Buying real estate is an investment, regardless of whether the property is meant for you and your family to live in, for setting up a business, or for turning it into a rental. Personal issues and global crises can affect the ease and speed of purchasing a piece of property, but some aspects of the acquisition remain the same.
Here, our experts in real estate in Dubai share their insights on how to pick the right investment property for your unique needs and situation. This short guide will include some of the primary factors you need to think about before purchasing.
Do research on the area
Take the time to gather information on the potential users of the property you plan on getting. If it is for your family and children, you may want to look at places near schools, parks, recreational areas, and shopping areas, among others. On the other hand, if you are targeting entry-level office workers, you may want to look for residential areas that are close to business districts and that have access to public transportation.
Make a list of potential areas where you want to buy property and learn as much as you can about each. The more you know about each property and the surrounding location, the more confident you will be about making your decision. For rental properties, the information you gather during the research stage also makes it easier to promote them to your potential tenants.
Determine your budget and cash flow
Although both aspects involve money, the similarities between these two concepts end there. A budget determines the amount of money you can use to accomplish your goal. In the case of buying property, it is the amount you have available for your project – this could include your savings, approved loans, borrowed money from loved ones, and many more.
On the other hand, cash flow involves the amount of money that goes in and out of your business. In business, you aim to make a profit. Knowing your cash flow helps you determine if you’re faced with a great real estate offer and whether it can make you earn or lose money.
A lot of buyers fantasize about real estate properties that continuously appreciate. The hope is that if you wait long enough, you could receive more than what you paid for when you signed the contract.
Investing for appreciation rarely works because certain factors, such as the performance of the local economy and crime rates, can change over time. It may seem like a good purchase now, but it may not be worth as much in the future.
Investing for positive cash flow is a better alternative.
Before you buy, calculate your sources of income and all the expenses involved in buying and renting out the home, apartment, or shop. Ideally, the rent you receive from the property should be more than the costs involved in renting it out and maintaining it. With positive cash flow, you have money to pay off the loans, advertise the property, and maintain it, among other things, and hopefully still have a bit left over.
Check your credit score
In the UAE, the US, and some other countries, your credit score is important. It indicates your creditworthiness. The higher the score, the better your chances of getting your home loan approved.
Credit scores can also affect interest rates and conditions. They can influence approval rates for credit card applications as well. If you live in a country or region that gives precedence to high scores, then do what you can to improve yours and keep it that way.
Look into multiple lenders
Housing bubbles, pandemics, economic crashes – these events can often change the home buying and loan application processes. In the case of a viral epidemic, for instance, new procedures may be implemented to ensure the safety of both buyer and seller. Interest rates can also rise or fall abruptly, or lenders can become stricter when it comes to approving applications.
Because of these, it is worth looking into multiple lenders. This is not to enable you to make comparisons. In some cases, you may need to get loans from several mortgage companies to get the amount you need for your investment.
Explore your down payment and interest options
Also, you need to consider your mortgage options and determine what’s best for your situation. If you want to pay the smallest monthly amount, choose a lender that offers a 30-year fixed mortgage plan. You can also opt for adjustable-rate mortgages which provide a low interest rate but only during the first year.
There are also mortgage options that allow you to buy the property quicker for a smaller loan amount. You can pay off the property in as fast as one to five years. In such cases, you need to see if you can afford to pay a more considerable amount monthly.
Buying any type of real estate requires a lot of careful thinking. Consider these factors before you buy to make the most of your investment.