Real estate is a proven wealth-building tool. Investing in rental property can generate income and significant tax benefits as well as build equity over the life of the property ownership. But, as with everything, before you dive in head first, you should ask yourself, what do you need, what should you look for, what should you expect and most importantly, is investing in property right for you and your finances?
Paul Stevens, Just Property Group COO, says although many succeed in investing in real estate, it isn’t for everyone. He says you need to take into account your investment preferences and personality. “Do you have the time to devote? Are you comfortable troubleshooting problems or prefer to hire a property manager?”
Stevens shares a few handy tips…
1. Are you financially fit?
Pay attention to your budget. Successful real estate investors build their portfolio through saving money and gradually buying property over the years.
And check your credit score as it determines the rate and conditions you receive on a bond. If your credit score is high, meaning you pay bills on time and haven’t ‘maxed out’ your credit cards, you’re a good bet for lenders and will be offered a low rate with good conditions.
2. Can you place a deposit?
Putting at least 20 to 25 percent down opens you to the best terms.
3. Focus on residential property
Residential property is an attractive investment and is easier to understand, buy and manage than most other types of property. And, if you’re a homeowner, you have already navigated the process and understand residential property maintenance.
When it comes to your residential property options, start small. Sectional title townhouses are a good option and work well for investors who don’t want to deal with building maintenance and security issues.
5. Seek out development
Areas where there’s new development or redevelopment are where you want to be. The best investment properties are well-located and physically sound but ‘cosmetically challenged’.
6. Location, location, value
Location is important, but so is finding value for your money. Owning real estate in up and coming areas with new development or renovated properties enhances finding and keeping good tenants and leads to greater returns.
7. Invest close by
Buy within two hours’ drive. Venture further afield when you understand another property market and regularly find yourself there for other reasons or you’ve found an excellent property partner to manage your investment.
8. Have a killer team in place
Line up a real estate agent, financial advisor and lawyer early – the investor with the best resources can identify properties to ignore and makes an agile buyer.
9. Bottom line
Project the Net Operating Income (NOI) preferably for the next few years. Projecting the NOI is time consuming and requires experience, especially if you plan property alterations to increase income and/or reduce expenses, which is where your ‘killer team’ earns their weight in gold.
Discover how to build your wealth with property investment Get free training videos & resources on the secrets of property investment in South Africa. Fill out the form below to gain instant access to our training resources.