Monthly Archives: June 2016
The price range maybe the major factor in buying a property but other parameters for home-buying also play a key role. Whether you are purchasing your home as an investment, a lifestyle upgrade or both, one of the most important decisions you will make is where you want to live. Your home’s location will help determine not only the future value of your investment, but also many aspects of your everyday life. Here are some factors you should consider carefully when selecting a location.
Location and Neighborhood
The first criterion for anybody purchasing a new house is location. Be it the suburbs, the country side or the city, one should only decide after evaluation all the pros and cons. For example, the suburbs and the country side are less expensive. The property may have huge acres of beautiful land ideal for farm-houses. Since it is located by a small town, the livelihood is also simple. The negative is the long drives especially if the workplace is far off.
The city properties may be chic and stylish with the entertainment and workplace nearby; the urban lifestyle can prove to be hectic. Traffic jams and higher crime rates deter many.
City vs. Suburb vs. Rural
The setting you choose within the city or town you select will affect the amount of peace and quiet you have, lot size (if you’re buying a house), primary and secondary education options for your children, proximity to shopping, entertainment, medical services and anything else you might want or need, and more.
Types of homes
The next factor that affects the decision is the type of home that one wants. From the expensive condos and penthouses, to the more convenient single family flats, the choices are limitless. While the urban condos and penthouses are expensive, they are usually situated in high security apartments and usually are maintenance free. The single family apartments are private and but requires more maintenance. The other factor that affects house buying is the level of the apartment. Some may prefer the ground level and some the duplex.
If you have or are planning to have kids, school district is certainly an important consideration. Living in a good public school district will save you tens of thousands of dollars that you might otherwise be tempted to spend on private school. And even if you don’t have kids, it may still be a good idea to consider the quality of neighborhood schools when choosing your location in order to maximize your investment. If you have difficulty finding a public school that meets your standards, you may have to pay a premium to live in a neighborhood with good schools. You will have to consider how that premium compares to the cost of paying for private school or sending your children to a sub-par educational institution.
Proximity to Work
The length of your daily commute can have a significant impact on your disposable income, quality of life and how much time you get to spend at home with your family. How long of a commute can you endure? Are you planning to stay at your current job long-term or do you expect to switch jobs in the near future? If you plan to stay at your current job, how close to work do you want to live? If you plan to switch jobs, what are the job prospects in or near the area where you’d like to live?
For most people, safety is a top consideration. You’ll often pay less to live in an area with higher crime, but if you’ll have to live in fear or if you one day become a victim, no price discount will be worthwhile. It may also be harder to resell your home or get a good price for it if you decide to sell.
The specifications inside the house
Different people have different requirement for the interiors like the number of bedrooms and bathrooms, square footage and the bonus rooms etc. The number of rooms and bathrooms needed by the customer all play an equally important. Big families need more rooms and a couple will only need two room house or apartment.
The more number of rooms means more carpet area and hence more costly. However, the square feet rating also depends on the location of the property.
Proximity to Friends and Family
The best home may not feel very homey if you live too far away from your friends and family to see them on a regular basis. On the other hand, your friends and family might end up moving at some point, so make sure this isn’t your only reason for choosing a location.
Proximity to Leisure Activities
What do you enjoy doing in your free time? If you have season tickets for a particular sports team, you may not want to live too far from their stadium. If you love to go out to eat, you might not be happy living somewhere with few restaurants. On the other hand, if your favorite thing to do is stay home, you might have more choices available to you when it comes to this aspect of choosing your location.
The additional factors like nearness to the local school and hospitals also affect the price of the property. Plumbing, electrical, heating and cooling amenities conditions also determine the choice of the purchasers. Another thing that most new home buyers keep in mind is the repair expenses that they have to undertake after moving in. The maintenance of the house is another aspect that affects the prospective client’s decision.
If you decide to buy an investment property the first question you should ask yourself is how much can you afford to contribute towards the purchase each week. The answer affects what type of property you should look for and the location.
There are two types of property investment:
(a) cash flow positive property which often has little potential for capital growth; and
(b) cash flow negative property which often has potential for capital growth and often provides negative gearing opportunities which minimizes the amount of personal tax you pay.
Negative gearing is the situation where the total costs of owning the property (eg. interest payments, council rates, water rates, strata levies, insurance premiums, depreciation and the like) are higher than the income (rent) you receive in relation to the property each year. Assuming the title of the property is in your name any loss can be deducted from your personal income which can reduce the tax that you have to pay.
With this type of purchase the buyer banks on the capital value of the property appreciating over time so that when it is sold the sale price covers all the costs and still gives a profit. Capital gains tax is then paid on the profit at your marginal tax rate.
Cash Flow Positive Property
A cash flow positive property is a property where the income from the property (ie. the rent) exceeds the costs associated with owning the property leaving a profit. Assuming the title of the property is in your name the profit must be shown in your personal income tax return and you will pay tax on it at your marginal rate.
Often properties that achieve high rental returns are in areas where the property prices are already very high (eg. mining regions) and there is little opportunity for capital growth. The strategy here is to hope that the high rents cover the purchase and holding costs of the property in ashort period so that the rent becomes profit.
Buying a home now with the idea of selling it a few years or profiting from the purchase of a fixer-upper that can be resold at a much higher price, here’s what to look for when considering real estate as an investment :
Plan on a big down payment. Mortgage insurance isn’t available for investment properties, so a 20 percent down payment is required to get traditional financing. And putting even more down can result in a better rate. Also, loan costs are generally higher for investment properties.
Beware of fixer-uppers. If you’re new to investing in real estate, beware of taking on a bigger challenge than you can handle. Unless you have the skills for large-scale improvement – or know someone who does quality work at bargain prices – you’ll likely pay too much to rehabilitate the property and still make a profit on its sale. A better option is to look for properties that need modest repairs that are priced at below-market rates.
Enjoy being handy and fixing things. Opting for the landlord route brings with it lots of challenges, including making repairs. Be sure to have enough savings on hand to handle any unexpected repairs in the short term – before the rent checks start rolling in.
Income varies. Tenants come and go, and it may take a while to rent out a just-vacated unit – especially if it needs substantial repairs or rehabbing, reducing your income. But you’ll still have to pay the bills, including mortgage, property taxes and insurance.
Start small. While repairs present a challenge, so can buying a larger property than you’re ready to handle. Starting small – purchasing a single apartment, condo or duplex, for example – can help you get grounded in the idea of investing in real estate and decide whether it’s really the right step for you.
Property taxes. Depending on the type of rental property purchased and how long it is kept, investors could discover a big increase in property taxes, if a homestead exemption had been in place for the previous owners.