Property Investor Advice Column: Part 13 and 14
What to think about before you buy an investment property.
If you’re serious about wanting to invest in property, your work has to start long before you buy anything.
It’s vital that you do your research and analyse your opportunities to give yourself the best chance of earning a worthwhile return. This should start even before you meet with an estate agent. Agents can be very helpful in providing information on neighbourhoods and expected rentals, but they can also put pressure on you that could lead you to buy a property that doesn’t suit your requirements. Unfortunately, some are also prone to exaggerating likely rental income, so you must have done your own homework and have your own figures.
A basic rule is that the lower the cost of the property, the higher the likely return. This is not set in stone, however, and certainly doesn’t mean you should buy hovels in undesirable areas just because they’re cheap. The best investments tend to be flats, townhouses or small family homes in areas where the demand is high and the supply is limited.
Taxes are also an important reason to consider properties of lower value. There’s currently no transfer duty payable on properties under R750 000, and any property under R1.25 million attracts only a 3% duty. Once you go over that threshold, however, these taxes start to climb substantially. The best real-estate investments are therefore those that hit the sweet spot of a well-priced property in a good area, where the demand ensures a good rental return and appreciating values. Good property investors will put a lot of effort into finding these gems.
For a first-time investor, it’s a good idea to spend three to six months researching the market before you buy anything. Take this time to look at properties in different areas and at different prices, and find out what rentals they’re earning.
Identify areas where there are schools, shops, parks and public-transport hubs nearby. A Woolies down the road or a Gautrain busstop on the corner are the kinds of perks that will attract tenants. It’s also worthwhile visiting the neighbourhood at different times of the day and different days of the week to get a complete picture of what it’s like to live there. One of the best things you can do is speak to people already renting in the area to hear their perspectives on it.
Be wary of neighbourhoods where there is an unusually high number of properties for sale. This could just be a seasonal cycle, but it may also be a sign that the area has fallen out of favour. Be sure to speak to people who live there to find out which it is.
The best investments tend to be in areas where the demand is high and the supply is limited.
Ultimately, every city has good suburbs, and every suburb has good properties. Intelligent investing is about lining up these variables. The only way to do that is through research. And if you put in the effort, there’s definitely the chance to be well rewarded.
What steps can you take if you’re struggling to find a buyer for your property?
Properties in many parts of South Africa are still very much in a buyers’ market, and it can therefore be very difficult to sell a property. Houses might be listed for months before finding a buyer. However, if the process is taking longer than you’d expected, there are some things you could do to try to make your house more appealing.
The most important consideration is always the price. Check what other, similar properties in the area are listed for and think seriously about how your property is priced in relation to them. If you’re asking above the average, perhaps it’s time to be more realistic.
Even if you don’t think your property is overpriced, consider making a little adjustment. Dropping your asking price by 5% might be a small sacrifice that ultimately makes a big difference to your chances of speeding up the sale. Don’t wait too long before making this change, though, as buyers are more amenable towards price cuts made early in the process. If too much time has passed, they take it as a sign of desperation.
Next, consider your estate agent. If you’ve signed a sole mandate, remember that there’s always a fixed period on that contract (usually three months). If your agent has been unable to find a buyer in that time, you’re entitled to approach others.
You may wish to sign a new sole mandate with a different agent, or open the mandate to more than one agent. There are advantages and disadvantages either way, but often if an agent has been trying unsuccessfully to sell a property for some time, they lose some of their enthusiasm. Having a fresh approach and a new eye may be just what you need to re-inject some energy into the process.
It also doesn’t hurt to re-examine your advertising. Have some new pictures taken and re-word any online or print listings. Work with your agent, and be creative about trying different shots and accentuating different aspects of the house. If you let your advertising go stale, you’ll continue to be overlooked.
Remember that the presentation of your house is crucial. Put yourself in a buyer’s shoes and see what they will be noticing. Don’t go overboard and do hefty renovations, but look for easy improvements that might make a big difference, like re-grouting tiles, putting in a new toilet seat or replacing your welcome mat.
Your ‘curb appeal’ is also vital, as this is the first impression buyers get. Get rid of any clutter, have your outside walls washed with a high-pressure hose, and have some seasonal flowers planted in raised beds.
If interest is still thin, a last resort could be to take a break from the market. Potential buyers tend to start worrying about a property that’s been listed for too long and think that there must be something wrong with it. Taking time out will give the cycle a chance to turn a little, and perhaps a change of season and a new batch of buyers will bring the new perspective that your property needs.
Next issue: Tips to increase the value of your home; how to get the best rate on your home loan
Text: Patrick Cairns