The simple truth is that not all property purchases are equal. While one property investment could become the cornerstone to wealth creation, another could lead to financial ruin. What is the difference between the two?
According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, in order to ensure success and make the most out of their property purchase, buyers need to be well-informed, savvy and make the correct buying decisions from the start. He notes that decisions made during the purchasing process will have a massive bearing on the potential return on the buyer’s investment.
Goslett says that merely purchasing a home at fair market value doesn’t guarantee that the buyer will see healthy returns over the long term. He points out that there are certain golden principles for any property acquisition that buyers would be wise to follow:
Research and ask questions
Before making any decisions a buyer needs to establish whether they are purchasing the property as a home to live in or merely for investment purposes, as this will change the way the buyer approaches the purchase. “If the home is bought with the intention of being the buyer’s primary residence, the decision making process will be far more emotionally guided. The buyer will look at aspects of the property and the surrounding area that appeal to them personally. However, if the property is for investment purposes it will be more important to research what will appeal to possible tenants in the area and who the tenants might be,” advises Goslett.
He notes that while a buyer will be able to find a great deal of information online regarding the area, the estate or complex, nothing can replace checking out the location in person. “Take the time to drive around the area and walk the streets. Consider what the traffic is like and who your potential neighbours could be, as well as the facilities and amenities in the area. A real estate professional with working experience of the area will be able to provide a comparative market analysis, which will reflect recent stats and figures of sales in the area,” says Goslett.
Simplify and stick to the basics
Regardless of the phase of the property market or external influences – sound property buying principles never go out of fashion. Goslett advises that there are fundamentals that successful property buyers keep in mind at all times. These include aspects such as the property’s location, the value per square metre and the potential rental yield - these will always be the key criteria on which an investor makes a decision.
Subtle differences can have a big impact
It is vital not to underestimate the importance of location and just how much a small variant between two areas can impact property pricing. Even if two separate homes offer the same features, their values can differ greatly depending on where they are situated. “It is possible for property prices to vary substantially from one suburb to the next. In fact, it is even possible for homes to have different values based on which side of the street they are on. From an investment perspective, purchasing the worst home in a sought-after area is far better than purchasing the best home in an area with less appeal,” advises Goslett.
According Goslett, buyers who are purchasing a property with the intention of letting it out need to consider the fact that various aspects will be attractive to a variety of people - so discovering their niche market is essential. Investment buyers should also look at how much rental stock is available in an area before purchasing a buy-to-let property. The rental property sector is largely driven by demand, and an investment could fall flat if there is an oversupply of properties available for rent in the area.
Have a plan in place
Both property buyers and investors need to have a plan in place when buying a home. “As a property investor, it is important to think about what you would like to achieve with your property portfolio and what needs to be done to get there,” says Goslett. “As a property buyer, it is essential to think about where you would like to settle for the next five to ten years.”
He adds that having goals in place will assist buyers to remain focused and will give them something to work towards. Buyers should never limit their thinking to what they can afford right now, but rather what will be possible for them in the future.
Drop the debt
One of the key elements to any property transaction is access to the necessary finance and affordability. Cash buyers only represent a very small portion of the market, while most buyers will require a bond to purchase a home. According to Goslett, buyers can ensure that their application for finance has more chance of success by reducing their debt-to-income ratio and keeping a clean credit record.
It is also vital in today’s market to have a deposit of between 10% and 20% of the purchase price of the property. A deposit will increase a buyer’s chances of bond approval and reduce their monthly repayment.
It is more than just bricks and mortar
While the return on investment is often a driving factor in property buying decisions, it shouldn’t be the only factor that is considered. According to Goslett, the basic principle of purchasing a property is that if you wouldn’t want to live in it, it’s not likely many others would either. The property has to appeal to the buyer and they have to want to own it.
“Purchasing a property that provides a healthy return is not just about luck and timing, it’s about much more than that. The most important aspect is to research as much as possible, and only buy a property once all options have been carefully considered,” Goslett concludes.