Property has become one of the most lucrative wealth creation options in recent years. Using the right strategy, you have the chance to create a successful property portfolio. Before you get started on your new journey, let’s take a look at what makes property one of the best investments and what the ideal investment property looks like.
Why people are investing in property
You’ve read that over 90% of the world’s millionaires made their money through real estate, and even some of our students have experienced great success. What makes property such a rewarding investment?
Great long-term investment
Some people invest in real estate because they’re trying to secure their financial future. This means looking for a comfortable retirement and ensuring that their family is well looked after. A property’s value could also increase over time, which means in the end, you’ll likely get more than you initially bargained for.
With property investment, you have a chance to generate an income that can last a lifetime – especially if you’ve used a buy-to-let strategy. Even better, if your entire property portfolio consists of buy-to-lets, you’ve secured financial security and possibly the financial freedom to do anything and everything you want.
In today’s economy, having a second income stream is vital. The cost of living is high and most South Africans are allocating their salary toward debt repayment. With property investment, you’ve generated a second income stream which could be very helpful. This could help with retirements, savings, or help you pay off your debt faster.
If you have less debt to pay off, then the second income stream is even better. Now, you can book the holiday you’ve always dreamed of or use the money to buy something you’ve always wanted.
Bond payments are taken care of by tenants
If you approached the bank for financing, then your tenants renting the property will be taking care of the monthly payments. This means that your income will not be affected in any way. So, if you’re looking for a steady income towards your bond repayments, you need to ensure that you always have tenants to occupy your property.
This depends on your agreements with your tenants. If you have a long-term contract, then you’re somewhat safe from missing payments. If you signed a two-year lease (which most landlords do), you need to ensure that you have another tenant lined up after the lease has expired.
You’re your own boss
One of the main reasons people decide to invest in property is because they’re tired of their 9-5. By slowly investing (and using the right strategies), you have the chance to start and manage your own property business.
This means running a company the way you want to and working the way you like. You’re no longer at the mercy of a boss but this doesn’t mean you need to slack off. You’ll need to adopt an entrepreneurial mindset to ensure you’re running a successful business. Determine your working hours, the days you’ll be working, and whether or not you’ll be needing help.
A greater prospect of having a work/life balance
The trouble that working people face today is burnout. For most working South Africans, the working day starts off with an early rise – possibly to beat traffic or to catch public transport – and a stressful workday. Overtime has become a reality and once you get home (after enduring endless traffic), you’re too tired to do anything else. So you sleep and the cycle continues until the weekend.
By starting a property business, you have the chance to set your own hours and spend more time with family. You can start your workday after the kids have gone to school and end before they get home. If your time is managed well, you’re likely to avoid burnout.
Types of real estate you can invest in
As a property investor, you’re spoilt for choice when it comes to selecting the types of property to invest in. In fact, with years of experience, you might find yourself mixing your property types. The experts will tell you that diversifying your portfolio will ensure that you’re always successful.
The common types of property include:
With residential property, you can either rent it out to new tenants (buy-to-let) or buy distressed properties, renovate them, and then sell. Most people use the buy-to-let strategy to start off with but property flips are also profitable.
When you invest in residential property, you need to determine how well the market is performing in certain areas – for example, how long does a property stay on the market in Sandton compared to Midrand. Also, look at the types of residential property that performs well. Statistics show that more South Africans are renting than buying. Perhaps look into apartments or small 1-bedroom homes.
If anything, South Africans like a bit of rest and relaxation. During the peak holiday season (Easter and Christmas) and can be tough to get holiday bookings as most resorts are fully booked months and even a year in advance. It’s why vacation homes have become very popular.
To invest in a vacation home, you need to ensure that the property is located near the sea – whether it’s walking distance or a quick drive – and also has favourable views. More importantly, people are looking to switch off from their daily lives. A spot that offers tranquillity and space to get away from work stress is all you need to make sure your property is always rented out.
