A closer look on how to invest in property

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Investing in property is one of the most wise decisions you can ever do, but only if you do it carefully. Not all properties are profitable, therefore you need to have a closer look on how to invest in property. Profit on property investment is made on buying not on selling. When you take your time to look for the right property to buy, you will enjoy more benefits.

Profits are made in the buying but not in the selling.

Robert Kiyosaki

If you are buying a property for your own use, it is not as rewarding as buying it as a way of earning income and the rules are different. There are several factors that need to be considered before you venture into this type of investment. It is crucial to avoid emotions dictating the decision. On this article, we will explain only few important points.

What you need to know before you invest in property

Demand and supply

Demand is the number of people who are willing and able to buy your product or service. In this case, you are looking at the number of tenants willing to rent your property. If no one is willing to rent your property then you will not get income from your investment.

Additionally, demand can also play a big role when you are planning on selling your property – the number of investors that are willing and able to buy your property. If demand is very low, you may be forced to sell your property at a loss. I am sure you do not want your asset to be toxic. A toxic asset is an asset that no one wants and you lose more by keeping it.

Just like what you may have guessed, supply is determined by the amount of goods and services a producer is willing and able to sell. In our case, supply is referring to the properties available in the market.

If there are several investors selling their properties, this will pull the price of the properties down due to the competition. Likewise, if there are a lot of properties available for renting, the rental price will fall.

The graph above shows that property owners are willing to rent their properties if the rent price increases while the tenants are more interested when the rent is low.

The equilibrium is reached when demand is the same as supply. In this case equilibrium is reached when the rent is R 3 500 which can only accommodate 5 tenants.

If the rent is R 5 000, only 2 tenants are interested but there are 9 property owners willing to rent out their apartments. This represents oversupply, therefore to avoid the issue of apartments being vacant, the rent is reduced until equilibrium is reached.

Moreover, when rent is set at R 2 000, 10 tenants are interested but only 1 property owner is willing to rent the apartment. This will cause a shortage thereby forcing the rent to rise until the equilibrium is reached.

The location of the property

Not all properties are the same. A very small apartment close to amenities can cost double the price of a bigger apartment that is far from amenities. The logic is simple – more people will desire to stay close to work, university, shopping mall or transport facilities. Therefore, properties close to amenities are expensive to buy and to rent out because demand is high.

Furthermore, the crime rates in the area can also influence the prices of the property. You can notice that the properties in high crime rate suburbs are cheaper than those in more secure suburbs.

In addition, the living standards of the people living in the area can greatly influence the price of the property. You can expect the property in the ghetto to be cheaper than low-density suburbs. No one will rent your apartment if you overcharge your rent in a high density suburb.

The best thing to do before you buy your property is to have enough time to understand the location of the property. Acquire as much information as possible about the people in the neighborhood.

Interest rates

I am sure most people will be financing their property investment with debt. The higher the interest rates, the more expensive it is to buy the property. If interest rates are too high, it may take time before you can get a positive income from your investment.

Another point to note is that rental income is fairly stable making it difficult to increase the rent in response to a spike in interest rates. Therefore, you may need to negotiate for lower interest rates from several lenders.

Costs associated with property investment

There are several costs associated with property ownership. Some of the costs that are charged on a property are levy charges, taxes, refuse removal fees, sewerage disposal charge, water and electricity charges. If you can not find a tenant to occupy your property, you are liable for some of these costs.

Furthermore, you are also going to be making renovations to your property and this may cost you a lot of money. It is crucial to ensure that you have sufficient income to pay for these costs in the condition that your apartment is vacant.

The availability of the funds to fund the purchase

Last but not least, you need to consider how you can fund your property purchase. Properties are expensive and this may limit the number of people willing to invest. Regardless of that, there are several financing methods that can be used without having to pay the property on cash.

Many property investors use debt to finance their purchase. It is worthy noting that not all investors qualify for debt. The availability of debt depends on your credit score and several factors that may be considered.

Moreover, you can invest in property by buying property shares. Another way is to pool money together with your friends and family with the sole purpose of buying properties.

In conclusion, property investment is a reliable way of growing your money. Considering that you can invest in property without having to pay a lot of money, this can be a great way of securing your future finances. With all that being said, before you rush into buying a property, make sure you take a closer look at how to invest in property. If you make a mistake on buying, investment in property can be a horrible nightmare for you.