Think of Your Home as a Financial Investment
Investments, particularly property investments, can be an important and valuable part of someone’s savings.
If you’re wondering how to understand a home as a finical investment, here are five helpful tips:
1. Think about Location
The location of a home remains one of the most important factors for the property’s profitability. Peaceful surroundings, neighborhood status, access to major cities or business centers, and school quality are some of the defining aspects of a location’s value and desirability. Your real estate agent can help you understand the specifics of different locations’ values, and you can also learn a lot from online research. Here’s a great starting point.
A long-term view of a property is another important factor when considering a location’s value. The open land at the back of a residential building might later be developed into a noisy manufacturing facility. Check the ownership, property type, and intended usage of neighboring areas. You can also get a sense of development patterns by looking at how a neighborhood has changed over the last 20-50 years.
2. Assess the Value of the Property
Lots of important financial factors depend on the amount at which a property is valued. These include the financing buyers receive during purchase, the listing price, taxation rates, and of course how large an asset the property will be for the buyer.
These online calculators can help you approximate the value of a property:
- The Sales Comparison Approach: This method averages the sale prices of recently sold properties similar to the one you’re looking at. This is a suitable method for assessing the value of both new constructions and older properties.
- The Income Approach: This approach is based on expected cash inflows. It’s most suitable for rentals.
If you still have questions, call your real estate agent.
3. Select Your Loan Carefully
Understanding what kind of loan to choose and how to handle it are crucial if you want to benefit from a real estate investment. Ignorance backfires; something that was supposed to help you invest can end up damaging your financial standing.
- Decide on the type of loan that best fits your situation. Some loan types to consider are fixed rate loans, adjustable floating rate loans, interest only loans, and zero down payment loans.
- Be aware of both the loan’s initial terms and any other charges the financiers could levy later on.
4. New Constructions vs. Existing Buildings?
On the surface on kind of home may look much more attractive than the other–a new home filled with modern amenities or an older one in a classic, desirable location–but the financial costs are quite complicated. Here are some topics to get you thinking:
- Number and Size of Rooms: Older homes tend to have more, smaller rooms while newer ones focus on open floor plans and family gathering space.
- Maintenance Costs: Older homes tend to need more upkeep but are also sometimes better made. For both kinds of home, consider factors like when major appliances were last replaced and the status of structural features like the roof or drainage system.
- Amenities: If you’re looking for modern amenities like whirlpool tubs or smart appliances in the kitchen, a new construction is likely to have more of the features you want. Purchasing them as part of the house may well cost less than adding them to an older building.
- Location: Because of land availability, new constructions are usually located well outside of city centers while older homes are closer in. What kind of area do you want to invest in?
5. Know About the Land Title
Traditionally buying a home meant purchasing both the home and the land under it, but not every property purchase works this way. Depending on the kind of ownership you have over the property, you have different development and resale options, both of which affect the kinds of investments you can make in your home. Here are the four common kinds of land titles you might encounter:
- Torrens Title: This is the traditional kind of property title: you purchase both the building and the land it sits on. The title is then registered in your name and you receive a Certificate of Title stating your ownership and noting any mortgages on the property. Note that if you are paying a mortgage the bank will keep the Certificate until you have repaid the loan.
- Strata Title: Strata ownership is most common among unit and townhouse owners. Owners pay regular dues to an owners’ corporation that uses these funds to maintain common areas like stairwells or gardens. Strata title payments are an ongoing piece of an owner’s budget. It is also important to note any owners’ corporation bylaws which govern how you may change your unit.
- Stratum Title: Unlike in a strata title situation, stratum title properties are divided into lots, not units. Owners who purchase a lot become the sole proprietors of that lot. They also hold shares in a company that manages the common areas.
- Leaseholds: A leasehold title is when you purchase the ownership of a temporary hold on a property from a third party. In rural communities, that third part is usually the federal government, but leaseholds are also common in retirement communities.