Property Investor Checklist – What you need to know before you buy.
Purchasing a property for investment purposes is very different to buying a property that is going to be your next home. As a result the approach to the two needs to also be very different and is evaluated against a very different criteria. Buying a property that is going to be your home is by large a personal and an emotional decision. The property needs to be in a location you actually want to be in, have features and attributes you desire and be a space you can see your self living in every day. Buying a property purely for investment purposes whether that be capital appreciation, yield or both requires a completely different approach. The latter is purely a business decision and takes into account factors such as rental yield, scope for capital growth, demand and holding costs just to name a few.
See the below investor checklist and buy with confidence:
Reason for investing in property
Are you investing for capital appreciation, immediate income/returns or mixture of both? Deciding on this right from the start is crucial as your reason for investing will ultimately have an impact on not only the type of property you purchase but also the location.
Total cost of property acquisition
The cost of purchasing a property is not limited to just the purchase price. Buying and transferring a of property in Dubai attracts a additional fees including a 4% transfer fee, as well as a 2% brokerage fee. Along with these there area a number of additional fees applicable so budgeting for 7% of the total purchase price should mean you are not left with any surprises.
Total ongoing costs
Knowing your initial purchase costs is crucial but it is also just as important to know exactly what are the ongoing costs associated with holding onto the property. The more significant expenses include; service charges, insurance and mortgage costs if finance is involved. Make sure you are aware of these before you buy.
One of the most important decision you will have to make is what area you will invest in. Factors to take into consideration before deciding on this include: area demographics, population trends, type of housing, recent sales trends, rental rates, rental demand, accessibility, public transport, future planned development.
In the case of buying a stand alone property such as a villa, it is always advisable to engage the services of a structural surveyor. This can seem like an unnecessary cost but can save you thousands as they can uncover issues which would have prevented you from buying. If buying an apartment pay close attention to the apartment it self but also the building. Take notice of the general condition of the building, its tidiness and general up keep. A poorly maintained building will be unattractive for potential tenants making rentability an issue as well as hampering future capital growth.
Type of property – Apartment/Villa/Townhouse
The type of property you buy will largely depend on your investment criteria as well as be dictated by the area you buy in. Generally speaking, apartments tend to deliver higher returns than villas or townhouses. Further to this one bedroom apartments also tend to deliver higher returns than two or three bedroom apartments as well as benefit from higher demand. This of course, is not a hard and fast rule as there are exceptions. Another obvious option outside of ready properties is buying off-plan which won’t provide immediate returns but often can and does offer a higher resale value. Check out Off-Plan Properties for more information.
This is one of the most important figures to any investor looking for immediate returns. How much will your new purchase rent for and what will be your rate of return or return on investment. (ROI is calculated by dividing the total yearly income by the property purchase price)
Property Appreciation Potential
Will your property raise in value? This is a crucial point for any growth-focused investor and one of the reasons why your investment goals need to be clear right from the start. Factors such as location, area trends, population growth, planned development, level of supply will all have a significant impact on the future value of your purchase and need to be thoroughly considered before you buy.
Exit Plan and Exit Costs
Like most investments, there will come a time when you will look to sell your investment. It is for this reason crucial to have a plan on how long you will hold onto your property investment as well as know exactly what your exists i.e. selling costs will be. This takes us to one of the points that makes Dubai such an attractive place to invest in. As there is no TAX any profits on the new sales price stay with the owner and as the transfer fee and agency commission are normally paid by the buyer there is next to no fees payable by the seller.
Now that you are familiar with our Investor Checklist check out our Buying Process page for all you need to know about buying and transferring a property.