If you are reading this article, you’re definitely wants to invest in property but have not much capital to get started. Instead investing in the high-end property like condominiums or commercial property, you should start from flat or apartment – the unit houses.
However, before getting started, you must understanding some basic guidelines, study the targeted area, logically and unemotionally, and make sure you make the best choice. When you invest in income property (you earn income through renting, leasing or appreciation), you must aware the economic movement in the area. You should consider the following 4 guidelines before put your hard-earned money into this property.
➊ Financial Feasibility
You need to figure out, does this investment make economic or financial sense? Can you make profit which justifies your investment? Is it financially feasible? What are the possible risks, downfalls, predicted occupancies and etc? Will you commit to being conservative on the revenue potentials, but far more knowledgeable and ready for potential expenses? Begin by using the 6% rule which is analyze the potential by considering if you can make a 6% cash flow profit without consider the factors such as depreciation or etc.
For instance, if the price of property is RM 1 million, your net cash flow must be at least RM 60,000 per year, or RM 5,000 per month. By doing this, you should also consider the taxes, utilities, maintenance, property improvements and etc. These may end up with at least RM 60,000 per year. If your taxes are RM 30,000 and you estimate maintenance expenses at RM 500 per month (RM 6,000 per year), then the rents must come to RM 96,000 per year (RM 60,000 base requirement + RM 30,000 taxes + RM RM 6,000 maintenance reserves.) Hence, in this example, you must ask yourself if the property will be capable of collecting RM 8,000 per month, in rental income!
Location, location, location. Property investment is all about location. You will need to figure out does that location help, or hurt your income property?
➌ Maintenance expenses
How old is the property? How old is the roof? Since most roofs are rated at a 20 years usable life, if it’s relatively new, you should allocate a smaller amount, than if it’s older. Water heaters are normally rated for 10 years. When will you need to paint the exterior and how often will you need to do interior painting? Know your potential costs up- front, and plan accordingly. Don’t forget the insurance, too.
➍ Property taxes
Taxes rarely go down and usually rise! Look at the property’s tax history, so you have some idea of the average yearly increase. Plan fully and smartly, from the onset!
Like this article or found it helpful? Share it!