Make the right call – sound prop­erty buy­ing fun­da­men­tals never go out of fash­ion

Weekend Argus (Saturday Edition) - - PROPERTY -

TO MAKE the most out of your prop­erty pur­chase, you need to make the right buy­ing de­ci­sions from the start to en­sure you give your­self the best pos­si­ble op­por­tu­nity at a good re­turn on in­vest­ment, says Adrian Goslett, re­gional direc­tor and chief ex­ec­u­tive of RE/MAX of South­ern Africa.

“Al­though recog­nis­ing and buy­ing a home at a fair mar­ket value is a good start, it’s not the only thing that will guar­an­tee long term ap­pre­ci­a­tion on your in­vest­ment. You need to ap­ply cer­tain prin­ci­ples and guide­lines for prop­erty ac­qui­si­tion that would im­prove the po­ten­tial for in­vest­ment growth in the fu­ture,” says Goslett.

“Sound prop­erty buy­ing fun­da­men­tals never go out of fash­ion. These in­clude key as­pects such as the prop­erty’s lo­ca­tion, the value a square me­tre and the po­ten­tial rental yield – these will al­ways be the key cri­te­ria on which to make a de­ci­sion.”

Goslett pro­vides these tips to con­sider when en­ter­ing the prop­erty mar­ket:

First of all, you need to de­ter­mine why you are buy­ing . Ask your­self whether the prop­erty is purely to live in or whether it is an in­vest­ment, as this will com­pletely change the ap­proach and how the prop­erty will be viewed.

“If you in­tend liv­ing in it, the mo­tives and in­flu­enc­ing fac­tors on the de­ci­sion mak­ing process are more emo­tion­ally driven. The el­e­ments that will be im­por­tant are the fea­tures and ameni­ties that ap­peal to you. If you are buy­ing for in­vest­ment pur­poses, it’s more im­por­tant to re­search the de­mo­graphic of tenants in the area.”

You can get a wealth of in­for­ma­tion on­line about an area, es­tate or com­plex. How­ever, it’s al­ways best to visit the area and drive around, walk the streets and speak to some of the res­i­dents. This will pro­vide a good idea of what the area is like, the fa­cil­i­ties and ameni­ties on of­fer. An es­tate agent who spe­cialises in the area will also be able to pro­vide a com­par­a­tive mar­ket analysis de­tail­ing the sell­ing prices of homes there over the last six months.

Two prop­er­ties in the same re­gion could dif­fer in price de­pend­ing on the sub­urb they are in or even which side of the road they are on. Sub­tle vari­ances in a home’s lo­ca­tion can make a big dif­fer­ence to its po­ten­tial for ap­pre­ci­a­tion. For this rea­son it is best to buy the worst house in the best lo­ca­tion, than the best in the worst lo­ca­tion. The home can be changed, the lo­ca­tion can­not.

Goslett says a prop­erty’s sell­ing price is linked to the de­mand in the area in which it is sit­u­ated, so homes in soughtafter ar­eas will gen­er­ally in­crease in value faster than homes in less ap­peal­ing ar­eas.

“If you buy a prop­erty with the in­ten­tion of rent­ing it out, you need to con­sider that cer­tain things ap­peal to some peo­ple and not oth­ers, so dis­cov­er­ing your tar­get mar­ket is es­sen­tial. You should also look at how much rental stock is avail­able in an area be­fore buy­ing a rental prop­erty. The rental mar­ket sec­tor is driven by de­mand, and an in­vest­ment could fall flat if there is an over­sup­ply of prop­er­ties avail­able for rent in the area,” says Goslett.

In­vestors need to have a clear idea of what they want their port­fo­lio to look like in the long term, and buy­ers need to know if the home they buy will meet their needs in five to 10 years’ time.

“Hav­ing a plan and set­ting goals will help you to re­main fo­cused and will give you some­thing to work to­wards. You should never limit your think­ing to what you can af­ford right now, but rather what will be pos­si­ble in the fu­ture,” says Goslett.

A key el­e­ment to any prop­erty trans­ac­tion is af­ford­abil­ity and ac­cess to fi­nance. While there are cer­tain peo­ple who can buy prop­er­ties with cash, most peo­ple rely on bond fi­nance from a bank. To im­prove your chances of bond ap­proval and to in­crease your af­ford­abil­ity ra­tio, you should try to re­duce your debt lev­els where pos­si­ble and keep your credit rat­ing as high as pos­si­ble. A de­posit will in­crease your chances of bond ap­proval and re­duce your re­pay­ments.

Al­though the po­ten­tial to make a profit on a prop­erty pur­chase is of­ten a driv­ing fac­tor in buy­ing de­ci­sions, it should not be the only fac­tor that is con­sid­ered. A prop­erty is more than just a pile of bricks and mor­tar – it is a place where peo­ple live.

Goslett says the ba­sic prin­ci­ple of buy­ing a prop­erty is that if you wouldn’t want to live in it, it’s not likely many oth­ers would ei­ther. The prop­erty needs to ap­peal to you and you must want to own it.

“A prop­erty that of­fers ex­cel­lent re­turns over time is more than sim­ply luck and tim­ing. The most im­por­tant as­pect is to take time and re­search as much as pos­si­ble. It is never a good idea to buy a prop­erty on a whim.”

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