Purchasing an investment property can be a really great financial opportunity—or it can be a nightmare. To make sure you end up with the former result instead of the latter, follow these simple dos and don’ts before you buy your investment property.
1) Do your homework
Research the property market, tax breakdown, and standard rental rates in the area. Make sure you do a number crunch to ensure that the rate you will have to rent your property at will be enough to cover all the expenses that will come with your property—including any repairs that may crop up.
2) Don’t get emotionally involved
Don’t get emotionally or personally invested in your building. Keeping yourself detached and professional can ensure you are always making the best financial decisions.
3) Do talk to the tax man
Consult with tax advisors to ensure you are able to claim your full tax entitlements. A tax advisor will also be able to help you determine the best structure for your investment loan to ensure you are maximizing tax deductibility. A tax advisor can also inform you of tax depreciation benefits, and can give you a better assessment of the true cost of buying and holding an investment property.
4) Don’t buy an old fixer-upper
It may seem like a fun idea, but maintenance costs can eat through your funds pretty quick, and newer buildings may even come with building warranty.
5) Do ensure that you’re purchasing a property that is attractive to tenants—in an area that is attractive to tenants as well. Properties that are located further from shops and transportation tend to have higher vacancy rates and lower rental prices, whereas properties close to in-demand areas—like school zones—can promise you a much greater return.
6) Don’t buy a property in a location where there is an oversupply of properties. Buy in a location where a high demand for rental properties can offer you a bit more security. Owning a vacant rental property isn’t going to help your return.
7) Don’t buy an investment property expecting a quick return right away. Investment properties take time and dedicated management to pay off.