I still remember buying my first apartment. I didn’t know anything about the real estate market, or what I should be on the lookout for. The entire purchase decision was based on my emotions towards the apartment, and the surrounding area. However, as timed passed on and I began to learn more about the real estate market, I quickly discovered that the purchase was not as good as it had at first seemed.
Buying property, especially when it is your first apartment or house, can be complex and time consuming. Many people see it as an important investment because they define it as an investment for a lifetime. After all, you will most likely live in it. That was what I also thought back then. However, as timed went on, I learned that buying property can also be a financial investment. It all depends on what you are buying the property for: To live in it, or to generate a passive cash flow.
When buying a house or an apartment, avoid basing your decision solely on the same standard I did. Namely looks. It is important to consider other factors as well. For instance financial risks and benefits, the market, cash flow and tax laws, to name a few. Financial factors are important and must always be considered. You should also take a closer look at both the pluming and electric system. After all, repainting the apartment will only costs a few hundred dollars, while changing the entire electric system can cost you more than $30.000. Don’t become a victim to these mistakes. You will regret it.
The decision to buy a property should only be done after a due consideration of all financial aspects. There are two main financial analyses that you need to conduct, which will help you decide on whether or not to buy a house or an apartment of your own.
Buy Vs Rent
A good way to start the decision making process is to conduct a buy Vs rent analysis. It is a simple financial tool called the Net Present Value (NPV), which you need to use to find, whether renting or buying, is cheaper. The NPV of the house is calculated and equated to monthly figures, which can then be compared with the rentals. There are many NPV calculators you can use for free on the Internet. Just type “Net Present Value Calculator” into your search engine. Except for emotional and social reasons, if you analysis tells you not a buy a house, it may not be worth taking all the trouble to buy one after all.
Financing the purchase
Have you saved up enough money for the down payment of the property? Can you pay the monthly instalments for the mortgage? These are questions you need to answer before you decide to buy. Even if you have decided on a budget, do a recheck and add all other expenses that might have been missed. You need to account for maintenance and property tax as well. Do the analysis systematically and on paper so that you get to see all the figures. Only buy if you are convinced that you can pay off the mortgages without defaulting.
Buying your first house or apartment is a dream comes true for most people. Some people see it as an investment in their lifestyle, while others see it as a financial investment. No matter your reason, understanding both the financial and non-financial parameters is vital. It is up to you whether you choose to invest in your current lifestyle, or the one you want for yourself in the future. With that being said, you should now be able to avoid the mistakes I did, and embark on a real estate adventure of your own.
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