Buying a property as an investment can be a good idea. Any investment requires a lot of thought and research, investing in property is no different. So, let’s look at the things you should consider before buying an investment property.

What you need to know before investing in property

Knowledge is everything

  • Before you even look at a property, you need to research everything you can about property investment. Take the time to read books, as well as online resources, blogs on property investment sites and property buying sites such as www.privateproperty.co.za.
  • Speak to people who are in the property industry like estate and lettings agents, as well as experienced investors who already own and manage investment property.

Research the area and property type you want to buy

Once you feel you understand the principle of investing in property, you need to research the specific area and property type you want to buy

  • What type of tenant do I want to attract, e.g. single, partners or families?
  • What are the key facilities and amenities important to your target tenants?
  • Is it close to public transport or major roads?
  • What is the level of safety and security in the area?
  • Is the area developing and growing
  • Is it close to schools, shops or entertainment?

Think about what would make your property appreciate in the future, and the kind of place people would want to buy or rent.

Work out the costs

You must have a solid financial plan if your investment is going to be successful. Think about what it will cost up front and during the period you own it.

Calculate all the costs:

  • Purchase price
  • Cash required for deposits, transfer duties, transfer fees and renovations
  • Monthly bond repayments and cost.
  • Rates and taxe.
  • Levies (if in a sectional title unit)
  • Utilities
  • Monthly maintenance

Remember Capital Gains Tax

If you decide to sell your investment property, you may be liable for Capital Gains Tax, which is the tax you pay to SARS for the disposal of an asset. The sale of a primary residence has certain exemptions which an investment property does not have. Speak to your tax consultant or visit to the SARS website for further information.

Work out your expected rent

  • Match the rent you expect to receive for the property you have in mind and aim to be cashflow positive as soon as possible.
  • Be conservative in your rental expectations but also overestimate your costs to ensure you have a realistic expectation for your monthly cashflow.
  • Look at the prices of property in the areas of interest and see what the growth trend has been over time.

Consider your investment time frame

As important as your costs and rental expectation, is your investment time frame:

  • How long will it take for you to be cashflow positive and not have to supplement the rent
  • If you plan to improve the property, how long will that take?
  • How long do you intend keeping the property until you sell it?

Timing is everything

With any investment, time is the biggest factor, and this is especially true with property investments. You cannot expect to make a fortune overnight and there are never any ‘quick wins’. Be prepared to take ‘the long term view’ and plan your investment over time.

Remember, a property investment takes time to mature and your biggest effort will be towards maintaining your property while managing your rental and costs during this period.

 

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