Here are essential rules to follow on your way to successful property investing:
Be prepared to buck the trend
When fear prevails and everyone is selling, is often the perfect time to buy property. This may seem counter-intuitive especially when others warn you of the risks of buying in a down market. But think about it – when the recession hit in late 2008/2009, buyer affordability plummeted and banks put a tight reign on lending amid a flood of distressed properties contributing towards the dip in house prices. The high levels of stock on the market meant investors could, and still can, benefit from capital growth as the market moves up a cycle. And when property booms again and everyone is buying, bide your time and be selective as bargains may be less easy to come by. Remember, when the market is down, both sellers and estate agents will be happy to see you and ‘all offers will be considered’.
Buy with other people’s money (OTP)
When on the topic of how to buy investment property, contrary to advice we often hear, putting in your own cash is not a good strategy. The less of your own money you use, the better off you will be. For example, if you have R75 000, consider using R25 000 as a deposit towards three property investments instead of putting down the whole lot on only one purchase.
Don’t get emotional
Right from the start make it a rule that you will not allow your emotions to influence your decisions. You are not buying a home to live in, so all you need to focus on is whether the numbers add up in your favour. Is this a good deal and is there potential for growth in the long term?
Buy the right property at the right price
Your approach to property investments should be to research the market thoroughly and identify below market value properties that will enable you to make good profits. For example, let’s say you buy a two-bedroom unit for R350 000 but the market value is in fact R480 000, then you have already made R130 000 profit, which you can add to your net worth – and it’s tax free.
Find a seller who needs to sell
There’s no use wasting your time chasing a deal that is unlikely to happen. The seller must want to sell or even be desperate to get rid of the property. IGrow believe that investors should build a property investment portfolio through acquiring profitable distressed properties, as the banks will write off some of the value and you can buy property below its market value.
Hone your negotiation skills
When dealing with the seller wait for him to put his deal on the table first. This way you do not risk paying more than you have to and you will never make the mistake of finding out later that, in fact, the seller would have sold for R100 000 less.
Buy to keep
At times it’s tempting to cash in on the profits, but think about how property values have gone up over the past 10 to 50 years. Your parents may have bought a house for R25 000 in 1965 and sold it in 2013 for R5 million. Or you may have bought and sold and later realised that the profit you took at the time was meager in comparison to what you would have made today. There are exceptions, but generally speaking, the best advice is to buy and hold. Keep in mind, when you sell you are liable for CGT.
You must believe it!
You need a positive mental attitude when tackling how to build a property investment portfolio that will show growth in the long term and provide good rental yields. It’s exciting when you start out buying below market value properties and seeing how you can accumulate wealth and create passive income with other people’s money – but like anything, you have to persist. There is always a good deal out there, for those who seek.
What do you think are the other Top factors that Property Investors need to know?