Property is often touted as a stable and resilient asset class for both risk-hungry and risk-averse investors, and one that offers consistent returns over time. However, certain pitfalls can arise which need to be mitigated.
Thozama Mochadibane, head of customer delight at Nedbank Home Loans shares some tips on buying property for investment purposes.
Getting a home loan can be daunting, and even more so when buying property for investment purposes. Unreliable agents, dysfunctional tenants and administrative issues are just some of the common challenges that can create challenges for the aspirant property investor in South Africa.
Here are some tips on how to navigate this delicate art to maximise returns.
1. To flip or lease
Property investing is diverse, and you firstly need to decide if you are looking to own the property for long-term leasing while realising capital value growth, or if you plan to buy, renovate and sell it for a quick profit. Each option calls for meticulous planning and close
co-ordination, but with different demands on your time. Leasing is a persistent activity with spikes and lulls in activity, while flipping should be viewed as a short-term, intense project that demands round-the-clock management during its relatively brief timeline.
2. Check your finances
Make sure to consult with your financial advisor to ensure that you can afford the property over the long run, especially if there are months when a vacant property continues to incur overheads costs without collecting an income.
Keep a cash reserve in a separate account for transfer fees, legal, maintenance, credit checks and other unforeseen costs.
3. Pick your property
Conduct thorough research on the area you are interested in and its property market, what similar properties in the area have recently sold for, amenities in the area and possible future developments in the area that could affect values.
Consider prospective tenants you are targeting and what appetite there is to purchase properties in the area.
With clear direction of your purpose to invest in property, you will be well informed and able to move forward seamlessly while being unencumbered by emotion with less likelihood to be distracted by misleading information.
4. Pick your tenants carefully
Great tenants pay on time, keep your property in good shape and treat their neighbours well. However, every landlord knows that finding such a person can be a hit-or-miss exercise, but it is not entirely impossible.
Certain actions can mitigate against a bad situation, such as thorough credit checks, air-tight lease agreements and intensive screening. Take the extra time to meet and greet a variety of potential tenants to get a
gut-feel sense of what kind of people they are.
5. Keep records
Maintain organised documentation to ensure transparency and manage expectations from all sides. Ensure that you continuously review the contract, send timely receipts to the client and ensure that any images are stored in well-labelled folders.
Keeping a simple maintenance schedule also helps to smooth out expenditure curves over time.
Property investing might look glamorous and can be a guaranteed money maker, but if not managed properly can be more of a burden than a retirement plan. As with any investment vehicle, you need to do a lot of careful research, thorough planning and managing every step closely with robust contingency measures.