17 Apr 2012
Full title properties offer some distinctive advantages over sectional title when it comes to investing in residential property.
According to Fuller, full title residential homes generally offer by far the best rental income. His advice is for investors to stay in the price bracket below R1 million. The critical factor is to buy right, he says.
Fuller believes that sectional title properties do not have any investment potential as buyers often have little control over their investment and one cannot easily change the buildings to increase the rental income. Levies too are out of the buyer’s control.
Freestanding clusters and secure estates on the other hand, he says, are often overpriced and generally have high levies and poor return because it is difficult to get the desired rental income. "The advantage of homes within these estates is that they are often well built and offer a good, secure standard of living."
When buying an investment property, Fuller says that its potential remains the key factor. Second is price. He says investors should never purchase a property unless they have a professional Town Planning Report. He cites an example of a home for sale in the suburb of Hurlyvale. A close look at the position of the dwelling and a Town Planning Report shows that it is possible for the land to be subdivided. "For a cost of perhaps a maximum of R40 000, one could add value of at least R250 000, even in this market."
Price also plays a crucial factor, as Fuller says, depending upon where and from whom, it is possible to be buying property at between 20% and 30% below market value. "Make sure you buy right the first time with no emotion - business only.”
He suggests investors use a program like Rentalanalyst to determine their return on investment. “Take out as much of your equity as you can to maximise the tax benefits, provided it remains a positive cash flow."
Fuller also notes that while most people exaggerate the importance of position, the suburb appearance and rental appeal is equally important. But it is the potential of a property that will often determine where you should buy, he says.
“For example, a recent rezoning for additional offices added R1 million to the value of the property simply by increasing the bulk."
Residential houses on busy roads are ideal for offices and can make for a great investment. Once again, Fuller says that it is key to get a Town Planning Report.
"Look carefully if the property is situated on a K Route, which is a relatively major road with two lanes in either direction separated by an island. If so, then make sure it is on a corner for future access."
A word of warning from Fuller to investors: the best return does not mean buy and hope for capital appreciation. Focus on adding value and try to put yourself in a tenant's shoes, he says, while the position should be convenient for shops and schools.
He says to remember that not every tenant has two cars. “Look for properties where you can convert inexpensively, so that the double garage or staff room can be converted into a flatlet, for example.”
He says this could add R5 000 to the rent, depending on the area.
Fuller notes that in the Edenvale and Bedfordview areas, investors have made up less than 10% of purchasers, with those looking to buy primary residences making up between 90% and 95% of the market.
He says that if an investor can find a fixer-upper property they will gladly purchase it, but they are few and far between. However, he notes that most investors in his areas of operation will buy multiple, cheaper properties as the rental return is better and investment is less risky.
Adrian Goslett, CEO of RE/MAX of Southern Africa, says that many investors who have seen great returns from their property portfolio have not just been lucky or did not just catch the market at the right time. "It's about much more than that - it's about doing your research and not buying based on just a whim without carefully weighing up each option."
When asked what his advice would be for property investors, Fuller says that buyers should remember that property is a long-term investment and an asset is any property that generates a positive cash flow.
"You buy for the cash flows, not the hope that there will be a capital appreciation. Capital appreciation is a bonus and generally exceeds inflation."
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