How to know if a property is a good investment

You are going to buy a house or apartment and you have doubts about the investment. Today we bring you a series of keys that will help you you know if a property is a good buy..

Thus, you can make an investment safely and without risk of being wrong. Think about it, buying a house or flat is a complex decision that depends on many factors..

Keys to know if a property is a good investment

Acquiring a property should be a decision based on facts and aspects that indicate that we have made the right choice,especially if we want to buy to rent and obtain profitability with the purchase.

To minimize the risk, but above all, to remain more calm, we have to have a series of aspects that influence the choice or not of the future property.

The process to know if the choice of the property that we want to acquire is a good investment or purchase must adhere to various criteria that will change depending on whether we want profitability, income or peace of mind..

What we want to say is that buying to rent is not the same as buying to live.

If we make a good purchase we can get an income through rental or future sale.

But may be, that is not interesting for us since our motivation is to live in.

In any case, we tell you all the factors that you have to assess before making a real estate investment such as buying a house:

  • Economic capacity..
  • Purpose of purchase:rent/sale or live in.
  • Condition of the property.
  • Location of the house.
  • Know the risks..
  • Appropiate market price.
  • Second hand or new property..

Let's start with the first thing, the money we are willing to pay for a property, that is, the budget we have.

The budget sets the limit

Before making any purchase you should know how much you are willing to spend. Acquiring a property is the same, that is, you must define a maximum amount of money that you are willing to spend.

Of course, you must know several things in advance. The first thing is that a real estate investment is not a one-time purchase and that there are certain added expenses. These expenses will be divided into fixed and variable expenses.

Among the fixed expenses we have the following:

  • Local and regional taxes.
  • Management and paperwork expenses:notary, Land Registry, etc. Calculate around 2 or 5 percent of the total price.
  • Insurance and fixed expenses such as the community fee, electricity, etc.

The variables can be these:

  • Maintenance and/or reform expenses.Here you must take into account the condition of the property.
  • Mortgage cost.Keep in mind that not everyone has the same money saved and cannot access the same amount for a mortgage. For this reason, we include it as a variable.

Variable expenses can be the hardest to calculate, but it's important to include and anticipate them, althought it will be impossible to know them 100%. The best is trying to adjust as much as possible so as not to end up in the red..

Entre los gastos variables que debes tener en cuenta no debes olvidarte incluir posibles gastos inesperados como hacer una reparación cotidiana de sustituir el calentador de agua o algo más caro como arreglar el tejado después de una fuerte tormenta.

Do you want to rent or live in?

It is not the same to buy to rent than to live. In the first case you must pay much more attention to the "possible profitability" and in the second to other factors such as the price, location and condition of the property

If what you want is to rent or sell your property, you must apply the 1 percent rule. This rule is a basic real estate investment advice that buyers use to know if it is worth making an investment on a property.

This 1 percent rule works like this:

Each month we must earn no less than 1 percent of the price we pay for our apartment.In this price, both the purchase price and any other additional expenses such as reforms or renovations must be included.

To give you an idea, imagine that the property has cost us about 100,000 euros and that the reforms have cost us about 2,000 euros. That is, the final purchase has been 120,000 euros.

Therefore, if we apply the rule of 1 percent to we are left that every month we must receive a concept of 1,200 euros.

If you are not convinced by this rule, you can use another one based on the annual return you want and use a real estate investment calculator after adding the expenses and the mortgage.

The location and the market price

The location of a flat or house is a critical factor when buying. It is not the same to buy in the center of the city than in the outskirts.

In this sense, it is important to apply the strategic sense and assess the purchase or real estate investment in its context, taking this aspect and assessing everything as a whole.

¿What is more important for you?That your property is located in an area close to the center or in a neighborhood on the periphery.

Do you mind buying a holiday home off the beach line or do you prefer to invest in renovations?

Answering all these questions is key to knowing what you want.

Think in the location first and in the property second. What is more important?

It may or may not seem like a mistake, but if you buy the apartment that you like in a place that you are not happy with, it is still not a worthwhile property. Unless you want to rent it and you still don't care.

In this sense, along with the location, other factors such as the market price, the cost of renovation and investment enter.

For example maybe the location of the property you want to buy is not the best in the city,but other factors make it worth it.

Think that the competition, the market price and the renewal can be so low that the purchase is still worth it. Or not. It all depends on what interests you.

You pay more or less

One of the key factors when buying a house is knowing the market and determining whether or not the average price in the area exceeds the apartment we want to buy.

If it exceeds it, it's still not worth it, unless the property is in perfect condition, has good services nearby and the neighbors are charming.

Or maybe the average price is lower than normal, but it needs reforms. The question here is to know if the price of the reform will make the total price exceed the market value.

The price of the property must be commensurate with the location.The problem is that the market price changes from one area to another, not only between Autonomous Communities, even between neighborhoods in the same cities.

In summary, knowing if a property is a good buy depends on many factors and is not something that is easily determined.

In the same way, services are more important to you and a more distant and cheaper apartment is worth it. Another owner will think differently.

The key is to assess all the aspects that we have mentioned before (rent, location, budget and expenses) as a whole and think about what is worth it to you.

And it is that buying a house is not a mathematical rule in which 2 plus 2 equals fourMaybe we do not buy the best house in the world, but the one that is closest to what we want.

We hope we have clarified whether a property is a good buy with these tips and keys.