What to look for in an investment property
The first thing you need to decide is whether you’ll manage the property yourself or use an agent. If you do it yourself, you should stick to something that’s not more than 30 minutes’ drive from your home or work.
When that’s done, you should consider these five factors to pick your property:
Property Investment Criteria #1 – What’s the neighbourhood like?
There are reports available on the web that can tell you the average age of property owners in an area, sales trends and average selling prices.
If there are a lot of people nearing retirement age in a neighbourhood there’ll also be lots of upcoming sales in the near future – and this means, there’s a risk of pricing pressure.
If the neighbourhood is near a university on the other hand your rental pool will likely consist of students and you could sit with higher vacancies when students drop out or move out over holiday periods, not to mention having to deal with a myriad of issues like noise complaints and excessive parties.
This is where you get to pick the strategy you’d like to follow. I personally like investing in new, upcoming areas which attract young professional. People with promising careers but who are two or three years away from purchasing their own home. This guarantees me a large rental pool, stable tenants and good growth in property prices and rental income.
Property Investment Criteria #2 – Property taxes and levies
Property taxes payable to municipalities aren’t standard across the board.
I owned a one bedroom apartment which I bought at R400,000 that had higher property taxes than a two bedroom I bought for R550,000 in the same area.
Make sure you find out about the property taxes you’ll need to pay – as they can seriously influence your income from a property.
Levies are the same. Some complexes and estates are simply better managed than others – with smaller levies. Smaller complexes also often need higher levies than larger counterparts because the costs of accounting and security which are largely fixed need to be shares by less people.
Never buy a property without accounting for levies and property taxes in your return calculations.
Property Investment Criteria #3 – What does the rental market tell you?
This is where you need to walk around the area an peek through windows.
Nothing suspicious here… You simply need to gauge how many properties are standing vacant.
It’s never a good sign when you walk through an estate or complex and there are many homes standing with curtain free window and empty rooms. That means there’s not enough rental demand – or owners aren’t getting the rental prices they are looking for.
You can double check demand by posting a rental ad even before you purchase a property.
If you don’t get at least a hand full of queries from prospective tenants within three days the rental amount is too high, or demand is too slow.
Property Investment Criteria #4 – Make sure you have nature on your side
In South Africa we’re lucky that we don’t often get destructive earthquakes or tornados.
But there are still forces of nature to look out for.
Some areas are prone to flooding when it rains.
Clay soil can also be an issue, causing cracking in walls.
And large open fields or forest surrounding a property could indicate fire risk, not to mention critters like snakes, rats and frogs often visiting you. Sounds like a minor problem – but some people simply can’t deal with it.
Property Investment Criteria #5 – Security is a major issue now more than ever
People simply don’t buy homes any more if they don’t feel safe.
So make sure you buy in a low crime area, an area with access control or some form of security.
You can get crime stats on the web, the local newspaper or by going to the police and asking.
The bottom line
There are good and bad towns and areas within these towns. But there are also a host of other factors that influence whether the location of your property is right.
Make sure you do your research before buying.
Don’t let emotions and excitement lead you to purchasing a property that’s not right for your investment strategy – you will live to regret it.
Here’s to unleashing real value