Golden Rules To Follow When Buying Property

Property is still considered the number one asset purchase for most New Zealanders and investing in property that yields positive returns and offers capital gain over time is preferred to other investment strategies.

However there are some golden rules to follow when buying property for investment.  These rules include meeting the recommended criteria like good location, proximity to amenities, security and so on.

Property bought for  investment purposes could entail a short term or long term perspective. Short term perspective could be to purchase, renovate and sell it, with the objective of making a small profit within a short duration of time. Remember there are tax implications when you are trading property.   The long term perspective, is to purchase property that you will hold and rent out.

Three golden rules to follow….

When property investment becomes a priority to you, it makes sense to understand the market and area you which to purchase in, and seek professional help when required.  

Also before you commence – devise a set of rules that will be followed for each new investment.
1. Location, location, location– The first rule is buying property in a good location since this will decide on the returns and the level of appreciation. If location is right, nothing else can go wrong. Hence while selecting property location must be foremost in the buyer’s mind. The right location can never mean a wrong investment.
2. Yield– While a positive yield may suffice for some, it makes sense to decide on a minimum acceptable yield. Many property investors believe that an annual yield of 10% should be targeted. Yield can be calculated by multiplying weekly income by 52, and dividing the product by buying price including renovation costs. Though most properties yield less than the 10% threshold, a discerning eye and some shrewd money moves can help achieve this amount. It must also be remembered that higher yields in a locality are bound to lead to an escalation in property prices as well. With a host of other factors linked to higher yields, it is perhaps ideal to strike a balance between yield and long term capital growth prospects, and settling for a lower yield if the prospects are better.
3. Looking for good bargains- The best prospects for price appreciation of property which will yield higher returns, come from a smart purchase at a price lower than the average market price. This means looking for properties available at a discount, or perhaps a distress sale, which makes it available at less than the market price. Often, the intrinsic value of the property may be higher but its dilapidated state may push its price down. Buying such a property and renovating it, will help to get higher returns immediately as well. Discounts help to make money fast enough to start a chain of property purchase, by using the profit from one property to make the down payment for the next property.

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