Buying an investment property is all about making the most profit possible. Market conditions which you have no control over play a big role in property value. But you do have control over maximizing the profitability of your investment if you choose your property wisely.
Here are several factors that can help you maximize your property investment profits:
Check Underlying Assumptions
Many new and veteran property investors let their assumptions cloud their buying decisions. That’s because it’s easy to assume that conditions affecting your property value may never change.
The reality is that the following factors might change:
- The amenities surrounding your investment property can close or be relocated.
- The view of your property can change when newer developments go up.
- The rental yield of your property can change with oversupply or speculation.
Recognize that the area surrounding your property can change in as little as a decade, so pay close attention to what’s going on around your investment. Otherwise your profits may suffer.
Get a Shorter Loan Tenure
If you take out a loan with a shorter tenure, you’ll increase your profits by reducing your interest payments. But you shouldn’t just get the biggest possible loan – buy a property where the repayment is below 40% of your income.
Otherwise, you’ll risk having to refinance for longer loan tenure if interest rates rise, meaning you’ll have to pay more on profit-reducing interest, as well as an extra $2,000 -$3,000 just to refinance.
Buy an Uncompleted Property
Buying a property that’s still nothing but concrete pillars and scaffolding is another way to improve profitability. That’s because uncompleted properties usually come with a discount. Sellers also offer incentives such as absorbing costs such as the stamp duty if you can pay off the property before completion.
But you’ll have to compete with a queue of other buyers. The competition can be so fierce that people have sold their place in such queues for thousands.
Buy a Property You Can Rent Out
The best thing about renting out your property investment is that it will make you “loan free” because your tenants will cover the loan repayments. You’ll even make a decent 10% – 20% profit depending on how much you charge for rent.
But turning your investment into a rental property also has its share of dangers, as vacancies, late/non-paying tenants, and absconding tenants can leave you in a bind. That’s why it’s a good idea to always check on the property’s rental history and the area’s rental rates.
Choose Your Renovations Carefully
It’s true that renovations are only for appearance and don’t guarantee an increase in property value. But some renovation can increase the profitability of your investment. The following renovations will do just that:
- Walk-In Wardrobes
- Concealed Drawers & Cupboards
- Open Concept Designs
- Improved Furnishings (Flooring, Kitchen Tops, etc.)