For many people, the world of investing can be bewildering, but almost anyone can become a property tycoon and derive significant incomes from multiple properties.
Whilst stock markets may fluctuate wildly, Andrea Tucker, director of MortgageMe, says real estate in South Africa has demonstrated greater resilience to market forces, and is viewed as a much less risky investment than, for example, playing money markets.
And if you approach it in the right way, as she advises below, you too could join the ranks of those profiting from one or more residential or commercial buildings.
Brick 1: Affordability and objectives
Tucker says the very first thing to calculate, is how much you’re able to spend on a second property, assuming you own your primary residence. You can also look at pooling resources, for example using a stokvel, to raise a deposit and have joint ownership.
“Also, what are your objectives in embarking on this investment journey? Are you looking for a short- or long-term gain, or simply to grow a property portfolio that you can leverage for other investments?”
Brick 2: Getting in and out of property deals
Once you have established how much you can spend, what is your exit strategy? Are you buying to flip the property to sell it in a short space of time and make a quick profit, or are you buying to rent it out to cover as much of the bond and living costs, in which case, are you sure that what you are buying will be a desirable rental?
Brick 3: Extra costs
Tucker explains that it’s important to factor in the extra costs over and above the purchase price.
“You need to consider your bond repayments, fixed versus variable interest rates as well as various upfront admin and legal fees. If you’re renting out, are you appointing a managing agent who will incur fees, and what are the municipal rates and taxes?
“Also be aware that you will be liable for much of the maintenance and upkeep.”
It’s never as simple as just calculating how much the bond repayment will be, she says. Always work out what additional costs you’re going to be required to pay monthly for that property.
Brick 4: Finding a property
Once you have a solid business plan, you can take the next step to become well-versed in prevailing market trends.
“Consider the area in which you are looking to buy. What are the demographics? Perhaps there is high demand from students, or conversely it may be a family-oriented suburb with a low turnover in the rental sector.”
While it might feel safer to buy where you know, Tucker says you should not be afraid to venture outside of areas with which you are not familiar, but which may offer a good proposition for rentals.
“I would suggest also looking in suburbs ‘adjacent’ to those you consider desirable – you never know what you’ll find when you look a bit broader.”
Furthermore, consider the direction of the market. Now that hybrid working patterns seem to be here to stay, people are semigrating or moving into more peri-urban areas, looking for properties that can accommodate both the family and a work from home set up.
“You might also want to look at areas where there are subsidies and tax benefits, for example suburbs which a municipality has earmarked for regeneration. Being tax efficient is also important when you become a multi property owner, so familiarise yourself with all aspects of tax regulations around property ownership, especially if you are looking at investing in property overseas.”
She adds that fledgling property moguls should also consider their own life trajectory.
“You may look at buying where your kids are going to varsity, with a view to letting to other students once they have graduated; or buying in the resort where you always spend your holidays, and renting outside of your own usage. There is always retirement – your parents’ and eventually your own to consider, and so a unit in a seniors’ complex could also be an excellent investment.”
Brick 5: The rental market
Congratulations! You’ve bought a property and now you are on your way to becoming a property mogul. But there may still be pitfalls along the way and so here Tucker offers some safeguards against rentals going wrong:
- Vetting of prospective tenants is imperative, including credit checks, verifying payslips and banking details
- Get references from previous landlords
- Verify the entity that will be on the lease agreement. Is it a private individual or a company? Be sure to know the difference and how it might impact the terms and conditions of the lease.
Brick 6: How to be a successful property mogul
Although property is generally considered a solid investment option, like any financial transaction it should be approached from a position of knowledge.
“An experienced real estate agent combined with proper financial planning should complement your own research. Be sure you know how to spread your risk, making property a part of a balanced investment portfolio,” Tucker says.
To start your journey, search IOL Property for the right investment property.
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