Making the most of your property purchase
PUBLISHED 2 JUN 2016
While all property purchases have their merits, they are not all equal. In order for a buyer to make the most out of their property purchase, they need to make the right buying decisions from the start to ensure they give themselves the best possible opportunity at a good return on their investment, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
“Although recognising and purchasing a home at a fair market value is a good start, it is not the only thing that will guarantee long term appreciation on the buyer’s investment. Buyers will need to apply certain principles and guidelines for property acquisition that would improve their potential for investment growth in the future,” says Goslett. “Sound property buying fundamentals never go out of fashion. These include key aspects such as the property’s location, the value per square metre and the potential rental yield - these will always be the key criteria on which a savvy investor makes a decision.”
Goslett provides a few elements for buyers to consider when entering the property market:
Research and ask questions
Before anything else buyers need to determine why they are purchasing the property. “Ask yourself whether the property is purely to live in or whether it is an investment property, as this will completely change the approach and how the property will be viewed,” says Goslett. “If the property will be for the purchaser to live in, the motives and influencing factors on the decision making process are more emotionally driven. The elements that will be important are the features and amenities that appeal to the buyer personally. In the instance where the property is bought for investment purposes, it is more important to research the demographic of tenants in the area and what would appeal to them.”
A buyer will be able to get a wealth of information online about an area, estate or complex. “That said, it is always best to go to the area and check it out personally. Drive around, walk the streets and speak to some of the residents currently living there. This will provide a good idea of what the area is like, the facilities and amenities on offer and the demographic of people the area would most appeal to. A real estate agent who specialises in the area will also be able to provide a comparative market analysis detailing the selling prices of homes there over the last six months,” says Goslett.
Subtle variances can make a big impact
Although two properties can be located in the same region, they could differ in price based on the suburb they are in or even which side of the road they are on. Subtle variances in a home’s location can make a big difference to its potential for appreciation. For this reason it is best to purchase the worst house in the best location, then the best house in the worst location – the home can be changed, the location cannot. Goslett says that a property’s selling price is linked to the demand in that area in which it is situated, so homes within sought-after areas will generally increase in value faster than homes in less appealing areas.
“Buyers who purchase an investment property with the intention of renting it out, need to consider that certain things appeal to some people and not others, so discovering their target market is essential. Investment buyers should also look at how much rental stock is available in an area before purchasing a buy-to-let property. The rental market sector is driven by demand, and an investment could fall flat if there is an oversupply of properties available for rent in the area,” advises Goslett.
Have a plan in place
Property buyers and investors need to have a plan. Investors need to have a clear idea of what they want their portfolio to look like in the long term, and buyers need to know if the home they purchase will meet their needs in five to ten years’ time. “Having a plan and setting gaols will assist buyer and investors to remain focused and will give them something to work towards. Buyers should never limit their thinking to what they can afford right now, but rather what will be possible for them in the future,” says Goslett.
Get rid of debt
A key element to any property transaction is access to finance and affordability. While there are certain buyers who are able to purchase properties with cash, the large majority of the population rely on bond finance from a bank. To improve their chances of bond approval and to increase their affordability ratio, buyers should try to reduce their debt levels where possible and keep their credit rating as high as possible. Having a deposit is also a must for those looking to purchase property. A deposit will increase a buyer’s chances of bond approval and reduce their monthly repayment.
More than bricks and mortar
While the potential to make a profit on a property purchase is often a driving factor in property buying decisions, it should not be the only factor that is considered. A property is more than just a pile of bricks and mortar - it is a home and place where people live. Goslett points out that the basic principle of purchasing a property is that if you wouldn’t want to live in it, it’s not likely many others would either. The property needs to appeal to the buyer and they have to want to own it.
“A property that offers excellent returns over time is not just about luck and timing, it is much more than that. The most important aspect is to take time and research as much as possible. It is never a good idea to buy a property on a whim without carefully weighing up each option,” Goslett concludes.