Everyone would love to afford a cash payment for their house; but is that the best option when it comes to buying property? This week we look into the best financial strategy for the purchase of a house. After you have identified a property that is just right for you, most of the time the next question is how do I pay for this more economically? For you to get it right with financing any major buy, you need to ask yourself some of the following questions.
- Do I need to buy this?
- Why am I buying this?
- Will I strain financially?
- Will this purchase influence my lifestyle positively or negatively?
The question of whether you need to buy is critical in the preliminary stages of buying property. You need to be sure of 100% return on investment for any money you spend. At this stage you have already assessed the need to buy and what you need to buy if you have been actively and avidly reading our property column.
Why to buy
The real estate industry offers valid opportunities to people from all walks of life. Some people want to invest in the industry to improve their monthly turn-over. Others buy to sell for the profit, while still others buy to put a roof over the heads of their households. Whatever your reason for buying a house you need to be very sure that your investment is worth the while.
If you are buying a house to let you need to assess the going rental rates in the neighbourhood alongside your monthly mortgage repayments for mortgage financed purchases. If by any standards the rental rate is less than a standard ten year mortgage monthly repayment then that is not a feasible buy.
For a cash buy it is critical for you to calculate the period of recoup of your money from the investment, a feasible venture should be able to recoup your capital within ten years. When calculating the income, remember to deduct income tax, land rates and service charges for apartments.
Buying for sale
If you are buying to sell you need to have an eye for opportunity, look at potential for appreciation and study market forces to determine demand so as to recover your money plus profit fast. Always talk to developers to establish their off plan prices and how they compare to their ready house prices. A good cautionally-measure; buy from reputable developers. You don’t want to get dragged into court cases over delayed delivery of apartments or even collapse of schemes this will hold your money longer than expected.
Be sure to get the best deal, and be sure to buy early. Speculative buyers can only make a kill by looking at the potential for appreciation of the development and buying before others.
When to buy
In real estate you buy and wait and not wait to buy. Buy early, especially when buying for speculation, though the timing in buying a house comes with its pros and cons. When buying a house especially a new development you can buy off plan that is before the actual house is built, the main advantage of this is that you are able to negotiate for features and also get a major investor discount.
If you are buying to live in the house you need calculate the period of construction allowing for reasonable delay, and compare the savings from early bird offers and the rental expenditure over this period. Buying a ready house for own occupancy saves you on rent and reduces the risk of buying from unscrupulous developers who compromise quality immediately they are sold out. Buying ready houses on the other hand comes with its cons in that you pay more for the house as compared to the early bird-we are talking millions in most cases.
When buying to let, buy ready. This ensures that the rental rates are more accurate since rental rates go with quality and workmanship. This will also ensure that you start earning from the house immediately the transaction is complete or as soon as you can get a tenant into the house.
How to buy
The major determinant in the choice of how to finance your house is your reason for buying the property. For home buyers who want to live in their new house a mortgage that you can afford is a good idea. Let the mortgage not be too expensive something within your current rent and not more than 40% of your monthly pay is manageable. Remember to apply for tax relief for the mortgage repayments.
For speculative buyers a proper business plan can help you determine your most appropriate mode of financing. Some businesses thrive on doing numbers others on the profit margin. Determine your low risk, high profit mode of financing by involving financial experts and stick to that.
When buying to let a mortgage is a good arrangement if the rental income there from is less than your monthly repayments for the mortgage and service charges. Before concluding that you are home and dry; remember there is a risk in case the house goes vacant or the tenant defaults. Property agents go a long way to reduce this risk-at a fee of course.
