Does buying great investment property have to be a gamble?
By Neil Vorster
Everybody wants to know how to pick a winner, and fortunately with property investment the luck or gambling element can be almost entirely removed.
The national average annual house price increases are constantly published by the major banks. Many investors, when deciding to invest in property or the stock market, use the average house price index to make their property vs stocks investment decision.
To put the error of this method in perspective, the average time taken to complete the annual Momentum 94.7 Cycle Challenge is just over 4 hours at an average speed of about 22km/hr. The 2012 winner, Reinhardt Janse van Rensburg completed the race in just 2 hours 10 minutes at an average speed of 43km/hr! What made Janse van Rensburg the winner is that he beat the average by the highest margin.
Property investment works the same way, you have the national average and then you have the winners. You don’t have to settle for average!
By following these 7 tips, you can be well on your way to beating and even doubling the national averages and acquiring really great investment property .
This one is somewhat overdone, but I am constantly amazed at how little attention potential investors give to location. Property value is intrinsically tied up in its usefulness to the future tenants. It stands to reason that any property that is well located, close to desirable places of work and transport nodes and routes will be more valuable to tenants.
For example, a townhouse in Sandton will be easier to let out, and being the financial heart of Sub-Saharan Africa will grow at a much higher rate than the average South African home. Bearing in mind that the national average is exactly that! — the average annual increase in value of houses/flats/clusters/duets/semi-detached houses across the entire country. Including the almost forgotten, the degenerating and the poverty stricken areas!
2 Type of property
Security issues are a South African reality which will naturally cause tenants to prefer to rent property that provides them security. When looking for a great investment property, a townhouse with a good security system, controlled visitor access and 24/7 security guards will win over a normal house or flat any day!
There are agents and there are agents!
The “seller’s agent” secures his or her 3 month sole mandate by hyping up the property value. Then they start the process of bringing the seller down to reality in the hopes of securing a sale. Naturally it will be difficult for an investor to get a great deal from one of these agents.
A “buyer’s agent” uses a different methodology and secures his or her mandate by pricing the property realistically (and often undervaluing it) for a fast efficient sale. This type of agent is solid gold to you, the investor.
4 Local agent networking
Once you have selected your choice investment location, the work begins; Start by looking up up the agents who are very active in the area and cultivate relationships with them. A regular monthly email or phone call from you will keep you top of mind for when that “urgent/bargain” deal crosses their desk.
5 The internet
Scouring the internet adverts can reap good dividends, but cannot completely substitute getting out there and looking at properties. Once you have targeted specific townhouse or cluster complexes and geographic areas, there are websites that will scour the internet for you and return any new listings of your selected complex to your email inbox.
People naturally perceive greater value in a property that is newly painted, spotlessly tidy and ready for show-day. They therefore will pay a higher price.
A property in poor condition, requiring paint and perhaps some running repairs to the cupboards and/or inhabited by a messy tenant who feels threatened by a sale, will be overlooked by many potential purchasers. This provides an excellent negotiating opportunity for an investor to factor into his price a paint job and some minor repairs. I call this seeing through the clutter and discerning the true value of a property.
7 Bargain hunting
Lastly this one is counter intuitive, but vital. Property investment is a long term decision that, when done correctly, provides massive returns on your investment. Most investors cannot recall the exact prices paid for properties purchased 10 years ago, and even if they did, the numbers would make you laugh!
For example, a R750 000 Morningside 1 bedroom townhouse cost me R130 000 back in 2002. Would it matter at all to me now, if I secured a real bargain at the time and got it for 10% less at R117 000? I think not, especially since the bank paid for it and my tenants are paying the loan off!
I have seen many investors pass over an opportunity of buying a great investment property because they are desperate to knock the seller down to his last penny.
In summary, follow these steps, do your homework, know your areas and prices and when a good opportunity presents itself, secure the property.
Written by Neil Vorster, property coach at www.Organicgrowth.co.za
Image courtesy of [marin] / FreeDigitalPhotos.net