Buying Your First Investment Property?
Beginning with basics, what is the big difference between property and investment property? Well, simply put ‘property’ can be any movable (vehicles, machines) or immovable (lands, buildings) property that you purchase without the objective of making a profit out of it. But when it comes to ‘investment property’ it is all about generating revenue and profits.You can invest on a vehicle with the hope of selling it later when market price of that particular vehicle happens to go up. Or you can buy a flat in the capital to rent it for prospective tenants. Whatever you do you should make certain that you cover what you invested and make an additional income out of what you had originally spent.But how do you identify an investment property that profits? This blog brings you the top ten tips that would enable you to make a more prudent decision in buying your first investment property. Let us for a moment assume that you are going to buy an immovable property in Colombo district. You may rent it or sell it later.
- See For Your Self
You remember seeing it in paper, watching it on TV, and may have impatiently closed it away as it irritatingly peeped at you over your favorite web page. But now that you are interested and consider it as a property worth purchasing, stop planning on what media tells you. Go see it with your own eyes. Virtual impressions can be unbelievably misleading.
- Walk Around the Place
Once you have set foot on the property inspect it your own way, better if accompanied with a person who knows his way around the place. If it is a seven-storey, visit each of them. Leave no stone unturned. Hype –free, you would realize the actual state of things. Pay attention to what is missing. Leg work pays. But always watch your step.
- Talk With Neighbours
They are the people who have lived nearby, seen it all these years and hopefully know what it is really behind that fence and what had really happened. You can’t underestimate their opinions in most occasions. Communicating with them also help you to form an idea about the kind of neighbourhood your property is in. Friendly neighbours make life easy and good.
- Note down the Facilities
These add value to your property. If you are going to rent it out, then see it in the perspective of the prospective tenants. Maybe they would be mainly concerned with the convenience of travel and transportation. So how far is it to the nearest bus-stop / railway station and how frequent are the busses / rails? How far is it to shopping malls, food outlets and entertainment centers? Make a list. Amenities matter.
- Note down the Drawbacks
The property may be located in an industrial area, close to factory wastage and likely on highly polluted soil. There can be issues regarding water supply, electricity and telecommunications. Make another list. This one would be more critical than the first. Perhaps it would compel you to abandon the project altogether. Better. Wise decisions come with patience.
- Understand Pros And Cons
Back at home, in peace and quiet sit down and slowly go over what you had learnt. Compare the two lists. Weigh the positive factors against the negative. If the benefits outstrip drawbacks you are most probably in the right track. At this stage it is prudent to spend some money on in-depth-fact-finding tasks, as follows.
- Check Legal Background
There is a general belief among us Sri Lankan that if you want to buy property with clear title, Land Sales Companies are the most reliable and trustworthy. Wrong. A myth. Some Real Estates sold by some Land Sales Companies are entailed with so complicated a raft of legal issues that it leaves the buyer entirely helpless. Do not act on presumptions. Hire an experienced lawyer and follow his advice.
- Send an Architect
It can be waved off as groundless superstition. But an architect qualified in “Vastu Shastra” is a person who can immediately notice the constructional errors of a building within and without. To you and me the structure would look all right, but to him it would not. An architect would inform how much it would cost you to rectify the defects. The fee you pay him may save you years of unwanted repairs and refurbishments.
- Send an Assessor
You are informed about the selling price. You are okay with it since you have ample cash at hand. But wait a moment. Are you sure you are about to pay the just price? Don’t you feel that you should, just to be on the safe side, send some knowledgeable person to look over the property one more time and verify that you are not wasting your money,? Send an assessor, you won’t regret it.
- Calculate Cash Flows
This is an investment you are going to do, so it is all about making a profit. Either you are going to rent the property or resell it when the markets become favorable. Calculate how much your initial cost would be taking into consideration the stamp duty, refurbishment expenses and left over leasing payments. How much interest you would receive if you invest the same amount in the stock market or treasury bills? Is it worth all the trouble? Simplest math is the basis for strongest logic.
You can see that the first six tips require no significant expenditure at all on your part, save for the time waste (Is it?) and travel expenses. From tip 7, you can consider paying the lawyer, architect and the assessor. It is a pity that most people skip 1 to 6 and begin directly from 7. Our advice is always to begin at the beginning. That way, it leaves no chance for regret or remorse.
All the best in your first investment! More later!
