Buying investment property – The 7 Deadly SinsPurchasing an investment property can be an intimidating and often risky business, but it is also a way to have a future free of financial worry for those who can master it, says Adrian Goslett, CEO of RE/MAX of Southern Africa.
Goslett says that while seasoned property investors will generally have a vast understanding of the property market, many first-time buyers or those relatively new to the property game will often make the wrong and sometimes very costly decisions. Although lucrative opportunities can be found in the current market, it is important for buyers to avoid certain pitfalls that can impact on their return on investment.
Goslett provides the seven deadly sins that property investors should avoid at all costs when purchasing property:
- 1. Have patience, don’t be in a hurry – Goslett notes that the first step to property investment is taking the time to do the necessary research. “Rushing into a property deal without having spent the time to complete the appropriate research could cost the buyer dearly in the long run,” he says. “As the mantra goes - knowledge is power. If a buyer has done the research they will have a greater understanding of the market and will be able to recognise an opportunity when it arises.” Don’t take the first deal on the market, but shop around. Take time to compare similar properties in an area and then see what other options are available on the market. Look at the price of the property and compare this to the value. Get an estate agent to provide a comparative market analysis of the area.
- 2. Location is everything – We have all heard it – location, location, location. Goslett says that the importance of buying in a prime location cannot be over emphasised. He says: “Simply put, a property in a bad location will never fetch a premium price, even in a boom period. Choosing the right location is essential when making a property purchase. Buyers should look for areas that are in proximity to a good range of amenities. Areas that consistently show steady growth in value are those that are near to business nodes, transport routes, good schools and shopping centres. While rental income is important, the primary goal should be capital growth.”
- 3. Don’t make assumptions - With the introduction of the Consumer Protection Act, buyers are generally quite well covered. However, it is always advisable to have a professional home inspector to take a look at the property. “A professional inspector will be able to spot any problems that may otherwise go unnoticed, such as the structural integrity of the property. It may cost money to hire an inspector, but this could save a lot more money for repairs in the long run,” says Goslett.
- 4. Seek help, don’t do this alone – Rather learn from other people’s mistakes than your own. Goslett says that new buyers should have an experienced property investor as their buying mentor. “A knowledgeable property investor that has been in the game for some time will be able to show a new buyer the ropes and guide them through the process,” says Goslett.
- 5. Keep an eye on the budget – Perhaps one of the deadliest sins is not keeping track of finances and debt. According to Goslett, investors should undertake an in-depth budget and cash flow analysis in order to ascertain their accurate financial position. “Know what you can afford and what you can’t, which can be measured by completing a personal cash flow statement.” says Goslett.
He adds that buyers should compare financing deals from various financial institutions before deciding to secure their home loan. Securing a loan will be an intricate part of the purchasing process. Buyers should also bear in mind that most banks still require a 10% to 30% deposit. This, coupled with the fact that a loan will increase the cost of purchasing property, makes choosing the right lender essential to ensuring a good return on investment.
- 6. Proper maintenance – A large element of purchasing a property is the ability to maintain the property to protect your investment. Whether the property is bought as a primary residence or as part of a rental portfolio, keeping the property in good order is a vital part to ensuring a good return on that investment. “Buyers should include maintenance costs as part of their budget and plan. They will also need to ensure they have the time or capacity to properly manage and maintain their property. With a rental property, a management agent can be hired to make sure that all repairs and general management are taken care of,” says Goslett.
- 7. Don’t put all your eggs in one basket - When buying property specifically for investment purposes, it is imperative to diversify your portfolio, says Goslett. This will largely minimise exposure to risk. Buyers should try to buy different kinds of properties in varies areas, rather than buying a few properties in one development.
“Property buyers should learn as much as possible about the environment they are trading in, consult various experts and make use of professional, reputable and knowledgeable estate agents to assist them in the sales process,” concludes Goslett.
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