Buy­ing with an eye for the fu­ture

Lesotho Times - - Property - — Prop­erty24

TIMES are tough. In­fla­tion’s up, in­ter­est rates are up, debt re­pay­ments are up and most con­sumers sim­ply don’t have any­thing left at the end of the month for sav­ings, no mat­ter how hard they try.

“And that is one of the most im­por­tant rea­sons for any­one buy­ing a new home to choose a prop­erty that not only meets their size and de­sign cri­te­ria, but is also likely to de­liver a good re­turn on their in­vest­ment,” says Bill Raw­son, Chair­man of the Raw­son Prop­erty Group.

“Most peo­ple are bat­tling to make ends meet at the mo­ment, but those who are home­own­ers are lucky in the sense that they are at least build­ing up eq­uity in their homes month-by-month as they make their bond re­pay­ments.”

Eq­uity is the dif­fer­ence be­tween the value of your home and the amount you still owe on your home loan, he ex­plains, and while it should never be re­garded as a sub­sti­tute for ac­tual sav­ings, it does pro­vide some fi­nan­cial pro­tec­tion in the event of a real emer­gency.

“It also hap­pens to grow much faster if the value of your home is ris­ing at the same time as you are pay­ing off the bond, as does the po­ten­tial ‘profit’ you are likely to make on your orig­i­nal in­vest­ment in the prop­erty.

“If, for ex­am­ple, you pur­chase a R1 mil­lion prop­erty with a 10 per­cent de­posit and the value rises by 5 per­cent in the first year, you will not only have added R50 000 to your eq­uity in the prop­erty, but also made a 50 per­cent re­turn on your orig­i­nal in­vest­ment of R100 000.”

In­deed, says Raw­son, one of most at­trac­tive things about in­vest­ing in real es­tate in­stead of shares or other as­sets is that you gen­er­ally only have to pay a small per­cent­age of the pur­chase price your­self, but al­ways get to keep 100 per­cent of the profit on the whole in­vest­ment.

“How­ever, there’s an old say­ing that you make the money when you buy a prop­erty, not when you sell it – which means that in or­der to max­imise the profit po­ten­tial of a real es­tate pur­chase, you need to seek out a home that is likely to show a sub­stan­tial in­crease in value over the next five to 10 years and then try to buy it as cheaply as pos­si­ble.”

Some vi­tal things to re­mem­ber while you’re do­ing this, he says, are the fol­low­ing: Make sure you buy a home in good con­di­tion. Ren­o­va­tions and re­pairs al­ways take more time and money than you ex­pect and tend to eat into the re­turn on your in­vest­ment, es­pe­cially if you sell again rel­a­tively quickly. Be­sides, there’s al­ways the dan­ger with a fixer-up­per of hid­den de­fects in the plumb­ing and elec­tri­cal sys­tems, in the roof or in the foun­da­tions, and these are usu­ally the most ex­pen­sive prob­lems to rec­tify.

Don’t hes­i­tate to ne­go­ti­ate. Even if you’re quite sat­is­fied with the lo­ca­tion and con­di­tion of a home you would like to buy, it never hurts to ask ques­tions and see if you can’t bet­ter the price. If you can es­tab­lish that the seller is mov­ing to take up a new job, or has al­ready made an of­fer on an­other home, for ex­am­ple, there will be some anx­i­ety to fi­nalise the sale and a lower of­fer might well be ac­cepted.

Con­sider buy­ing a dis­tressed prop­erty. Most of the banks have gone out of their way over the past few years to help home­own­ers who found them­selves in fi­nan­cial dif­fi­cul­ties and no longer able to af­ford their home loan re­pay­ments. And one of the most ef­fec­tive ways of do­ing this has been through their spe­cial “dis­tressed seller” pro­grammes. Cer­tain es­tate agen­cies have part­nered with the banks in these pro­grammes, and while they would like to get the best pos­si­ble prices, their main aim is to sell in the short­est pos­si­ble time and the re­al­ity is that these homes usu­ally do sell for less than cur­rent mar­ket value.

YOU need to seek out a home that is likely to show a sub­stan­tial in­crease in value over the next five to 10 years.

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