The Female Investor by Nicola McDougall & Kate Hill

Author:Nicola McDougall & Kate Hill [Mcdougall, Nicola & Hill, Kate]
Language: eng
Format: epub
ISBN: 9780730398646
Publisher: Wiley
Published: 2022-05-09T00:00:00+00:00

DOES THE BUY‐IN PRICE MATTER?

There is another common saying in the property investment space, which is ‘you make money when you buy'. This is because if you overpay for a property, it can have a detrimental impact on your cash flow over the short to medium term.

Remember in chapter 2 when we wrote about the importance of knowing your budget? Well, this is the moment when it is the most critical. If your budget for a property is $700 000 but you wind up paying $800 000 because you let your heart rule your head, what ramifications will that have?

Firstly, you will probably have to pay a bigger deposit, or use more equity from an existing property. However, it will mean that your mortgage repayments are going to be higher as well, which can squeeze your cash flow. When you are assessing what price to offer for a property, always remember your cash‐flow position after settlement, so you do not end up paying too much for it.

In hot market conditions, it can be difficult to determine the market value of a property, and therefore some buyers may end up paying more than they thought they should. But if they can finance the higher amount as well as the additional strain on their cash flow, it may not be a major problem for them. For female investors and many property buyers, though, if you pay too much and then find yourself unable to keep up with your mortgage repayments, especially if interest rates increase, then you may be left in a precarious financial position.

For investors, you must also assess what the market rent is likely to be for the property before making an offer. Sometimes the property is currently leased so you might presume that the rent the tenant is paying is the market price, but this isn't always the case, and especially for long‐term tenants who may have been paying under market value for a while because of their long tenure.

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