Buying a Property as an Investment

Buying and owning a property is traditionally considered to become the most popular form of investment.

You should try and invest in a property as a way to invest in your future and return with a good rental income. Property values have been climbing for some time now, making the property a more attractive option when considering both its yield and its capital growth potential.

Is property investment a good idea?

Before you venture into buying a property as an investment, be aware that there are certain challenges to overcome.

The challenges?

Finding a good home

You can approach an estate agent or private seller for information, but the house likely will not be fully furnished when you move in and you’ll need to rent furniture, white goods, and any other necessity of your new home.

Renting a property out

Renting is often not easy as many tenants like to negotiate down the price of rent or may not be able to afford the rent at all. You’ll need to check on their background and references before deciding whether they’re worth renting your property out to.

Finding reliable tenants

You need to be sure that the person moving into your rented property is trustworthy and has a good credit rating. You’ll also need to ensure that they have a steady job and will be able to keep on paying the rent on time.

If you are completely new to property investment and would like more comprehensive information, we recommend going through our Property Investing Tutorial at
The Learning Lounge.

Is property investment high risk?

No, the property is not generally a high-risk investment. There are some minimal risks involved like the rise in property prices due to the demand for properties and the inherent risks of investing in any business.

You can refer to this article: Risks associated with property Investment

Can investment like buying a property make you rich?

Good question, though you may not be able to make huge returns every time. But hey, making huge returns is not the only reason why people invest in property.

My aim is to maximize the return on investment and maintain my position as a resident of Georgia(in a nice neighborhood) with a reasonable amount of risk. Can you get the same returns from shares and bonds?

There are many factors to consider when deciding what to invest in:

How long do you plan to hold on to your investment?

Real estate is a long-term investment, therefore you need to consider the time frame before purchasing a house or property.

Who will inherit the investment when you die?

If you have children or family members who may be interested in inheriting your home, it is best for them if it is possible for them to continue living in it after your death. Therefore, you need to ensure that it has good resale value and that there are buyers who can afford to buy it from you.

How well do you understand the investment that you are interested in?

You should be able to describe exactly what type of property you want to buy and why. If this is not possible, seek out an appropriate advisor to assist you in making the right choice.

What is your current financial situation?

Are you able to afford the down payment? Are you prepared for maintenance costs once the house has been purchased? How much do you have in your overall investment portfolio? Is there enough money to invest in real estate alone, or is there a need for additional investment funds as well?

What is your level of risk tolerance regarding this particular investment and your overall portfolio of investments?

If you are young without much money, you may be considering a smaller down payment and taking on more debt. On the other hand, if you are older or have more money you will be able to purchase a bigger house with less debt. You will therefore need to decide what level of risk is appropriate for your life situation.

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Do you have a cash flow problem?

If you are considering investing in residential real estate, and if you need a rental income to supplement your other sources of money, it is possible to purchase an investment property with a mortgage, so long as you have sufficient savings to cover the down payment. On the other hand, if you do not need rental income from the property, it may make more sense to buy debt free.

Do you have a career problem?

If your career is in flux due to recent layoffs or impending job relocation, investing in an asset that will appreciate over time (i.e., real estate) may be one way of stabilizing your finances during this transition period.

What is your attitude towards loss?

If you are considering investing in real estate, keep in mind that it can take several years before the investment begins to produce a positive cash flow. If you do not have the necessary capital to purchase the property outright, and if you find yourself unable to make your mortgage payments, you may lose your investment. While this is rare, as long as you are aware of the risks involved in purchasing property with borrowed money, you can minimize your risk by taking a small down payment and a high-interest-rate loan.

Do you need the money for something else?

If your dream home deduction is greater than your taxable income in a given year, i.e. you are not eligible to claim a deduction, you may be better off investing in real estate. If you need the money now, consider investing in a taxable investment using funds from another source.

Where do you plan to retire?

If you are planning to live near family after your retirement years, it may be best for you to purchase a home in your current area. On the other hand, if you have lived in the same area for some time and have decided that you would like a change, purchasing a new property further away from where you currently reside may make more sense. If you plan on purchasing an investment property, this is not recommended as it will involve significant amounts of time and effort addressing problems with tenants. This can be especially problematic if you are elderly or infirmed.

Bottom Line

Are you going for high-risk, high return? Low risk, low return? Or somewhere in between? Ask yourself… Are you prepared to lose all you’ve earned, or do you want to take the risk of losing some of it and also getting out of the position when it’s no longer possible to make it work? Buying a property as an investment will require diligent research and decision-making, including analyzing the property, and location and identifying the ideal tenant.