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Advice for Long Term Property Investment

This Buy-to-let is an attractive income investment in a time of low rates and stock market volatility and has seen a strong resurgence in recent times. But beware the low interest rates. One day they must rise and you need to know your investment can stand that test.

Nevertheless, despite the potential for interest rates to rise, the current lower house prices, rising rents and improving bond deals are tempting investors once more.

If you are considering investing in property or improving your returns on a buy-to-let you already own, it’s important to do things right. According to Paul Stevens, CEO of Just Property, buy-to-let comes with no guarantees, but for those who have more faith in bricks and mortar than stocks and shares, it could be a valuable investment option.

Location, location, location

It doesn’t matter how many times you have heard it before - location remains the most important factor when buying property. When you are buying for investment, in other words buy-to-let, you have to look out for locations that have high rental demand. Look out for major facilities in close proximity, such as schools and shopping malls. Notice if there are any infrastructure developments taking place in the areas, which would be more profitable and attract rentals.

Don’t be over-ambitious

To compare different property values, calculate their yield: the annual net income (gross income received less expenses) divided by the purchase price, and multiplied by 100 to get a percentage. For example, a property with a R650,000 purchase price, delivering R60 000 in rent annually after expenses, will deliver a 9.23% net yield in the first year.
       
“If you can acquire a rental return substantially more than the bond payments, you can start saving to build up an emergency fund or invest any extra cash you have. Remember though, people rarely buy a property outright and they come with running costs, so bond costs, agents fees must be worked out and they will eat into your return” says Paul Stevens.
       
Once bond, costs and taxes are taken into account, you will want the rent to build up over time and then potentially be able to use it as a deposit for further investments. This means you will have benefited from the income from rent, paid off the bond and hold the property’s full capital value.

Think about your target tenant

Instead of imagining whether you would like to live in your investment property, put yourself in the shoes of your target tenant. Who are they and what do they want? If they are students, it needs to be easy to clean and comfortable but not luxurious. If they are young professionals, it should be modern and stylish but not overbearing. If it is a family, they will have plenty of their own belongings and need a blank canvas.
       
As Paul Stevens says, allowing tenants to make their mark on a property, such as painting, or adding pictures or taking out unwanted furniture makes it feel more like home - these tenants will stay for longer, which is great news for a landlord.

Look further afield or fix up a property

Most investors look for properties near where they live. But your town may not be the best investment area. Having a property close by has its advantages, but if you will be employing a reputable agent they should do that for you. Cast your net wider and look at towns that are popular with families or have a sizeable university.
       
Shop around for the best bond

Do not just walk into your bank and ask for a bond. It sounds obvious, but people who do this when they need a financial product are one of the reasons why banks make billions in profit. If you are looking for advice, consider using a specialist bond originator who will shop around for the best offering. Remember, asking for information is not an obligation to use them.

Partner with specialists


There are two areas that you need to have managed by experts: your investment and its process, and the rental. In both cases, with the right assistance and guidance, you would not be only investing in your wealth, but also in your time. Make sure the property works for you, not the other way around.
       
Letting agents will charge you a management fee, but will deal with any problems and have a good network of plumbers, electricians and other workers if things go wrong. You can make more money by renting the property out yourself but be prepared to give up weekends and evenings on viewings, advertising and repairs.
       
Get the right mindset

Buying income-producing property requires a different mindset than purchasing a home. Buying a home is an emotional purchase, whereas an investor buys a property because of its value, the income it will generate and its potential for capital appreciation. So make sure you view the property as an investment with the right perspective and the end-goal in mind.


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