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How to know if it’s a good buy

Posted by Michel B. on 04/03/2022

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

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

To minimize the risk, but above all, to be calmer, 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 passive income through rent or future sale.

But even that does not interest us since what we seek is to acquire to live.

In any case, we must adopt a strategic buying mindset and take into account the following factors that will help you weigh the future purchase choice.

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

First we quote them and then we expand them with tips and keys.

These are the following:

Economic capacity.
Purpose of purchase: rent/sale or reside in the flat.
State of the house.
Location of the house.
Know the risks.
Fair 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 type of purchase you must 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, before you must know several things. The first thing is that a real estate investment is not a single purchase and that there are certain added expenses. We will divide these expenses 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. Figure around 2 to 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 state of the floor.
Mortgage cost. Keep in mind that not everyone has the same money saved and cannot access the same amount of mortgage. For this reason, we include it as a variable.
Variable expenses can be the most difficult to calculate, but it is important to include them and anticipate them. While it is true that we will not always be 100 percent correct, it is best to adjust as much as possible so as not to end up in the red.

Among the variable expenses that you should take into account, you should not forget to include possible unexpected expenses such as making a daily repair to replace the water heater or something more expensive like fixing the roof after a strong storm.

Do you want to rent or live in the flat?
Buying to rent is not the same as buying to live. In the first case you should pay much more attention to the “possible profitability” and in the second to other factors such as the price, location and condition of the home.

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

This 1 percent rule works like this:
Each month we must obtain no less than 1 percent of the price we pay for our flat. In this price, both the purchase price and any other additional expense such as reforms or renovations must be included.

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

Therefore, if we apply the rule of 1 percent to the we have that each 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.

Location and market price
The location of a flat or house is a critical factor when buying. It is not the same to buy in the city center 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, having this aspect and assess everything as a whole.

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

Do you not care about buying a vacation home outside the beach line or do you prefer to invest in reforms?

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

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

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

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

For example, the location of the property you want to buy may not be the best in the city, but other factors make it worthwhile.

Think that the competition, the market price and the renewal can be so low that the purchase still compensates you. 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 flat we want to buy.

If you exceed 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 needs renovation. 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 according to the location. The problem is that the market price changes from one area to another.

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

The same for you, the services are more important 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 discussed 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 four. We may not buy the best house in the world, but we do buy the one that is closest to what we want.

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

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