So you’re considering buying an investment property. Maybe your business is now a success and generating a substantial amount of profit, or you just got that big promotion at work.
It’s important to think about what to do with this money to ensure long-term financial security and the ability to enjoy your life without being tied down to work. One popular strategy among successful investors is purchasing real estate as an income-producing asset.
In this article, we will discuss the ins and outs of investing in different types of property, including residential and commercial property, as well as important considerations to keep in mind when making this investment. By treating your investments as a separate business and seeking appropriate advice, you can set yourself up for a comfortable and secure future. Let’s dive in!
We started Business Legal Lifecycle to create a simple way for you to understand complex legal terms. Most importantly we want to help you to develop a plan to take your business successfully into the future. Discover your legal risks today.
What to Consider When Buying an Investment Property
There are many questions to consider when buying an investment property. Let’s look at residential and commercial properties individually first and see what the different requirements are for each type of property.
Residential Property Investment
Residential property investment can be a wise financial decision if made with careful consideration and objective analysis. It is important to avoid making emotional decisions based on personal preferences or attachment to a particular property. Instead, one must focus on the key factors that determine the value and potential return on investment.
Ensure you get a fair price
The fair market value of the property is a crucial factor to consider when buying a residential investment property. It is important to research the property’s location, size, and condition, as well as similar properties in the area to ensure that the price paid is reasonable and competitive.
Consider your financing options
The financing aspect of the purchase is also essential to consider. This includes how the property will be financed, the interest rate, and any fees or charges associated with the loan. It is important to have a clear understanding of the debt service required to maintain the investment and ensure it generates a positive cash flow. You can use a property loan calculator to start getting an idea of what your repayments may be.
Calculate the potential income the property will generate
The potential income the investment property generates is another key consideration. Researching the rental market in the area and assessing the current and future rental conditions can provide insight into the potential income from the investment. It is also important to determine whether the property is positively or negatively geared, meaning whether the rental income will cover the expenses and generate a profit or result in a loss.
Are any renovations needed? How much will the upkeep be?
The costs associated with renovations and upkeep of the property must also be taken into account. Assessing the current condition of the property and identifying any necessary repairs or improvements can help estimate the costs and plan for future expenses.
Commercial property investment
When it comes to commercial and industrial property investment, many of the same considerations apply as with residential property, but there are additional factors to consider.
Greater returns, greater risk of vacancy
One important factor is the potential for a greater return, which is often measured against the greater risk of vacancy. Commercial properties generally offer higher rental yields than residential properties, but the risk of vacancy is also higher, as commercial tenants are more likely to vacate when economic conditions change.
The property type and location
The type and location of the property are also important factors to consider when investing in industrial property. Depending on its location, industrial property may be more or less in demand, and different types of industrial properties may be more or less desirable depending on the needs of businesses in the area. It is important to research the market and identify areas of high demand and growth potential.
Does the property have a long-term tenant?
When purchasing a commercial property with a long-term tenant, it is essential to exercise caution to ensure that the tenant remains in the property. If the tenant vacates, it can be costly to find a new tenant or to make necessary improvements to attract a new tenant. This can result in lost income and additional expenses, which can negatively impact the investment’s return.
Can you purchase the property from which your business operates?
Another type of commercial property investment is the purchase of the premises from which your business operates from. This can be a great option as then you are building a business asset rather than simply paying rent.
However, there are also risks involved, as the success of the business is tied to the investment aspects of the property portfolio. If your business fails, the income from the business may be lost, and the investment value of the property may decline.
By conducting thorough research and making informed investment decisions, commercial and industrial property investment can be a wise financial decision with the potential for significant returns.
Questions you should ask your real estate agent
When considering buying an investment property, it is important to ask the right questions to the real estate agent before signing the contract. Asking questions can help you make an informed decision, and it is important to tailor the questions to the specific property and your experience in buying property. Here are some important questions to ask the real estate agent:
- How long has the property been on the market?
This question can give you an idea of how keen the seller is to sell. You can use the answer to plan your negotiating strategy. If the property has been on the market for a while, it may be an indication that the price is too high.
- Will the seller negotiate on price?
It is important to ask this question to get an idea of the seller’s willingness to negotiate on the price. The answer to this question can help you decide on the price you are willing to pay.
- Why is the seller selling?
Knowing the answer to this question can give you an indication of how eager the seller is to sell. This can help you work out their timetable or deadline for selling.
- Have they had any offers so far and, if so, how much?
Asking this question can give you an idea of what purchase price the seller will accept, and also give you an indication as to what price other potential buyers believe the property is worth.
- What is the lowest price that the seller will accept?
Although agents may not usually tell you this information, it is worth asking to see what the answer is. It can help you avoid overpaying for the property.
- Are there any changes in the area that may affect the value or amenity of the property?
It is important to find out about any changes in the area that may affect the value or amenity of the property, such as proposed infrastructure or zoning changes.
Asking these questions can help you make an informed decision when buying a property. It is important to seek advice from professionals such as lawyers, accountants, financial planners, mortgage brokers, and real estate agents to ensure that you follow the process properly.
Business Legal Lifecycle can guide you through the investment property process
Buying a property is one of the most significant investments that a person or a business can make. It is important to do your due diligence and ask the right questions to the real estate agent before signing the contract. At Business Legal Lifecycle, we understand the intricacies of buying an investment property and can guide you through the process. If you’d like to find out more now, check out the chapter of our book on investing in property. If you’d like to ask us a more detailed question, contact us today.