Before we actually jump to our topic and let you know a few practical tips on how to avoid paying too much for your commercial property investment, we would take this opportunity further and will discuss 5 very important reasons that you should always remember when you decide to get into real property investment. Here, we are discussing particularly about the rental property, however the benefits are same for all types of property purchases.
1. Buying a property to rent out gives you access to a steady stream of additional income, especially if you have other sources of income such as employment compensation. Especially if your lessees are reliable and current in their payment obligations, you can enjoy a regular income that you can count on for planned purchases or expenditures. Because you have a fixed income out of your rental property, you are also able to compute your monthly income stream, and plan your spending accordingly.
Caveat: avoid spending your entire rental earnings. Instead, make sure you save up for repairs and maintenance costs that might come up anytime. Your tenants are likely to leave you if you can’t be relied to fix the broken sink or the leaking roof.
2. You also stand to enjoy tax benefits from owning rental property. We are not elaborating on this, as tax benefits differ by gender and geographical locations.
3. Investing in real rental property allows you to spread your risk. This is best for those who have made huge investments in the stock market. Compared to stock ownership, owning real property gives you more liquidity and diversifies your investment portfolio to lessen your risks.
4. Investing in rental property is a good way to build your wealth. The purpose of investing is to generate the most profits that you can from your investments. The secret to achieving swift success in real property investment is to find a good property in a good location, a receptive market with purchasing power, and a market that is on the rise.
5. Finally, there cannot be a better time for putting your money in real property investment than now. Experts say the best time to buy real property is when the market is in the doldrums. These are times when real property prices are lowest, and people are prioritizing living spaces.
So, reading the above benefits you have a clear idea of what you want to do with your money. That is, invest it in real property. You have read a lot about how experts feel this is a good time to buy real property to be sold later because property prices are at their all-time low. When you can’t go any lower, there is nowhere else to go but up. You have also probably looked around for viable investment options and maybe even ready already to shell out your money. One important thing that you should caution against: paying too much for what the property is really worth.
According to experts, the best time to make money is not when you sell the property, but when you buy it. How so, if you buy investment property at a very high cost, you are likely to have difficulties recouping your investment. However, if you are able to buy it for a bargain, you are sure to enjoy the returns when you do decide to sell it.
It is especially important to avoid over payment if you want to go into rental real estate investment. The effect of over payment on your finances is you buy investment property is graver than say, if you are buying your own home. There are cases when a homeowner sees a particular property and falls in love with it instantly, leading him to buy it simply because he needs to have it. This is a dangerous thing to do, if you are buying commercial real estate property because you are bound to incur losses.
But what if the market is hot and everybody is competing for prime properties? In more dynamic markets, developers/landlords even put a premium on the inherent value of properties. These premiums can range from 10 percent to 60 percent on top of the expected income from these properties. In such cases, it is alright to factor in the premiums. After all, because the location is prime, you are sure to recoup your investment anyway, although it may take some time. What you have to remember though is to plan your rental income in such a way that it will surely be sufficient to pay for your overhead costs. Your computation should take into consideration an average of five percent vacancy rate.
Given the high cost of investment, how do you know that your prospects for profit are looking bright? If you can break even, your success is in the cards. This means you stand to gain as soon as the price appreciates or as soon as you are given tax breaks. If you want to see how your profits will look like, you can ask an expert to crunch the numbers for you.
Finally, another important thing to remember in order to avoid over payment is to check the kinds of repair that the property requires before buying it. Minor repairs can be set off against the tax due, but renovations that will redound to the long-term benefit of the property will have to be amortized. This means the cost will have to be spread out and you cannot recoup the cost of improvement until after several years. The best you can do is invest with a under-construction project or a newly constructed project under a brand that is known for delivering on-time and quality projects in its vicinity.