By Investing is all about putting some of the money you have in your bank account to good use. Purchasing a new residence for yourself? Or are you delaying that and considering other investment options? In either case, you’ll benefit from knowing the differences between purchasing a home for residence and an investment property.
The finance, qualities, and cash flow are the main distinctions between purchasing a house for investment and a primary residence.
What exactly is a main residence?
The house you actually live in is your primary residence. If you have numerous residences, it refers to the one you spend the majority of the year in. The buyer must occupy the residence they have just bought, for 60 days after closing. If a house is your main residence, you must also be able to legally prove it. As evidence of residency, tax filings and voter registrations are acceptable.
What is a house for investment?
In general, an investment property is one that is utilised to make money through rental or appreciation but is not the owner’s primary residence. Tax benefits are available if you purchase an investment property, especially if you rent it out. Renting permits you to write off costs for maintenance, administration, cleaning, equipment, and insurance payments.
Location and Community
Property for investment: The neighbourhood may either draw in or drive away tenants, affecting your vacancy and occupancy rates and, ultimately, your income. Consider having a home in a neighbourhood with a strong employment market, close-by school district, and access to a lot of amenities and utilities if you’re renting conventionally. Place the property close to popular tourist destinations if you’re renting it out as a holiday rental or through Airbnb.
Home: You can choose whether you want to live in the city or the suburbs. As a general guideline, try to live near to, or at least reasonably close to, your place of employment. Of course, with any type of property, safety is an aspect that is to be kept in mind.
Financing the property
Good Credit
A better credit score is needed when buying investment property than when you’re purchasing a permanent residence. You will be more likely to get approved for loans and your monthly payments will be cheaper if you have high credit. Although the market will differ depending on the location, a credit score between 640 and 660 is a decent place to start. Your chances of getting the best rates increase if your credit score is 750 or higher. If your credit isn’t good enough, you might want to concentrate on improving it rather than purchasing the property.
Mortgages and Loans
Go to your bank to get a pre-approval letter for a mortgage or a loan in order to finance the property. Based on this, you may calculate the amount you can afford and how much you might have to borrow.
Type of Property
What kind of real estate are you interested in investing in? It is important to purchase a home that is acceptable for the market, enticing to tenants, and suitable for renting. This could either mean a studio apartment, standalone home, 2/3 BHK flats etc, depending on your budget and market needs.
What sort of home are you looking to purchase for residence? While purchasing a house that you want to live in, you are free to decide your favourite aspects of a house.
Construction Status
While determining which kind of property is best for you, its construction status also plays a role. If you are ready to move in immediately, then the status definitely has to be completed. If you are looking to move somewhere in the near future, then a work-in-progress is also feasible. But if your plans to move are not urgent or if you are only looking at a property in terms of investment, purchasing a property that hasn’t begun its construction could work for you.
In terms of finance, the construction status is also significant. Completed projects could demand that you pay the entire price in one go, whereas in a work in progress, payment by instalments could be negotiated.
Customization is also dependent on construction status. In a fully furnished property, making changes could prove to be difficult. But if you are involved in the planning and construction from the get-go, the space can be structured as per your needs.
Infrastructure
Considering the infrastructure is of great importance when buying property, it affects a wide number of factors, including:
- Quality of life: Good infrastructure is prime when considering that you will be spending your life here. A conducive environment with all things essential for nurturing and maintaining a home is necessary.
- Safety: Infrastructure is also reflective of safety. Smooth functioning services, availability of utilities, good roads, etc. ensure a safe and risk-free place to reside.
- Resale Value: Good infrastructure is proportional to a higher property rate. If you plan to sell your property in the future, excellent infrastructure can guarantee a very favourable price for you.
Amenities
With amenities such as schools, colleges, parks, restaurants, malls, hospitals, etc., not just convenience but also quality of life is offered. You can build a sense of community with like-minded individuals in set-ups like libraries, community centres, club houses, gyms, etc. Also, by making sure that the amenities around you align with your interests, it is an ideal choice of residence.
Maintenance
The level of ongoing maintenance is another significant distinction between residences and rental properties. When you purchase a property, you must pay regular mortgage, insurance, and utility payments. Additionally, you’re in charge of paying for any necessary upkeep or costly repairs, which may cost you a lot.
Such a hefty financial outlay shouldn’t be necessary for excellent rental apartments. Yes, you’ll be in charge of upkeep and repairs as well as possible property management costs, but if you made a wise purchase, the cost should be quite low compared to buying a home.
Purchasing a home vs buying property as an investment has a number of important differences that should be taken into account. A rental property is an entity that makes money, as opposed to your house, which is more likely to serve as an emotional investment that offers safety and convenience for your family. The latter will give you more flexibility regarding when to buy and sell as well as lower ongoing fees. There are other issues, nevertheless, that should be considered. Make sure your next step up the real estate ladder is the appropriate one for you by conducting research and speaking with professionals.
Pros and Cons
Owning property for investment and for residential purposes has its advantages and disadvantages. Let’s explore some of those:
Owning a home for residential purpose
| Pros | Cons |
| Stability and Security – owning a home provides a sense of stability and security that contribute to the overall well-being of an individual and a family. | High Acquisition and Maintenance Costs – the initial cost of purchasing a property is high, along with the costs of repair, customizations, and maintenance. |
| Generational Wealth – homeownership is a land asset that can be inherited by future generations, leaving them with financial security. | Difficult to Liquidate – in cases of emergencies, it can be difficult to liquidate land assets into cash. Immediate relocation can also be stressful. |
| Tax Benefits – reduced mortgage rates and decreased property taxes make homeownership more accessible. | Interest Costs – paying interest for the entire duration of the loan significantly contributes to the cost of maintaining a home. |
Owning a home for investment purpose
| Pros | Cons |
| Appreciating Rates – property prices are likely to rise as the years go by, making it a profitable long-term investment. | High Acquisition and Maintenance Costs – the initial costs of purchasing a property are high, along with the added costs of maintenance and repair. |
| Capital Gains Tax Benefits – taxation for long-term capital gains from property investments is lower. | Difficult to Liquidate – converting land assets into cash is not a quick process. |
| Rentals – property ownership can generate a steady source of income from rentals. | Managing Rentals – finding reliable tenants and maintaining the property can become time-consuming. |
Conclusion
In conclusion, the important factors to keep in mind while purchasing a house for investment or a house for residence are location and community; financing the property, keeping good credit and mortgages and loans in mind; the type of property, its construction status, infrastructure, and amenities; and maintenance. Have a thorough understanding of each aspect and make well-informed decisions.
