When deciding on investing in property for the first time, there a few key elements that investors should take into consideration, such as whether they are investment-ready and well informed on all the available options, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
“Purchasing a property is a major commitment that should be carefully evaluated in terms of your life plans and financial situation both currently and in the future,” says Goslett. “As a first time property investor it is vital to be informed and ask the right questions, such as when, where, why and how to invest in your first property.”
Goslett provides some guidelines as to how first-time investors can find the answers to these questions:
WHEN
According to Goslett, the short answer to this question is as soon as you can afford to. While it is important to watch the market and buy at the right time, it is never too early to get into the property market. “Property investors should take the necessary time required to ensure that they make an educated decision, assessing whether they can afford to make the necessary financial commitments. To make an accurate assessment of this, it is advisable to use the resources available, for example banks and bond originators such as Betterbond, will be able to give purchasers estimated repayment figures based on bond requirements,” says Goslett. “Monthly bond repayments should not exceed more than 30% of the buyer’s total expenses and most buyers will be required to put down a deposit of between 10% and 30% of the purchase price of the property before they are approved for finance.”
It is important to keep in mind that it is not just the bond repayments that will need to be paid. There are a number of other costs involved in a property transaction that can add up to a substantial amount. These fees include Transfer duties, deed office fees and levies, municipal rates, bank charges, bond initiation fees, home insurance costs as well as the monthly administration fee that is charged by the bank, moving costs and the cost of maintaining the property. It is essential to include all of these aspects into the calculation when assessing affordability.
WHERE
According to Goslett location is of the utmost importance and in terms of investment, can never be stressed enough. “Location is vital because being in the right area and position will ensure a good resale value and return on your investment. When looking into an area, consider proximity to amenities such as schools and shopping centres. Online property search portals can be used to find statistics on areas and values of property. Estate agents can provide you with a comparative market analysis, which will give you thorough knowledge of the property sales dynamics of a certain area,” says Goslett.
WHY
Property remains a solid asset class in which to invest. Goslett says that buying property is a huge step towards financial security and growth and is a great way to invest in your future. “Property is far less volatile than the equity or share markets and, unlike other investment options, with property investors have complete control over their asset. Generally property prices tend to increase fairly consistently over time, which makes it a lot easier to gauge the estimated return on investment much more accurately than any other investment class. Property owners will not have to sleep with one eye glued to the stock market and have to sell the minute the market is at a high,” says Goslett.
He adds that another beauty about property is that it is the only asset class that can be financed and leveraged. In layman’s terms this means that an investor can buy property with someone else’s money. If an investor can prove affordability and meet the loan repayment conditions, property is practically the only investment option that banks are willing to finance. This is because they know that if managed correctly, the money they lend to individuals is being invested in an appreciating asset. If you are looking for an investment that either keeps up with inflation or outstrips it in terms of growth over the long term, then property is for you.
HOW
Save, save, save. Wherever possible an investor should put aside as much money as they can. “The larger the deposit, the lower the repayments and the easier it is to buy a property. It is also vital to have as much disposable income as possible, as this will have a bearing on whether the bond is approved or not. Paying off any existing debt as soon as possible will improve the investor’s disposable income along with their credit rating. Maintaining a clean credit record will be invaluable when being assessed for bond approval.
Once the investor has the required deposit and decided on the type of property that will suit their life stage, working with a mortgage originator will ensure that the bond application is a smooth, hassle free process. “When you are ready to take the next step, it is important to partner with a reputable estate agency to help source the right property,” Goslett concludes.
