For many people, investing can be bewildering with terms like stocks, shares, bulls and bears. However, one investment option that most people seem to understand is property, says Andrea Tucker, Director of online bond aggregator MortgageMe.
“If you go about investing in property in the right way, almost anyone can become a tycoon,” she says.
“Stock markets may fluctuate wildly, but real estate in South Africa has demonstrated greater resilience to market forces. It is viewed as a much less risky investment than playing money markets, for example.”
Considerations
There are some things to consider before signing an offer to purchase on your first investment property.
First of all, you need to be clear about your objectives in investing in property. Are you looking for short- or long-term gains, or do you want to grow a property portfolio you can leverage for other investments?
Are you buying the property to rent it out in order to cover as much of the bond as possible, or are you buying it to flip it in order to sell it quickly and earn a profit? In this case, you need to be absolutely sure that the property you buy will be a desirable rental.
The next thing is to calculate how much you can afford to spend on a second property, assuming you own your primary residence.
You may want to consider pooling resources - for example, using a stokvel - to raise a deposit and have joint ownership.
“Being tax efficient is also important when you become an owner of several properties, so you should familiarise yourself with all aspects of tax regulations around property ownership. This is particularly important if you want to invest in property overseas,” says Tucker.
Extra costs
Tucker emphasises that it’s important to factor in the extra costs over and above the purchase price.
“It’s never as simple as just calculating how much the bond repayment will be. You need to work out what additional costs you’re going to be required to pay monthly for your investment property.”
In addition to bond repayments, you need to compare the advantages and disadvantages of a fixed interest rate compared to variable interest on your bond.
Other expenses could include:
- Various upfront administrative and legal fees.
- Municipal rates and taxes.
- Maintenance and upkeep.
- If you will be appointing a managing agent, you also need to factor in those fees.
Finding a property
Once you have a solid plan, Tucker says the next step is to become well-versed in prevailing market trends.
Consider the demographics for the area in which you are looking to buy. Perhaps there is strong demand from students, or it may be a family-oriented suburb with a low turnover in the rental sector.
“Although it might feel safer to buy in a neighbourhood you know, don't be afraid to venture outside of areas with which you are not familiar but which may offer a good proposition for rentals. I would suggest also looking in neighbouring suburbs – you never know what you will find when you look a bit further afield,” she says.
Now that hybrid working patterns seem to be here to stay, many people are moving into more peri-urban areas, looking for properties that can accommodate the family and a work-from-home set-up.
Desirable areas include those that offer subsidies and tax benefits, for example, suburbs a municipality has earmarked for regeneration.
Tucker says that novice property moguls should also consider their own life trajectory.
“You may look at buying where your kids are going to varsity, with a view to letting to other students once they have graduated. You may also want to buy in the resort where you often spend holidays and rent it out when you aren’t using the unit.
“There is always retirement – your parents’ and eventually your own to consider, so a unit in a retirement complex could also be an excellent investment,” says Tucker.
Rental market
Once you have bought your rental property, you need to guard against rentals going wrong.
- Vetting prospective tenants is imperative, including credit checks, verifying payslips and banking details.
- Get references from previous landlords.
- Verify the entity that will be a party to the lease agreement. Is it a private individual or a company? Be sure to know the difference and how it might affect the terms and conditions of the lease.
Knowledge
“Although property is generally considered a solid investment option, like any financial transaction it should be approached from a position of knowledge,” says Tucker.
“An experienced real estate agent combined with proper financial planning should complement your own research. Be sure you know how to spread your risk, making property a part of a balanced investment portfolio.”
Writer: Sarah-Jane Meyer
