A Fin24 user wants to invest in property, but is not sure which option would be best. She writes:
I am looking into buying investment property. There is a new development in Midrand and I can buy two bachelor flats or one two-bedroom flat.
Which is the best and most secure investment? I am buying cash though. I am very risk averse, in my early 30s and have no debt. I have nearly non-existent retirement savings.
Glen Fisher, director of Seeff Sandton developments, responds:
As with any investment, you need to do careful research and ensure that you buy smart. If you are looking to capitalise on rental demand, then heading to the affordable sector of the market, where rental demand is usually high, is advisable, but take care to invest in the right type of accommodation.
A good example is the new Birchfield development that Seeff is marketing in Midrand. Located in the heart of the area with excellent transport and amenities (including shops, banks and more) in the immediate vicinity and within walking distance, these have been snapped up quite quickly.
Phase 1 which comprises of 60 apartments are all sold, have just been registered and occupation taken.
Phase 2 sales are also basically complete and owners and tenants are taking occupation in March 2015.
Phase 3 will launch in December this year and Phase 4 in April 2015, thus still offering excellent investment opportunities. The entire complex will be complete by January 2016.
The average sales price increase between the phases has been a significant 7%.
In phase 1 we are currently experiencing a higher demand for one-bedroom rentals at R4 800 per month as opposed to the two-bedroomed units that fetch a monthly rental of between R6 000 and R6 500 per month. This is largely on the back of an affordability issue in the rental market.
Our suggestion would be to spread your risk by investing in two smaller units - that is one bedroomed units - with a higher rental demand rather than one large unit.
If, for example, a two-bedroomed unit does not have a tenant for a certain period, then your income would be negative, as opposed to having both one-bedroomed units rented out.
At worst, if you only had a tenant in one of the smaller units, you would still receive some income until the other unit rents out.
In Phase 2, a one-bedroomed unit costs R515 000, with a monthly levy of R600 and rates of R200 per month.
At the current bond rate and assuming a 100% loan at the rate of 9.25% over a 20-year repayment period, your monthly repayments will be around R4 800 per month (plus home owners’ insurance).
The rental income of the particular unit would be around R5 000 per month. You can thus see the excellent buy-to-let investment potential.
Understandably, these units are also the fastest sellers, so there are in fact only three still up for grabs at present.
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