Money Matters

Home Buying? How to Know if it is a Great Investment

Written by: Regina Thomas

The question on every investor’s mind is whether an investment property is suitable or not? Before plunging into the buyer pool, it is good to evaluate whether homeownership is appropriate for you. Is it the right time for you to buy a home?

Do not buy a house just because everyone is doing it or because you feel like you are throwing money away on rent. Buy a home because you need to settle down and live for more than five years. Here are some ways to do your evaluation:

The 1% Rule

When you start shopping for a home, you will have a lot of options to choose from, and you need help from experts such as JP real estate experts to avoid confusion. The 1% rule is a simple rule of thumb that home buyers use to quickly and efficiently make informed decisions from multiple options.

You can also use the rule to know if a home you are investing in is worth it or not. The rule states that a home should rent at 1% or more of the total upfront cost you will pay. The upfront cost constitutes the buying price, an approximation of any renovation costs, and closing costs.

If a home satisfies the rule, then it is worth investing in. If it does not, forget about it and move on. You can also consider checking out the new homes in myrtle beach South Carolina, for example, that will meet the rule. With the help of a real estate expert, you can settle for a home that incorporates all your needs.

The Capitalization Rate

After you have identified several homes and settled for several potential homes, go ahead, and calculate each home’s capitalization rate. The capitalization rate is the return on the investment made on each home. To calculate the capitalization rate, divide each house’s net operating costs by the buying price.

Make sure that you do not include your mortgage repayment costs when calculating the operating costs. Capitalization rate assumes that you acquired your home in cash because each home buyer adopts a different combination of financing and the amount of down payment. This allows you to compare one home’s ROI to another easily. Every homebuyer has its target for establishing a favorable capitalization rate, although you settle for a figure that is as high as possible.

Stable monthly housing expenses

Life has endless surprises, and housing should not be one of them. Once you buy your house, you eliminate the risk of landlord changes, termination of lease contracts, or unexpected rent hikes.

When you are a homeowner, home insurance rates or property taxes may change, but you can regulate most of your monthly housing expenses. To increases the predictability of your utility bills, you can embrace the following energy-saving tips:

  • Replace old electric appliances with new energy-efficient models.
  • Change your utilities to budget billing and plan your monthly utility payments according to your average annual usage.
  • Change to drought-resistant landscaping.
  • Insulate your house with door sweeps and dual-pane windows.

Grow with a local community

Once you buy a home, you cease being a tenant swinging through revolving rental doors and get tied to a community. Owning a home gives you and your family roots since you meet a community, and you become part of it. You also get the opportunity to establish a long-term relationship with a neighborhood that is serene and peaceful.

Communities that have a higher own to rent ratio have lower crime rates and greater property values. Lower crime rates mean that you love with no fears. Your kids can finally play outside without you being afraid of losing them to kidnappers.

Communities with homeowners’ associations have more stringent rules and guidelines that everyone living in the neighborhood must adhere to. This gives you some profound peace knowing that someone is guarding your home on your behalf. Your kids also get the quality time and play space, unlike it would be on a rented apart where space is limited, and their security is not guaranteed.


Buying a house is hectic, but the lifestyle and financial benefits that come with it are worth every penny. You will encounter a lot of stumbling blocks in the process. Real estate may not be the best investment out there to make, but it has good rewards. Ultimately, homeownership is not just about purchasing a house but settling into a home.


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