Thinking About Buying A Property – Use This Property Depreciation Calculator First
So you have decided to buy a property. Well, the thing is that it is probably one of the largest investments you will be making, so with big money investing comes financial responsibility. It is important when buying a property whether it is for your own home or a residential or commercial investment to first do the figures and see how they stack up.
Over the years I have invested in many property investment courses and as quoted by Mr Russ Whitney “don’t buy a dog.” What exactly does that mean? Well it means you do not buy a property with basically just one exit strategy thinking you can flip the property on to someone else and make a quick profit. You need to allow yourself at least 3 exit strategies if you are a professional investor.
Things you need to look at would be what the market rental prices in the area is like for your particular type of property in your location or a similar one. What is the upside potential? How much money can you make by buying the property in a slightly shoddy state and just painting it, maybe putting new windows and doors, bathrooms, kitchen and new flooring. So if you buy a property that looks run down and needs a bit of work, for $120,000 and spend $10,000 what will be the price of that property if it was renovated in a fire sale. If it is $160,000 that means you make 25k profit after taxes real estate fees etc come off. So what money will be left over as a profit for your work and investment. That is what you should work out long before buying.
If you work out you need to make a minimum of $30k per property then offer less than the 120k maybe offer $100k and allow the agents to go up to 115k. That will leave you your 30k firesale profit. What do we mean by a firesale? Well if you needed to sell the house in a hurry what would be the price that a buyer would jump to buy in a hurry? If you count the market value top price index you might have to spend a year or two trying to sell the property. This in turn will make you a motivated seller and make you get less for the property if you are in a hurry to sell it than what you needed your profit to be. Therefore eating up into your profits not to mention an extra year or two maintenance fees, estate agents fees and upkeep of the property.
The other great thing about investing in many countries is that the Government will allow a depreciation tax allowance on properties, unfortunately in a few countries they seem to be doing away with these but if you are lucky enough to live in Australia then you will be able to use this depreciation allowance to offset some of your property taxes too.
If you have not already done it make sure you check out this Property Depreciation Calculator