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7 rules for smart property investments

08 Apr 2015

For those who can master the art of property investment, it can be financially rewarding. However, entering into the world of property investment can be intimidating, not to mention risky.

While the law protects property buyers to some degree, it is never a good idea to assume that everything in the property checks out just by looking at it.

This is according to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who says in every phase of the property market there are opportunities available to investors, provided they are well-versed and undertake the necessary research.

He says without putting in the time and effort it requires, property investors could find themselves making wrong and sometimes costly decisions. A seasoned and successful property investor can only reach their full potential by having a vast understanding of the property market and the factors that influence it.

Knowing what to look for and what to avoid will increases an investor’s chances of success and will ultimately impact on their investment returns, he says. 

Goslett shares seven property investment principles that will assist in guiding investors to ensuring that they are making the correct decision:

1. Patience is a virtue

There is no need to rush into any investment. “Rather take the time to do the appropriate research than rush into a deal that could cost you a lot of money in the long term.”

When it comes to property investment there is no blissful ignorance, knowledge is the key to success, says Goslett. The more knowledge and information that an investor has, the better equipped they will be to recognise a good opportunity.

Goslett says there is no need for the investor to take the first deal that comes their way. He says they can take their time, shop around and compare other properties that are available before making any final decisions.

Investors would do well to look at the price of the property and compare this to the value. This can easily be achieved through working with an estate agent and asking them to provide a comparative market analysis.

2. Location, location, location

Most people know this mantra, and there is good reason for it. Location really is just about everything when it comes to the investment potential of any property.

“Regardless of the property’s condition or type, its location will be the determining factor as to how much the home’s value will appreciate. It is imperative for an investor to choose the right location over any other factors.”

Good options are areas that are in proximity to a range of amenities. Areas that consistently show steady growth in value are those that are near business nodes, transport routes, good schools and shopping centres, says Goslett.

3. Never assume

While the law protects property buyers to some degree, it is never a good idea to assume that everything in the property checks out just by looking at it.

Goslett says investors should have any property professionally inspected before the purchase agreement is signed. A professional inspector will be able to spot any defects that may otherwise go unnoticed, such as the structural integrity of the property.

While it may cost money to hire an inspector, knowing about any costly defects that the property has may influence the purchasing decision and price, he says. Having to fix any defects that were not discovered will only eat into possible returns.

4. If in doubt, ask for help

It might be tempting to make your mark and go at it alone, but it is far better to learn from other people’s mistakes than your own.

“If possible, seek the advice of an experienced property investor who will be able to act as a mentor. During the initial stages of learning the ropes, it is always better to have a seasoned investor or advisor there to provide some helpful hints and guidance.”

5. Stick to the budget

One of the most dangerous things that a property investor can do is lose track of where they are with their budget. It is vital to keep track of both finances and debt.

Goslett says ideally investors should plan an in-depth budget and cash flow analysis in order to ascertain their financial position accurately.

He says investors will need to know what they are able to afford and what is out of their reach financially. This should be monitored and can be measured by completing a personal cash flow statement.

Additionally, investors should also compare the financing deals from different banks before deciding where to secure their home loan. The interest rate that the bank is willing to give on the loan will have an impact on the long-term returns on the investment, so securing a loan will be an intricate part of the purchasing process.

Investors will need to consider that most financial institutions will require between a 10% and 30% deposit.

6. Suitable maintenance

Once an investment home has been bought, it doesn’t mean that the investor can now sit back and watch the investment flourish. There is a certain amount of care and maintenance required to ensure that the investment returns remain healthy.

“The investor will need to protect their investment by ensuring that the property is in good repair and well looked after. Maintenance costs will need to be added into the investor’s budget and plan.”

There is also the matter of ensuring that they have the time and capacity to properly manage and maintain their property, he says. If they don’t have the capacity, a management agent can be hired to make sure that all repairs and general management of the property is taken care of.

7. Diversification

Goslett says in order to mitigate exposure to risk, it is imperative for investors to ensure that they have diversity in their portfolio when buying property specifically for investment purposes.

If possible, investors should try to buy different kinds of properties in various areas, rather than buying a few properties in one development.

“As investors need to learn as much as possible about the environment they are trading in, it is advisable that they consult with as many experts as they can, as well as making use of professional, reputable and knowledgeable estate agents to assist them in the sales process.”

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