Buying Property: How to Avoid Over Paid

So you have a clear idea of what you want to do with your money. That is, invest it in real property. You have read a lot about how experts feel this is good time to buy real property to be sold later because property prices are at their all-time low. When you can’t go any lower, there is nowhere else to go but up. You have also probably looked around for viable investment options and maybe even ready already to shell out your money. One important thing that you should caution against: paying too much for what the property is really worth.

According to experts, the best time to make money is not when you sell the property, but when you buy it. How so, if you buy investment property at a very high cost, you are likely to have difficulties recouping your investment. However, if you are able to buy it for a bargain, you are sure to enjoy the returns when you do decide to sell it.

It is especially important to avoid overpayment if you want to go into rental real estate investment. The effect of overpayment on your finances is you buy investment property is more grave than say, if you are buying your own home. There are cases when a homeowner sees a particular property and falls in love with it instantly, leading him to buy it simply because he needs to have it. This is a dangerous thing to do, if you are buying rental real estate property because you are bound to incur losses.

But what if the market is hot and everybody is competing for prime properties? In more dynamic markets, landlords even put a premium on the inherent value of properties. These premiums can range from 10 percent to 60 percent on top of the expected income from these properties. In such cases, it is alright to factor in the premiums. After all, because the location is prime, you are sure to recoup your investment anyway, although it may take some time. What you have to remember though is to plan your rental income in such a way that it will surely be sufficient to pay for your overhead costs. Your computation should take into consideration an average of five percent vacancy rate.

Given the high cost of investment, how do you know that your prospects for profit are looking bright? If you can break even, your success is in the cards. This means you stand to gain as soon as the price appreciates or as soon as you are given tax breaks. If you want o see how your profits will look like, you can ask an expert to crunch the numbers for you.

Finally, another important thing to remember in order to avoid overpayment is to check the kinds of repair that the property requires before buying it. Minor repairs can be set off against the tax due, but renovations that will redound to the long-term benefit of the property will have to be amortized. This means the cost will have to be spread out and you cannot recoup the cost of improvement until after several years.

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