With current market conditions being so favourable for buyers, some South Africans might find themselves in the fortunate position to be able to purchase their first investment property
WORDS: EDITORIAL TEAM – IMAGES: SHUTTERSTOCK
When deciding on investing in property for the first time, there are a few key elements that buyers should take into consideration, such as whether they are investment ready and well informed on all the available options.
“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. As a first-time property investor, it’s vital to be informed and ask the right questions, such as when, where, and why you should invest in property,” explains Adrian Goslett, regional director and CEO, RE/MAX of Southern Africa.
The short answer to when investors should purchase property is as soon as they can afford to. According to Goslett, while it’s important to watch the market and buy at the right time, it’s never too early to get into the property market.
“Property remains a solid asset class in which to invest. Buying property is a huge step towards financial security and growth and is a great way to invest in your future. It’s less volatile than the equity or share markets and, unlike other investment options, with property investors have complete control over their asset.”
Goslett says property prices tend to increase fairly consistently over time, which makes it a lot easier to gauge the estimated return on investment accurately than with any other investment class. You can speak to your local real estate advisor to hear what returns you stand to earn by investing in the current market.
Establish what you can afford
Before they start house hunting, the first step for property investors is to assess whether they can afford to make the necessary financial commitment.
To accurately assess this, it’s advisable to use the resources available, for example, banks and bond originators will be able to give purchasers estimated repayment figures based on bond requirements.
It’s also a good idea to find out what your credit record is. This is a bank’s first point of reference to see how big a risk you are.
“Monthly bond repayments shouldn’t exceed more than 30% of the buyer’s total expenses, and it’s advisable for buyers to put down a deposit of at least 10% of the purchase price of the property to make the repayments more affordable and increase the potential profit margin on your rental returns,” says Goslett.
More to budget for
Investors should remember that it’s not just the bond repayments that’ll need to be paid.
Prospective homeowners should budget for around R200,000+ extra (depending on the bond size) to cover the various fees and bond costs before setting foot into their new home.
Keep that in mind when assessing affordability and applying for a bond on your new property. There are various online calculators that can help you estimate this cost more accurately.
Some of the costs involved in a property transaction, include:
- Transfer duties (about R48,000 on a R1,5m bond) – there are no transfer costs for homes of R1m or less.
- Bond registration fees (about R35,000 on a R1,5m bond)
- Monthly bond repayments
- Bank charges
- Monthly administration fee charged by the bank
- Moving costs (anything between R5,000 and R15,000 in the same city)
- Connection costs for water, electricity, fibre (put about R3,000 aside)
- Home insurance costs
- The cost of maintaining the property
- Security costs (monthly fee for a security company or neighbourhood watch)
- Monthly municipal rates and taxes
- Monthly levy when in an estate or boomed-off area
Find an estate agent
Estate agents aren’t just for sellers. Their knowledge of the housing market, and their ability to handle paperwork and deal with sellers on your behalf, will make for a much smoother and quicker process.
“While online property search portals can be used to find statistics on areas and values of property, estate agents will be able to provide investors with a more accurate comparative market analysis, which will give buyers a thorough and realistic knowledge of the property sales dynamics and rental returns of a certain area,” says Goslett.
Location is key
Once you know what you can afford to purchase, the next thing to decide is where to purchase.
“Location is vital. 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,” he says.