When you want to buy a property you cannot avoid being mindful of not overstretching your finance, of course. But there are certainly other factors that could make your housing investment more worthwhile.
First and foremost, renting is still a great option. Some have lived their entire life renting properties and they found it a better solution for their lifestyle. Especially for those who do not settle easily, renting is by far the most flexible option. I have a dear friend of mine who has lived in 5 countries over the past 15 years. He has also moved through 10 different properties meanwhile. As his income expanded, his lifestyle adjusted flexibly.
As his income reduced, he moved to smaller places. On the opposite end of the spectrum, I have a friend who bought a property some 12 years ago. She lived in the same 100 square metres apartment for nearly 10 years, until a major job offer came. She was requested to move to another country. She immediately accepted the job and put the apartment for sale, but due to the unfavourable economy, she failed to sell for 4 consecutive years. This caused her a substantial loss, as she was still repaying the loan during those four years. To be precise, she was actually still repaying the interests over the property that she purchased.
The more experts readers may already know that for the first part of a loan, we actually repay the interest. The capital repayment occurs later on in the loan process.
In addition to that, because she lacked the necessarily capital to put as a downpayment for the new property in the new country, she was forced to rent an apartment, aggravating even further her financial position. On one hand she was paying the loan for the property that she owned, on the other hand she needed to pay rental for the apartment where she lived in the new country. Her substantial salary increment was entirely absorbed by the rent and the loan.
So when I interviewed my friends in order to write this column, I specifically asked them if they would have taken the same decisions. Needless to say, my “globetrotter” friend would have never bought a property because for him, moving from one place to another, had become part of his lifestyle.
Surprisingly though, my other friend, the one who bought her apartment, said that she would still prefer to buy, despite the fact that she generated a loss due to the inability to sell for 4 consecutive years. She mentioned to me that she would have still bought the flat because she felt safer that way. In other words, I believe that to her owning a property is part of a pre-established mindset more than an actual financial strategy to acquire assets.
Whether you are planning relocation or you are rooted as a plant, there are a few interesting aspects of property ownership that you should look into before making a decision. First of all, the earlier you enter in the property equation, the higher are the chances of you making a good profit in percentage, but at the same time lowering the total profit amount.
For instance, if you buy agricultural land that is later on converted to residential, you might sell it at a substantial profit percentage, although the actual amount could be quite small. Secondly, once you own residential land, you could sell it to a developer and cash out immediately. In that case I would encourage to trade not only for cash, but factoring in a piece of property too. For example, you sell a piece of residential land to a developer who intends to build a 10 storey condo.
Instead of selling the land for cash only, request the developer to reserve one or more units for you. In that case you would have land becoming property without having to pay for it, but rather generating a profit. Thirdly, if you get to know about a residential or commercial project while it is still on paper, that is the best time to strike a deal. Many developers prefer to sell everything quickly at a lower margin, rather than holding unsold properties, as their core business is building, not selling. In that case make sure that you negotiate the best possible deal. Needless to say, the more units you commit to buy, the higher would be the rebate that you would be able to obtain.
In other words, if you are thinking of buying 1 apartment only, always ask what type of discount would you be able to get if you were willing to commit for 2 flats instead. If the percentage amount is substantial, bring the deal to your bank for further negotiation on the mortgage percentage.
Generally aim for longer term loans and for the lowest monthly repayment as possible. The sooner you manage to rent out the property, the sooner you stop your monthly mortgage repayment, and your investment property becomes free of charge.