To buy or not to buy a residential property for sale? That is the question. Owning a house is an integral part of every adult’s dream and is among one of their top priorities. It provides security and pride, a longstanding belief hardwired into you. However, many get caught up in their fantasy about a house and end up with needless costs. Here are a few simple rules to being smart when searching for residential properties to rent or buy.
Treat it Like Other Investments
Start with the basics. Be realistic in putting together your budget for buying a house. Don’t forget to list the many additional expenses that come with purchasing a home, other than mortgage payment.
Gauge its Value by Thinking of it as a Buy-To-Rent
One simple way of determining whether you should buy or rent a property is by thinking of it as a buy-to-rent piece of property. Don’t think of it yet as a house you’ll be living in. Once you gauge its value as a property for rent and possible source of income, you’ll be able to better interpret the dynamics of the market and do the math.
If you paid for the property in cash, how much can you rent it for? What are the insurance and maintenance costs, taxes, and management fees? Deduct these from your yearly income (less a couple of month’s rent in case of vacancy), and you have your net rental income. Divide the net rental income by the price of the house, and you’ve got your capitalization rate or return.
Can You Afford the Deposit?
If you can’t pay for at least 10 to 20 percent of the property’s purchase price as a down payment, you shouldn’t consider buying that home. That way, you’ll discipline yourself to wait until you’ve saved up enough to buy the house you want. Once you purchase a house you can afford, you’ll tremendously reduce the amounts you end up paying on interest. Otherwise, you should really invest in residential rental properties instead.