A good time to consider investment property - by K Wakefield

If you are an investor and you feel you would pass the rigors of the National Credit Act, it is a good time to consider buying property for rental purposes. There are a number of reasons.

For some time the buy-to-let market has been tough but it is becoming more difficult for people to buy property so the demand for rentals has risen sharply.

There is a good supply of property for sale, property price increases have levelled off and property is taking longer to sell, which means that you have more time to research your purchase and cherry pick.

Another interest rate hike is expected which will further filter out buyers and banks have notified us that their lending criteria is about to become a lot more difficult.

For a while now there has been a serious demand and undersupply of rental accommodation particularly in Durban’s middle to lower income market. House prices have risen faster than salaries and people will need some time for their earnings to catch up

In addition people are choosing to live in an up market area although they cannot afford to buy in the area, others are sitting out the market waiting to see what happens to interest rates and property prices, and still others are building their own homes and are renting in the meantime.

As a result rentals are rising and are expected to do so for sometime.

However, buying a rental or investment property is different to buying a home and you should rely on the numbers and research, and look for a property in a high demand area. In the longer term this will make it easier to sell in the future.

As we are in a buyer’s market you may well get a good deal on the ideal property which may help you cover your bond costs and position yourself for capital growth.

A misconception that developed during the property buying frenzy was that rentals would cover bonds out right so the property being bought would cost the investor nothing while increasing in capital value. But this is not the case, especially if you intend getting a 100% bond.

If you buy a property for R700 000 on a 100% bond your repayments at the prime interest rate of 15 percent will be R9 218 a month.
At the moment you would probably only be able to achieve a rental of R4 500 a month, leaving you with a shortfall of R4 718. If however, you put down a deposit of 25% or more you will reduce the amount you will need to subsidize each month.

Investment wisdom does suggest that one should have a diversified portfolio and a buyers market is a good opportunity to review or establish a property portfolio, which if well managed will prove to be rewarding over time.

Keith Wakefield, CEO Wakefields Estate Agents
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