Feb 25
Beginners Guide: How To Buy Properties
The most important things you need to know and understand when buying or renting real estate.
I have been writing a lot about researching and investing in crypto. But I also look at other investment opportunities.
Why?
As the old saying goes: “Don’t put all your eggs in one basket”. It is important to diversify.
That’s why in this in this guide, I will show you what you need to know when it comes to buying a house or an apartment. This guide on how to research and buy real estate is written for beginners and will teach you the most important things you need to know.
Let’s get started!
Buying Real Estate: Answer These Basic Questions First
Before you start with your research process, you need to understand a couple of things first. That is: Why do you want to buy a property?
- Do you want to buy a house or an apartment for yourself, so you have a place to live? If so, how long do you plan to live there? For 2 years, 5, or the rest of your life?
- Or do you plan to buy a property so you can rent it out to others? If so, do you want to rent it out to long-term residents, or do you have something in mind like a vacation rental apartment with someone different occupying it every week?
Depending on your answer, the requirements on the property change.
For example, if you are looking for a home to spend the rest of your life in, you might want to find something that is accessible but in a quiet location. An object that is also well suited for residents of advanced age (few stairs) and with friendly neighbors.
If, on the other hand, you want to invest in real estate that you rent out to holidaymakers, the requirements change: the most important thing is a good location (e.g. near the beach, close to the center), with its own parking space and robust furniture.
Once you are clear on what the purpose of the property is supposed to be, you can move on to the next step in your research process.
When Researching Property Markets Start With The Macro Perspective
You know what kind of property you want.
So the next step is to zoom out and take a look from the macro perspective. Markets move in cycles. Be it crypto, stocks, bonds, or properties. Looking at macro trends helps us to understand at which stage of a cycle the property in the country or region you are interested in is.
Here are the major indicators to look for:
The residential property price index
The first thing is to look at the general trend of the properties in your region. Usually, some official institutions collect data on the real estate market and publish it on a periodical basis. In the case of Austria, it is published by the National Bank of Austria. Taking Austria as an example, it is a red flag that the property market has gone through a prolonged uptrend (15+ years) without any correction. It is often useful to check the trend for the average income and inflation over the same period.
Real property price
The index mentioned above does not exclude inflation. The real price is the price increase after inflation has been excluded. If you cannot find this information, then you can calculate it by yourself using the property index you have found in the previous step and inflation data that the government institution publishes.
This information is published by the OECD.
House price-to-income ratio
This measures on average, how many years people have to work in order to afford to buy a home. You can find this indicator on
This information is published by the OECD.
House price-to-rent ratio
It measures how many years’ rent one has to pay in order to buy the property. Combined with the ratio above, it is easily deductible, whether it’s more economical to buy or rent a property.
This information is published by the OECD.
Household debt as a percentage of total net disposable income or as a percentage of GDP
This helps us to understand how much disposable income an average household in the country has. If the debt ratio is high, that means most of the households are buying homes using mortgages. This could indicate that the house price is sensitive to an economic crisis.
This data can be found here.
If you want to dig a bit deeper, there are other indicators that could help you to understand the trend development of the property market in general, for example, the population growth rate in the region, the interest rate offered by the bank, inflation rate, tourism statistics, etc.
What to make of all this macro data on property markets?
You might wonder what the point is of looking at all this data and charts.
Here’s why.
All of this information allows you to ask (and possibly answer) a couple of important questions:
- How are prices developing?
- What stage is the property market of a country, region, or city in?
- Are people in a given country, region, or city more likely to buy or rent properties?
- How will demand develop over the next years?
Based on how you answer these questions, you should get an idea if it’s better to buy or rent a property. Or if it’s better to not participate in the real estate market at all.
If you are interested in two examples of a deeper analysis of property markets I recommend you to check out the following articles.
Based on the above-mentioned factors, I wrote an article to analyze the Austrian property market in 2019.
Last year, I updated the numbers and wrote another article. You can check it out here.
What Property To Buy Or Rent? Look Out For These Things.
OK, so let’s say your analysis shows that now is a good time to buy or rent a house or apartment in your market. What are the next steps?
After you have looked at the macro factors, it is time to look at properties individually. Here are the factors you want to consider:
Location
This is the most important factor which affects the price of a property. In general, a good location has the following characteristics:
- Quiet, but with easy access to shops, pharmacies, public transport.
- If you have children you will want to live somewhere close to schools and kindergartens.
- For city dwellers, nearby parks or other recreational areas are a big plus.
- In the countryside, an unblocked view of some nice landscape is a bonus.
Characteristics of land
If you are buying a house or a piece of land to build a house, then you need to know more about the land.
- For example, the direction it faces. In Central Europe, a piece of land which enables the house to face south is a good choice because you can get enough sunshine. But depending on where you live, other aspects might be more important.
- The quality and composition of the soil. This is important if you plan on growing stuff. Hard to know before you actually buy and build/grow anything. But maybe taking a look at the surroundings will give you a clue.
- The occurrence of groundwater. It might make it more difficult to build a celler, but you can easily drill a well to water your plants.
Age of building
As a general rule, you want to look for a newer building as older ones usually need more maintenance and can offer you some nasty surprises. Here are a few things you should consider:
- Generally, older buildings require more maintenance.
- Their layout is often not so good.
- What kind of materials were used in the building process? You need to know that because, in the past, the builders might have used materials which later proved to be of bad quality or hazardous for people’s health. Unfortunately, this is hard to find out most of the time.
- Are there plans where you can see where all cables and pipes are? This is important when there are leaks or other problems and you need to figure out where the problem is.
Insulation
In countries where winters are long, the insulation of a property is very important as it will keep you warm while keeping the heating costs low. This is especially worthy consideration knowing that energy prices will increase a lot in the future.
Regulations
This is very important. Every country, region, and city has different regulations when it comes to buildings.
- What are the property owners allowed and not allowed to do? For example, some places do not allow houses in flashy funny colors; some do not allow you to build an extension of the original building, such as a winter garden.
- In some cities, it is forbidden to rent out property Airbnb style.
- You need to get an understanding of what rules and limitations there are.
Bonus Tip
If you are considering buying an older house or apartment, I recommend you to contact an independent professional property valuer to view the property with you before you sign the contract to buy.
These people are specialists who look at the property in aspects that you did not pay attention to. For example, the condition of the property, how much renovation is needed, etc. I have several friends who spent all of their savings buying houses and after they have paid and got the ownership transferred, they wanted to renovate before they move in and only found out that the renovation costs were significantly higher than they originally planned.
One friend even had to pay a large amount of money to tear the whole house down and re-build. That is why spending a few hundred $$ for a property valuer could save you thousands or even more.
That’s it.
This information should give you a basic understanding of all the things you need to know and understand when it comes to buying real estate.
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