then, calculate the purchase price per square foot, and compare it with new construction cost per square foot in similar homes in the area. The different between the new construction and purchase price should be double or greater the estimated repair costs. When repaired to a like-new state, the money you put in should double or more. This increase in equity will also add to your margin of safety, creating a safer and more profitable investment. Also make sure to get the best rate possible on your investment mortgages for your properties.
This allows one a sure way of increasing his or her equity; this equity can be traded in as a down payment on a larger property with more units. This works with both residential property investment and commercial property investment; property investments in general must have a sure way of increasing one’s dollars to be classified as an investment, in our minds. And once you’ve got some great equity built, you can consider refinance investment property options from your local lender to help increase your ROI in the long run. Also you’ll have to include all expenses like property management fees, rental property insurance, taxes and other services and utilities that you might have to pay for. Make sure to negotiate your closing costs down as much as possible. When selling your property, often you will want to investment in another property that’s why knowing 1031 exchanges rules is crucial to avoid capital gains taxes.
Property investment comes in two flavors: the true investment type and the speculative type (which is often confused for the investment type). An operation, to be truly classified as an investment, must assure both safety and profit beyond any reasonable doubt. Then, and only then, is it an investment. Otherwise, the operation is speculative.