Tips for first-time property investors in South Africa
According to GlobalData, High-Net-Worth Individuals (HNWI) often invest in real estate, allocating an average of 11.2% of their investments in property – mainly residential property.
Arnold Maritz from Lew Geffen Sotheby’s International Realty said that the dream of building wealth is why many aspirant investors try to invest in property.
“Starting out in property is relatively easy and one doesn’t need much money to do so, however, making the jump from owning one or two properties to a real estate portfolio is a little more complex,” Maritz said.
“However, if you take the right approach, do your homework and consult with experienced professionals, building a property portfolio can be a very profitable long-term investment.”
Maritz gave the following tips for a property investment strategy.
Investment tips
Maritz said that investors must approach their first endeavour like a business professional, where they create a business plan with short- and long-term goals.
This allows investors to see the big picture without being sidetracked by more minor issues.
The plan should include estimated outlays and inflows of cash from rentals, the number of units that would yield optimum returns, when to upgrade, target demographics, possible market shifts and anything else that could affect the investment.
He also said that starting a portfolio is determined by the future growth of the first investment, meaning investors should start with one strong investment.
If the first investment fails, it can scupper any future plans and leave the investor in a difficult financial situation which is hard to recover from.
Moreover, he advises that investors stay educated on changing laws, regulations, terminology and trends which influence their investment.
Not only can the investor risk losing momentum, but they may also be vulnerable to legal ramifications if they accidentally break the law.
Investors should also be aware of the potential risks so that they can adjust their investments to reduce risk, avoid being blindsided and minimise the impact should something unavoidable occur.
Additionally, in the competitive real estate market, investors should have their finances in order as they cannot afford to leave their borrowing until the last minute.
The best property deals do not wait for investors, and having solid finances can put an investor in a stronger position as a serious buyer who can compete quickly.
Investors should also know their rental market, as it essential to know who they are renting to – what’s their lifestyle, do they need parking, what’s their age, what’s their family status, etc.
Without this knowledge, it is near impossible to find the property that will offer investors the best returns and understanding their ideal tenant will save them time from looking at unsuitable properties.
Moreover, those investing in property should try and know their seller. They should look for the lowest possible price and look for a motivated seller as it gives them a stronger negotiation angle. For investors, the best price is under the standard market rate.
Although a property may look good, seem well-priced and be in a great area, investors should question if it is really a good deal.
Some properties have high maintenance costs, which reduce the return on investment – meaning investors should scrutinise a property to see if it’s structurally sound.
For sectional title properties, investors should look at the body corporate’s financial standing and the monthly levy amounts – the higher the levy, the lower the investor’s return.
Finally, location is the most crucial factor. For a successful buy-to-let, the best area has high rental demand and low supply.
Location also impacts resale, so investors should check to see how easy it is to sell should they do so in the future.
“Because property is a tangible asset as well as one of life’s essential commodities, investing in real estate remains one of the best ways to accumulate wealth, both in terms of appreciation in market value as well as generating a reliable monthly cash flow,” Maritz said.
“However, it’s by no means bulletproof nor a sure thing and it requires expertise, planning and focus to be really successful in this sector. But, with a bit of luck and careful planning, you can join the many investors with profitable property portfolios.”
Read: Prices for these properties in South Africa are rising much faster than the rest
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