Property market remains full of possibilities

The current market conditions has seen the property market lose some of its lustre, this however does not mean that the market isn’t rife with possibilities. Both experienced investors who are looking to expand their property portfolio and those entering the market for the first time will be able to enjoy the rewards if thorough choices are made. Laurie Wener, Pam Golding Properties’ MD for the Western Cape metro region confirms this by saying that sound opportunities awaits those who are willing to take a medium – to long-term view, while bearing in mind that risk factors also needs to be reduced.

“Property has long been favoured as a desirable asset, and a reliable vehicle for consistent and even excellent capital growth, in the medium- to long-term,” says Laurie. Furthermore the acquiring of property is considered a measure of wealth and can be used as an excellent hedge against currency devaluation and inflation. “The residential property market tends to be less volatile, allowing investors to anticipate oncoming trends and react accordingly,” adds Wener.

Factors which might deter investors

Large initial outlays might deter investors, even when it is a small purchase. Investors who do not have the sufficient cash are then forced to take out a mortgage loan. Fearing that they would not be able to repay the loan, while covering the property rates and levies scare off most investors.
Consider the location of the property. If the property is in a high rental demand area the investor can be assured that they will receive a steady monthly income which would be able to cover the repayments and also the levies and rates on the property.

Another deterrent may be concerns about the possible loading of taxes on secondary or income-producing properties. “Don’t let this put you off,” says Wener. “These amounts, when considered over the long-term investment period, are small when compared to the capital growth you can achieve.  And in the case of rates and levies, these are deductible as an expense from any income you may generate from the property.”

The time frame of a property investment can also be viewed as a barrier – but Wener cautions buyers to keep focused on the medium- to long-term view. “Short-time investment might be more lucrative but the risk factor is so much higher. This may well be attractive to those with an appetite for risk, and sufficient cash with which to play, plus some experience and good instincts. But for the average property investor, it is far more sensible to take a longer-term view and achieve steady capital growth, than to try and make a quick killing,” continues Wener.

Minimising the risk

The first step is to know your financial status. Make sure you can afford the investment even if interest rates or municipal rates rise unexpectedly. Ensure that you can set aside the cash for a minimum of five years comfortably.“You should also be sure that you are able to carry the costs of the property for a month or two, should you be left without a tenant for a short period,” Wener adds.

If you are likely to be subsidising the monthly mortgage, rates and levy payments, and want to reduce or even eliminate this expense, then Wener suggests you gear the loan over the property to consist of no more than 40% of the purchase price. “Then reduce the loan as quickly as is financially practical and possible,” she says. “This can be done by increasing your regular monthly payments above the minimum requirement, if only a little, and/or by paying in any spare cash lump sums derived from a windfall like a year-end bonus.”

If you are purchasing a cluster home or apartment, make sure you assess the condition of the building or complex before you sign on the dotted line, Wener continues. Maintenance and of the development and the upkeep of common property is vitally important as even the most pristine of units would not sell if housed in a shabby complex. At the same time the investor should not over capitalise, stick to what is the norm in the area in terms of improvements and additions.

Investors who are just starting out in the property market should consider sharing the investments. This will ensure that both risk and cost is shared by a group of like-minded co-investors. The added benefit of increased buying power and reduced requirement of a mortgage loan is very attractive to first time investors. Draw up a sound formal partnership that will cover everything from the requirements and obligations of each member as well as what would happen in the event of a sale of the property or an individual’s share thereof.

When starting out remember that although the current market is considered a buyer’s market, it doesn’t mean that investors will be able to pick up exceptional value for money properties at very good prices. Sellers might be willing to accept bargain prices from experienced buyers but the more likely scenario is selling the property at the price they are asking for.

“The best starting point for the price-conscious investor is an experienced estate agent who can guide them through the process,” says Wener.  Agents working for a reputable company should have a large portfolio of stock available to choose from, in-depth knowledge of the area you are considering, information on recent sale prices as well as historic statistics. An added advantage would be a company with strong rental division as this would allow for the latest estimate on market rentals and they would be able to assist in finding qualified tenants for the investment property if needed.

The most important factors to remember when selecting an investment property still remains location, location, location. This time old adage, while keeping a firm eye on the current market conditions, general appeal and condition of the property should ensure the growth of your medium- to long-term investment regardless of the overriding market climate.

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