This includes office space, warehouses, or shops. Investing in commercial property is simple if you know which strategy you’ll be using. The first step is to select the right location as any office building won’t do. While the Central Business District (CBD) of any area would be the ideal location, it’s often expensive.
The CBD won’t be the only area with a high business concentration. Most companies have looked into locations that are away from the city centre. Cape Town’s Northern Suburbs have seen a surge in business developments while business parks in Johannesburg are also popular.
Look for a location that is seeing an increase in business development. Then, ensure that it’s near amenities and public transport routes.
Here you have the chance to build what you want – whether it’s a mix-use area or a new residential complex. If you are purchasing vacant land, make sure it’s in a favourable location for whatever property type you’ll be developing – residential or commercial.
Questions to ask yourself when looking for your first investment property
So, what does the ideal investment property look like? It depends on your goal. If you see a property you like, ask yourself the following questions:
What does a property need to become a hot investment commodity?
Finding the perfect investment property can be a daunting prospect when you are just starting out. What exactly are the magical elements that make a property a ‘must-have’ investment? While there is no actual sorcery involved there are certain criteria that will definitely help drive up the value of a house for both buyers and potential renters.
Where is it?
Location, location, location is such a real estate cliché. However, sometimes things become cliches because they’re true. It really is one of the most important factors when it comes to a property’s value. Does the area have amenities that people look for? Good schools, nearby shops, proximity to job opportunities, a dog park? If not, are there any developments planned in the area that would entice people to want to live there? Maybe a large company is moving their headquarters nearby or they’re building a new shopping mall.
Are people moving into the area?
If they are, that means that there is a demand for accommodation there. On the other hand, if people are fleeing the neighbourhood in record numbers it might be time to consider a different area. Ask the current owners why they are moving, it might help you get a sense of any problems in the area, such as noise or crime.
Would anyone want to live there?
This may seem obvious, but a lot of potential buyers do tend to overlook it. Would anyone actually want to live in the property you buy? Tenant appeal is incredibly important. There’s no point in fixing up a property you intend to sell or rent to your own personal tastes, and then discovering no one else shares your love of clown wallpaper in kitchens.
You don’t want to have to end up having to redo the whole house and end up with a costly bill. Make sure any renovations you do, will be appealing to the audience you intend to sell or rent to.
Also, make sure you get the house evaluated before signing the final papers. Make sure there are no serious problems with the foundation, or the roof, or anything else that will be incredibly pricey to fix or replace. Parking can be a make or break issue for a lot of tenants, especially in South Africa, so finding a place with indoor parking is a win.
In many surveys, one of the main things people look for in a property is allocated parking. No one wants to wake up one day and realise that someone has broken their car window to steal a broken aux cable and a bag of trash.
Have you done your research?
Research is the most important aspect of buying anything. Most of us won’t even buy a toothbrush without spending a few hours reading reviews on every toothbrush brand available. This is especially important when looking for a property you intend to make a profit from. Look into the history of the building, these records should be made available by the owner or real estate agent.
Again, make sure the property you buy is low maintenance, you’re here to flip a house for a profit, not host a reality show about rebuilding houses in record time. Even if you fall in love with the house, it’s inadvisable to buy a house that is going to bring you a lot of problems in the long run.
Does the property have value-added potential?
Check the zoning and heritage laws in the area to make sure you can do any renovations you think will add value to the home. Perhaps putting in a covered car park or building a conservatory. Heritage laws can be very strict, in extreme cases, they may involve not even being able to repaint the outside of the house or do any exterior renovations at all. If the house is old, or in a specific style you need to consult the local heritage society to make sure you are allowed to alter the home.
Property investment can be a lucrative business, but you have to make the right choices. You have to be smart about what you choose to invest in. These tips should be a good jumping-off point for any aspiring real estate moguls out there.
For more information about finding the perfect property in South Africa book a seat at one of our FREE seminars now!