Purchasing an investment property can be an intimidating and often risky business, but it also offers a future free of financial worry for those who can master it, says Adrian Goslett, CEO of RE/MAX of Southern Africa. ‘While seasoned property investors will generally have a vast understanding of the market, many first-time buyers or those relatively new to the game will often make the wrong and sometimes very costly decisions. Hence, it is important for buyers to avoid certain pitfalls that can impact on their return on investment,’ says Adrian, who advises on what to avoid at all costs when purchasing property…
We have all heard the payoff line: location, location, location. And the importance of buying in a prime location cannot be overemphasised. Simply put, a property in a bad location will never fetch a premium price, even in a boom period. Areas that consistently show steady growth in value are those near to business nodes, transport routes, good schools and shopping centres. While rental income is important, the primary goal should be capital growth.
Know what you can afford by completing a personal cash flow statement. Compare financing deals from various financial institutions before securing your home loan, which will be an intricate part of the purchasing process. You 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 purchase cost, makes choosing the right lender essential to ensuring a good return on investment.
Rushing into a property deal without having spent the time necessary to complete the appropriate research could cost you dearly in the long run. As the saying goes: knowledge is power. If you’ve done the research, you 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 – shop around.
With the introduction of the Consumer Protection Act, buyers are now generally quite well covered. However, it is always advisable to have a professional home inspector take a look at the property; though it may cost extra to hire one, a professional inspector will be able to spot any problems that may otherwise go unnoticed, such as the structural integrity of the property – and could save you a lot more money on essential repairs in the long run.
New buyers should have an experienced property investor as their mentor to show you the ropes and guide you through the process. In this industry, it’s best to learn from other people’s mistakes than your own.
An important part of purchasing a property is the ability to maintain the property to protect your investment, whether it is a primary residence or part of a rental portfolio. Do include maintenance costs as part of your budget and plan, and ensure you have the time or capacity to properly manage and maintain your property. With a rental property, a management agent can be hired to make sure that all repairs and general management are taken care of.