Sound advice on investing in property

When investing in property with a view to a sound medium to long term proposition, there are a number of key criteria or ‘rules’ one needs to bear in mind, says Elwyn Schenk, Pam Golding Properties area principal in uMhlanga and eMdloti on the KwaZulu-Natal north coast.
“Firstly, decide on your investment strategy. It is important to identify your reason for the purchase - is it for a family home, buy to let, or buy, ‘fix up’ and sell. This will have a bearing on the term for which you will hold the investment and your expected return. Normally property investment is of a longer term nature, mainly because turnaround costs (transfer duties, fees, moving costs) are relatively high relative to the acquisition cost.
“Then you need to identify the geographic areas which will maximise your capital growth and rental yield. Obviously your budget will determine the price you are able to pay and therefore the sectors in which you look.”
Research the market

He says that experienced estate agents are an excellent source of information and will gladly assist with your research and help determine a reasonable value for the property in which you are interested. There are also several websites which you can access to find historical information on registrations and pricing.
“Your research should cover suburbs which are growth areas for reasons of shifts in demography, for example uMhlanga, where there has been an injection of business from the city centre, or eMdloti, much sought after for holiday homes and because of its convenient access to the new King Shaka International Airport.  
“Bear in mind that due to a shortage of rental stock in most suburban areas, excellent rental yields are being achieved, in the range five to nine percent (ungeared).”
He says before presenting your offer you should carefully inspect the property for any defects. “As immovable property is normally sold ‘voetstoots’ (although the seller is obliged to advise you of any patent defects about which he/she is aware), it is a good precaution to make your offer subject to a qualified building inspector’s report.
“In the case of a sectional title property, examine the latest audited financial statements carefully, and study the accompanying budget for the ensuing year. If in doubt, talk to the managing agents of the body corporate about potential special levies or other major costs to come. This is especially important in old buildings where ‘big ticket’ repair items are a reality.”  
Location, location, location
Schenk says that conventional wisdom is that it makes better investment sense to purchase a more modest home in an excellent area than the best house in a lesser area. This has proven to be true time and time again.  
Do not overgear
Adds Schenk: “Gearing represents the percentage borrowing to the price of a property, so a bond of R300 000 on a R1 million property produces a gearing of 30 percent. A buy-to-let investor will typically maximise his/her gearing as in most cases losses on rental can be offset against other income (subject to certain conditions). This serves to substantially increase the yield on the investment.
“However, it is important to ensure that there is a safety margin in your gearing. When calculating your bond repayments, allow some scope for a two percent or more increase in interest rates for safety, especially in times of a rising interest rate curve, as we have now. In time rental escalation should more than make up for higher interest rates but it is in the early stages of a property investment when the numbers are most vulnerable.”

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 22 Jun 2018
      While estate agents can help the seller with correctly pricing the property and marketing a property to the right pool of potential buyers, at the end of the day it’s the impression that the property will make on buyers that counts the most.
    • 21 Jun 2018
      Anyone who’s ever been involved in a building project that’s gone wrong will appreciate the importance of adequate insurance cover in the construction industry.
    • 21 Jun 2018
      A recent news story about a blind tenant caught in a legal battle with his body corporate over letters and notices he was unable to read and consequently comply with has raised the question: what are the legal obligations for landlords with disabled tenants?
    • 21 Jun 2018
      A trend that’s taken the world by storm in recent years is that of hygge (pronounced: hue-guh), a Danish concept that is about creating intimacy, connecting with loved ones and taking pleasure in small, ordinary things.
    • 20 Jun 2018
      Buying or selling real estate isn’t as easy as it is portrayed sometimes, especially if there is a death of a party during the transaction which can make it awkward, tricky and inconvenient.
    • 20 Jun 2018
      With interest rates remaining at historic lows and banks continuing to compete for mortgage finance business, first-time buyers with funds at their disposal are currently well-placed to gain that initial foothold on the property ladder, particularly in the light of the slightly lower growth rates currently experienced in residential property values.
    • 20 Jun 2018
      The average size of bond granted in SA has grown 7,7% in the past 12 months to R934 000, according to BetterBond, the country’s biggest bond originator.
    • 19 Jun 2018
      In the current market, letting out a property can be a good option as rental demand remains strong, especially in the northern suburbs of Johannesburg. This is according to Chris Renecle, MD of Renprop. However he says that before homeowners let their property out, there are five key points they should make sure are covered before they market the property for rent and sign any lease agreements.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us