Generally speaking, there are two primary reasons you are considering buying a property: as an investment or as a home. Before you do anything, it is worth knowing what you can and cannot own so read up on the various options and title types available.
If you want to buy a condo as an investment, then what factors are going to be important in ensuring your investment gives a good return?
- Location, location, location! Buying a great property in a bad location is a good route to not seeing good returns on your investment. This is especially true in Cambodia where you may be looking to list your investment property as a vacation rental. Ideally, the building itself should offer a range of good facilities but proximity to beaches or nature areas may be the deciding factor for potential renters.
And if you are looking at investing in a city property, then there are different factors to consider. Does the property benefit from good transport links? Does the area in which the property is located suffer from flooding in rainy season? Is the area relatively crime-free? What facilities and services, such as shops, restaurants, bars, hospitals, etc., are there in the immediate area?
Lux Realty can help you identify what areas and what properties represent a sound investment. Our in-depth knowledge of the local market can be an invaluable tool when making a major monetary decision.
- Down Payments. It is worth remembering that the down payment on an investment property may be significantly higher than on a family home. In normal times, this can be as high as 20%, but one ‘positive’ impact of the current pandemic is that many developers are offering low down payment deals.
- The 1% Rule. When you are looking at whether a particular property is worth investing in, then it is always good to use the 1% rule as a basic guide. This states that the income you see each month should not bring in less than 1% of your total outlay, which includes the purchase price and any additional costs such as renovations or installing improvements.
For example, let’s say you buy a condo in Phnom Penh for $125,000 and then spend a further $10,000 on improvements. That means you have a total outlay of $135,000 so you would be ideally looking at a minimum monthly income of $1,350.
- When calculating costs, remember any ongoing fixed costs as well as budgeting for unexpected costs that may arise in the future. As well as fees for property management, you must also be aware that as a foreign owner, you are required to pay certain taxes. The main two that may affect you are:
- Property Tax – This needs to be paid annually and is 0.1% of the property value. It should be paid by 30th September each year.
- Income Tax (rental tax) – A foreigner who buys an investment property here and then rents it out has to pay 14% of the gross income annually. Factor this into your calculations.
- Property Management. Many people see hiring a property management company as an unnecessary added expense. In actual fact, it can be more cost-effective than doing it yourself (and a lot less stressful too!). And with rentals, the property management company will often take care of marketing the property for you, particularly useful for shorter-term rentals on vacation properties.
- Know the Potential Risks! While owning an investment property may seem like an attractive addition to any portfolio or simply a solid retirement plan for the future, you should approach the decision with your eyes open. Buying a property to rent comes with risks, some of the common to all property purchases, some unique to this sector.
- There may not be high interest in renting your type of property or in the location you have chosen. That’s why it is crucial to do some research. An agent like Lux Realty can guide you on what the market is like and what areas to look in.
- The local property market could be liable to downturns as well as upturns.
- There could be changes to – or increases in – local property taxes.
- You could have the misfortune to have bad tenants who may leave with unpaid bills, unpaid rent, and even with damage to the property requiring expensive repairs.
Buying a Home
While buying a property as an investment is a purely practical process that involves only your head, buying somewhere to be a home involves both heart and head. It may be a lifetime decision or it may be a long term one depending on your work requirements and other factors.
One thing to consider is engaging an agent such as Lux Realty to find your ideal home. In this case, we represent you rather than the vendor and we will exhaustively search listings and partner with other agents to ensure all your boxes are ticked.
But what factors do you need to consider when buying a home rather than a house?
- Location, location, location! Yes, that again, but location is equally as important when buying a home as when buying an investment property. Primary considerations re location are likely to revolve around workplace and also access to schools if you have children. But you are also going to want quick and easy access to shopping, entertainment, recreation, etc. Many of the boreys in Cambodia offer amenities on site such as swimming pools and clubhouses, as well as often being located near good international schools. Lux Realty will shortly be offering comprehensive info packs on our larger properties that will detail all these important factors and more.
- Number of bedrooms. You may have an initial need for the number of bedrooms depending on the size of your family. Or you may want to plan ahead and choose a home that will accommodate a future growing family. You may also want to consider the need for a guest bedroom or a bedroom for a live-in nanny or maid.
- Number of bathrooms. This is also important in relation to the current or future size of your family. Ideally, you want the master bedroom to have an en-suite. It is also worth considering the type of bathroom you want. Does the property fit your needs in that respect? Or will you face added expenses in bringing it up to scratch?
- Life may be created in the bedroom but in modern life, the kitchen is where life is maintained and thrives. For many busy families, the kitchen is now the centre of their social life and can often be the only area where the whole family gathers. Does the layout suit how you envisage your day to day living? Does the kitchen come with appliances you see as essential or is it another area that may see added expense?
- Costs. Do all planned costs fit within your budget? This is more than the purchase price and includes any taxes, maintenance costs, improvements that may be needed, etc. never look at the selling price of a property and think “I/We can afford that”. Think about all initial costs as well as annual outlay.
Buying a home is a major decision, and it is not just for the life you are living today but also the life you plan on living in 5 or 10 years. At Lux Realty, we believe in making dreams come true. If you are looking for a rent to buy property or a family home, we will listen carefully to all your needs and requirements and then show you only properties that meet those needs.
Whatever sort of property you are looking to buy; we can not only find you the perfect home or investment but also help guide you through all the legalities of purchasing property here. Why not contact us today by emailing us at [email protected] or calling on 015537577.