For a long time, investing in property has been one of the most effective and popular means of accumulating wealth and getting rich over time. Even today, when the stock market seems on the verge of collapsing at almost any moment, and when interest rates on bonds are at their historical lows, not a few financial pundits have been directing our attention back to real estate—to homes, investment houses, apartments, and the like. Real estate seems, in this time of uncertainty, a bastion of solidity and security. Indeed, even the prospect of investing in apartments (not a few pundits insist) makes for good reading and good fortune.
Types of Residential Property
Residential property includes all sorts of housing, from single-family homes to multi-family apartments. People live in them. They have to pay rent or a mortgage. If you invest in them, you get that rent or pay down that mortgage, and you just might, in a not-too-unlikely scenario, also see the value of the property appreciate over time. You might also, in the apartment or townhome scenario, have no involvement with the tenants, which is a big plus and a necessary consideration if you want to keep your sanity.
Financing Property Investments
Obtaining adequate financing is one of the most significant aspects of investing in real estate. Whether you are purchasing your first home or diversifying an existing portfolio, your loan eligibility for home loan will greatly affect both how much you can borrow and the terms under which you can secure the loan. Following are a few of the more critical factors that lenders use to gauge your mortgage eligibility:
Credit Score
A higher credit score indicates to lenders that you are a low-risk borrower. It is a fair wager that a lender would not consider you for a prime loan if your credit score were under 620. By maintaining good credit and thereby earning a good score, you are much more likely to get favourable terms on your mortgage.
Down Payment
Most frequently, you will need to put down 5% to 20% of the purchase price of the home. The more you can put down, the less you will have to borrow, and the better (that is, lower) your mortgage terms will be. For example, if a home is worth $200,000 and you can put down $40,000, you will have to borrow only $160,000. If you achieve a lower interest rate for the loan and fund it over 30 years, your monthly payment will be about $877. If you can put down $20,000 and borrow $180,000 instead, the monthly payment goes up to about $1,020.
Types of Loans
The kind of loan you might apply for—be it fixed-rate or variable-rate—can also have a bearing on your potential eligibility. Each belongs to a different interest-rate and condition world. Working with a mortgage broker or financial advisor becomes super important here, because they understand the ins and outs of these worlds and can help you fully comprehend your potential eligibility and explore from a “type of loan” menu.
Investing in Apartments
In urban areas, where space is limited and the demand for rental properties is strong, property investors often look to apartments as their “thing.” Like any other investment, there are pros and cons involved.
Advantages of Apartment Investments
- Lower Cost: Apartments usually cost less than other types of residential properties, making them more accessible to first-time investors and those looking to diversify.
- High Demand: Regardless of where an investor focuses their search, there will almost certainly be significant demand for apartment rentals. Renters tend to prefer the convenience and affordability of living in an apartment.
- Easier Management: Apartment investments tend to be a step up from houses in terms of management. While individual owners of rental apartments don’t share in the body corporate’s maintenance savings, they do effectively pay a maintenance fee to “someone else” who manages the shared spaces.
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Security and Appreciation
- Added Security: Many apartment buildings come with added security features that appeal to tenants, such as intercoms, security cameras, and gated entries.
- Appreciation: Apartments in high-demand areas tend to appreciate well over time. Properties in desirable locations with good infrastructure, transport links, and amenities will likely see appreciation.
Challenges of Apartment Investments
- Limited Land Value: Unlike houses, apartments do not come with their own land, and the property’s value is tied to the building. This may limit appreciation, as land typically appreciates more than buildings.
- Higher Turnover: Apartments often have higher tenant turnover, particularly in student-dense areas.
- Maintenance Costs: Apartment buildings may require higher levels of maintenance, and between-tenant periods can reduce rental value if not maintained properly.
Long-Term Perspective
Investing in real estate demands a viewpoint that encompasses years rather than months. Successful property investors keep the big picture in mind, focusing on several key concerns:
- Location: Where exactly to invest matters greatly. Properties in good locations with high demand tend to perform better over time.
- Yield vs. Capital Appreciation: Decide whether to prioritize monthly cash flow (rental yield) or long-term property appreciation (capital growth). A balance of both is often ideal.
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