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