Investing in Houses

Investing in Houses

A standalone house on its own title is often considered a reliable investment, hence the phrase “as safe as houses”.  But buying a house as an investment property does not guarantee you will make a good return.

When looking at buying an investment property, the old adage “Location, location, location” is probably a better indicator to use than the type of property that you end up buying…

However, there are distinct advantages for investing in a house:

  1. You own the property outright and there are no shared facilities to be maintained (such as laundries, gardens or car spaces)
  2. You do not pay body corporate or strata fees
  3. You can fix it up the way you want, depending on local council restrictions. If it needs work and you would like to enlarge the kitchen, you can include that in your plans, as well as any other changes you would like to make
  4. If the block of land is big enough, there is future potential to subdivide and make a bigger profit
  5. Houses are usually have high rental demand in family orientated areas
  6. If you qualify for depreciation, there may be larger tax advantages

Let’s look at the last piece, as it is important today. In many cases, buyers are snapping up older fix-up properties as property investment and then either reselling them or renting them out as money-making properties.

If you are investing in houses, it is probably a better idea to buy, fix-up and sell, if you can get your price. If you cannot get your price because it is an older home, it will leave you on the hook as a landlord.

Rental Return?

You may believe that you will cover your expenses as a landlord, but that is not necessarily the case. Commonly, houses yield between 4% and 8% depending on where you buy.

A 4% yield means that for a house worth $500,000 you should earn $20,000 in gross rent each year.  And likewise, an 8% yield would earn double that or, $40,000 per year.

You should always strive to invest in a house that has a good yield, but this will depend on many factors, such as:

  • How big your deposit is
  • The interest rate on your mortgage
  • The potential future capital growth of the house

As an example, if you buy a house which has a yield of 4% and your mortgage rate is 6% then that means you have a negative cash flow of 2% (which would be $10,000 per year on your $500,000 property) and that is not including the other expenses such as council rates, water fees, insurances etc.

You would only go for this situation if you had a substantial deposit (which would reduce the size of your debt) and the potential future capital gains outweigh the immediate short term cash shortfall.

New Vs Old and Maintenance

Let’s not forget that as a landlord, you are responsible for ensuring that any damage that a renter may have caused is repaired so your property continues to be safe and a viable rental property.

If you use a property manager, they should be staying on top of all repairs and forwarding the expenses onto you.

You will also find that older houses do require more investment not only to make them habitable but also to keep them in good shape.

As houses age, joists sag, frames shift and the ground moves which means your home may wear in unexpected ways.  You will have to deal with this to keep your investment property value up.

Investing in newer houses may be prohibitive because of cost, but they should be much cheaper to maintain in the first few years.


 

25 Responses to Investing in Houses

  1. Location is indeed a very significant factor when it comes to investing in a certain property especially a house. Those who would like to rent or buy your house will definitely think about location when they are deciding on the property that they will acquire.
    minerva @ real estate park city ut recently posted..Another Turn Key Ski In Ski Out Property, Like New Under a Million!!!My Profile

  2. For me there are many good reasons to buy new property than the old one. Given that new property gives you years of allowance before you are required to conduct a repair or maintenance. Another good reason is new property is reflective of the recent demand in the market because of its new design and layouts. New property is also more appealing to prospect tenants and you can charge a higher rental fee.

    Old property can cost you more in the long run and gives you less capital growth due to future repair or renovation.

  3. You definitely have to do your homework before investing in real estate. Beginners should have some cash reserved for a couple of expensive lessons they’ll learn in the beginning.
    Marco Island Real Estate recently posted..Marco Condo OptionsMy Profile

  4. Peter Maxson says:

    Investing in real state is very popular business now. But we need to choose the best location for it if we need guaranteed income. I bought a hose 5 years ago. Now the price of house is double.

  5. Diyanaa says:

    hi,
    Now a days, definitely real estate is the best business.. Location is indeed a very significant factor when it comes to investing in a certain property especially a house..

  6. Yes, location is really important factor to consider when investing in a property, but I think financial “resources” will definitely affect the kind of house one can acquire.

  7. Location is the key if you buy a property with a plan of renting it out. The ideal is home with high rent or highly populated areas. Never buy a property in rural areas where there are fewer people and low potential renters.

