Investing in real estate can be a tricky business. How do you know which property is likely to give you the returns you want? How will you know which property will be a bad return or a good return on your investment. There are certain property rules you should be aware of before looking at property investments
Never buy the most expensive house in the street.
Often when you look at a house for sale, you will visit the site and do a property inspection. To evaluate the property, you should calculate the land price on which the house the built. The land price is important because every other house in the street will have approximately the same size block of land. Given that every block of land is approximately the same, then the quality of the building on that land is the only variable factor in price. The most expensive house in the street will be the one with the most quality features. It will not be able to be improved much above what it already has. However, other houses in that street can be improved. They may need renovation or maybe a good overhaul of their design. Calculate this into the price of your expected return. The most expensive house in the street can almost be never improved on.
Houses Depreciate, Land Value Appreciates.
When you buy your investment consider that the building on it will depreciate. Buildings need painting, fixtures need repairing, and that's why a depreciation tax alliance is given by the government to investors when investing in property. Buildings loose value by their very nature. They get old. They cost money to maintain. It is the land value that increases in a property investment. More people want to own or control that land and that drives up the price. By the same reasoning, units are not a very good investment when looking at a capitol return on your money. To buy a unit you will experience the same depreciation on your building, but your land value is shared and often not considered when refinancing or calculating the overall value of the property. Unit value is calculated on its income return and rarely on its capitol return. Units or shared building accommodation are not good investments when looking at a return on your capitol expenditure. They can be a good return if you are looking for a regular source of income from the rent. Outgoing costs will affect this return though and should always be considered.
Never Buy On Emotion.
If you are investing, never buy a property because you "love it". This means you will probably be buying using your emotions. Some people buy because the house is near the beach, or near the school or near the shops. There is nothing wrong with this based on practicality, but the danger is to pay too much because of these reasons. Your purchase should be based on rock solid figures. The house has land value, and is has a small amount of building material value, and it has a rental return value as well as a expected growth return value. Formulate these values to get you own value. A price you are will pay that makes your formula work.
Do Your Research
Sometimes, outside effects can dramatically affect the price of property. You should do research on the area you are intending to purchase in. Talk to Real Estate agents about the area, also the local counsels often can have information on planned developments for the area. Local knowledge can help. Talk to neighbors of the property for sale. They often have information about the property that nobody else knows.