One of the favourite ways to invest for many people is through the purchase of an investment property. Investing in a property is all about a long term financial gain that increases income and helps to secure finances for the future. In South Africa people tend to believe that an investment property always provides good returns, but this is, in fact, not always true, and if there are enormous returns to be had, it will certainly not be in the short term. This is why it is crucial to know how to pick an investment property, and how to effectively maintain and manage the property for maximum returns.
- Do the sums: It is vital that your investment property is able to provide returns in the medium to long term, and you have to be on top of exactly what your budget is, and what mortgage payments will set you back in the long term. The aim is to sell the property when you are good and ready, and you don’t want to be forced to do so during a sudden downturn in the economy. Ensure that whatever you pay now for the property can be maintained over the medium to long term.
- Check age and condition: Do a thorough inspection, and, if possible, get a professional building inspector to help to assess the condition of the property. Identify any potential problems and get a cost estimate on how much it would cost to fix from a qualified builder. A property in bad condition is not necessarily deal breaker as it could cost you much less than a property in good condition. But do ensure that you are able to afford the expense of repairs before making a decision. Weigh up the cost of repairs against the reduction in price, and work out if the rental income will justify the repairs.
- Choose your demographic well: Different types of properties will be more in demand in certain demographics. For instance, in a university town, more bedrooms will trump a big back yard. Family homes on quiet roads that are close to schools and parks will preferable to bigger homes in busy areas. Look at the area and hone in on the demographic, and then choose a property that will fill that market.
- Find a good property manager: Managing a property is more difficult that people think, and owners going it alone often find it stressful and difficult to manage, especially if the property is located far away from the owner or when the owner has a full time job. A professional property manager will take care of tenant issues, maintenance, contracts, advertising and repairs at a nominal fee – which makes it worth it when it comes to peace of mind.
- Understand the location: Speak to locals and estate agents about the area where you are looking to buy in order to understand what is in demand. Often one street is considered superior to another, and it is always a good idea to get inside information. Also check out what is happening in the area – for instance, a major construction project next to the property could greatly reduce the chances of finding a suitable tenant. By the same token, if a new sports facility or shopping mall is soon to be built nearby it may increase demand for the property and increase its value.
If you are interested in purchasing an investment property and need more information, speak to our friendly consultants and HomeFair Online Estate Agents.