  8. Imóveis ABC says:

    Nice post! Brasil is a good place to invest in houses now, the investments in the sector grew a lot in the past few years.

  9. Here in the Bend OR area, we’ve been seeing great returns lately. It’s been mostly cash buyers. I’ve recently sold a couple of listings at around $90,000 in Redmond that are now rented for $1,000 a month. That’s a great return for this area. BUT it is all about location, other areas returns aren’t nearly as good.

  10. I am so pleased you are painting a truthful picture of property investment and letting. you tell your readers “if you buy a house which has a yield of 4% and your mortgage rate is 6% then that means you have a negative cash flow of 2%” DONT BUY THIS HOUSE. Make sure your potential rent covers your mortgage and that you can afford to subsidize during void periods.
    Paramount Magazine recently posted..First Time Property Buyer News: HSBC loans record amount to first time buyersMy Profile

  11. Steve Weber says:

    My first flip was of the “live-in” type. We bought an old house and worked on it while living there. It took 2 years of blood and sweat, but it payed off. After we sold it, we basically repaid ourselves ALL of our 2 years of mortgage payments AND had an extra 15,000 to invest in our next house!

  12. Rap Music says:

    I’ve heard that buying rentals in the central valley are still a good investment right now!

  13. Belfor says:

    Wow I didn’t know there was so much to think about when buying a property thank you for the advice. I’m thinking about buying a house soon and this will help me a lot. :]

  14. Real estate can be a rough area to speculate in. It can also be very profitable when done correctly. My experience was not a good one, however. I started with real-estate in 2005 and was just beginning to take on more projects when the market crashed and burned. A costly lesson for sure.

    Regards,
    Curtis
    24Option Review recently posted..Digital OptionsMy Profile

  15. Lgcabcoltd says:

    Investing in real state is very popular business now.The ideal is home with high rent or highly populated areas. I started with real-estate in 2010.I’m thinking about buying a house soon

  16. Older properties are very expensive to update and maintain. If you can do the work yourself and have the time it works well to have several older properties that you can maintain yourself and still retain a return on your investment. If you do not have the time it is better to spend a little more money and buy a property that requires less work.

  17. Belfor says:

    Flipping a house can prove to be very profitable. However, one must be careful to do the research before buying the home. Often there is damage that cannot be seen without proper inspections. Thanks for your post.

  18. These are some great things to think about. Older homes definitely have all kinds of unexpected maintenance to be done (even garage doors), but a used home in the right area can definitely lead to a good return on investment.

  19. While an owner occupier might buy a larger standalone house for lifestyle reasons, a property investor should always make their decision based on property investment budget, strategy and goals.

  20. Property purchase is a stable investment in today’s marketplace, but according to my opinion for investment in real estate we should consider the following points also. 1. Look for the right location. 2.Target your marketing

  21. John Wingate says:

    The new trend in the world now is to move out of apartments and build your own little cottage which is a self sufficient home. A little fire place in the house is a new fashion that people have started using for their apartments. Making a fire place at home or getting an electric chimney in your house is not enough.

  22. The vast majority of our 123Landlord.com rental property investors and users are primarily invested in single family homes (houses) – our analytics shows that almost 83 percent of our users rent out detached dwellings.

    A lot of the attached/townhome/multi-plex styles might not necessarily lose value over time, but generally speaking, these types of homes over time end up attracting a lower income renter, which might incur higher maintenance and collection burden – hard to say.

    Houses, however, are a bit more timeless and (all things being equal as far as location of course) these types of rentals are probably able to be marketed and rented to a wider variety of prospective tenants.

    Steve

  23. Apart from the pride of ownership, I believe that investing in a house is a great financial decision. You can sell it the future at a higher price or just make money from it by renting it out.

  24. investation at property is a good decision, apartemen with the great accomodation
    Jasa Buat Website Murah recently posted..Jasa Buat Website MurahMy Profile

  25. Investing a house is a good decision.Since the value of the lot is not depreciating, the quality of the house must be equated to its value. It could be a good source of investment and source of income in the future if you’ll make it for rent.

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