Know risks of property investment
ISSUES: NOVICES ESPECIALLY VULNERABLE
Potential investors need to research the area they are considering purchasing in – and the tenants.
As a result of uncertainty in the SA property market, the opportunities for first-time investors are on the rise. But in the current economic climate, are new investors fully versed in the risks involved in property investment and how to navigate these?
First-time investors are particularly vulnerable.
Tenants are perceived to have more rights than owners and this automatically puts you at risk. SA is shedding jobs at a rapid rate and first-time investors need to know their options.
The top five issues: 1. Understand what you’re getting into
The property market is currently caught in a war between agents, tenants and owners that stems from a lack of education around finance and property.
We allow our emotions, views and opinions to be driven by partial facts or misinformation.
This leaves us vulnerable and results in poor decision-making.
Potential investors need to do their research into the area they are considering purchasing property in and the tenants they are considering renting to in order to avoid any nasty surprises.
2. See yourself as an entrepreneur
Investing in property is like owning a business and as such, transactions, management and administration duties will be constantly required.
First-time investors who are unfamiliar with the requirements of these responsibilities should seek advice from experts.
Remember that property investors are entrepreneurs who require guidance, knowledge and mentorship.
3. The process will cost more than anticipated
Unfortunately, additional and unforeseen costs are an inevitable part of the property game and first-time investors find themselves overbudget and overwhelmed.
Special levies, insurance and added products are often overlooked.
A provision for eviction costs should be considered a necessity because in cases where tenants default on their rent, the legal process is lengthy and the fees add up.
A high-value item like a property is vulnerable to negligent tenants and unforeseen costs.
Educate yourself on what’s available and spend small amounts now to save big in future.
4. Location, location, location
The phrase may be overused, but there is no factor more important as it directly determines your return on investment.
You may pay a little more, but to buy in a better location means you have many more profitable options down the road.
Look for transport infrastructure, the presence of other residential and commercial property development and the lifestyle options the area offers.
5. A new breed of tenants
With the longer-term trend of rising house prices, it comes as no surprise that millennials now make up the dominant demographic within the rental market. In an economy of sacrifice, tenants look for value and convenience.
If you research each aspect of your investment thoroughly and budget for external fluctuations, you will be protected from most of the hurdles that trip up firsttime investors.
Grant Smee is founder of OUST South Africa