With an investment in property being the biggest financial commitment many will ever make, it’s hard to know when it’s the right time to buy, or whether to rent. Two property specialists share their advice.
“When making your decision”, says Brian van Wijk who owns and actively manages multiple Just Property franchise in Gauteng, “look at the current economic climate, your own financial situation and your long-term goals, but be aware that the sooner you get into the market, the better.”
“Typically, rent is around 0.75% of the value of a property. If you find a property priced at a point where your bond repayments would be close to what the market-related rent would be, you should seriously consider buying rather than renting,” says Van Wijk. “But make a list of the advantages and disadvantages, taking into account the long-term commitments, affordability, costs and flexibility.”
Shaun du Bois, a Just Property agent in KwaZulu-Natal, adds that short-term commitments should also be considered. “For example, if you are on a short-term contract in a new city, it would be best to rent: the cost of finance and transfer fees make purchasing a property unwise in almost all such cases. Buying and selling every few years makes little sense once you factor in all the costs. For many years, most of your bond repayment is interest and it is only further down the line that the capital starts to be repaid in any meaningful way.”
As Du Bois implies, buying property should be considered a secure long-term investment. But in our fluctuating economic climate is buying property still a good idea?
Is it better to buy in a growing economy or a declining one?
“If your goal is to own the property for a long time, don’t let your perception of economic conditions hold you back,” says Du Bois. “Over time, the value of your property will increase. It is wise to buy when you can get the property at the best price possible, with the potential of immediate equity in the property. Buying in a growing economy will result in immediate profit should you have to sell, which may not be possible if you sell in a declining market. However, a downturn in the economy does bring opportunities, hard as this truth may be. There are bargains to be had when sellers are in financial distress.”
“Remember Warren Buffet’s words: ‘Be fearful when others are greedy and greedy when others are fearful’,” says Du Bois. “If you wait for the perfect time, you may wait forever. One must be careful of becoming too fearful because of any temporary political or economic issues – property will always give good returns in the long run. At Just Property we are optimistic that the recent easing of interest rates will be repeated. A second decline will take some of the pressure off consumers. Already we see consumer confidence returning.”
What happens if interest rates begin to rise? Would it be best to rent an affordable home, take the extra you’d be putting into a bond and invest that saving to earn the higher interest? Van Wijk suggests you seek specialist financial advice if you’re thinking along these lines. “Remember, this may seem like a good idea on paper, but it will only work if you are prepared to rent a home at a rate that leaves you with money to invest in high-interest vehicles, and you will need the discipline to put that money aside every month. Few people have such discipline,” cautions Van Wijk.
Du Bois notes that the interest rate always fluctuates. “One may argue that the best time to purchase is when the interest rate is at its peak, when the property market is under pressure and you can take advantage of the bargains available. After your purchase, interest rates should fall and the market should recover, giving you lower interest rates on your bond and a healthy profit when you sell. If you buy when rates are low, consider your budget carefully and ensure it allows for an interest rate increase. If your budget is tight, it might be best to ask the bank to fix your bond amount.”
Seek financial advice
Both Just Property experts recommend getting financial advice, especially if you’re buying an investment property or second home. An accountant will help you consider the implications of capital gains tax, optimise the day-to-day income that would be received on income properties, how best to structure the purchase of property specific to your goals and circumstances, and possibly the entity in which property is to be held.
Are the scenarios different for a person in their early 40s and a young person in their late 20s? Van Wijk notes that the consequences of a bad decision are far greater as you get older, but at 40 you still have the chance to pay off a 20-year home loan before you retire. “You could even buy a home in a retirement village now and rent it out until you retire. Starting young has significant advantages.”
Du Bois agrees: “One only needs to look at what properties sold for 20 years ago to know that the sooner one purchases the better.”
It’s a problem for many city residents – finding a safe and affordable home where you don’t have to commute long distances to work. With more and more people moving to major business hubs, space is increasingly in short supply. This is the driving force that’s making the new urban village lifestyle so popular.
Urban villages are mixed-use property developments – a place where you can live, work, and play. It’s an attractive solution to the housing shortage: a precinct that offers residential apartments, office blocks, hotels, a variety of shops, gourmet dining and even gyms – everything within walking distance, in a safe and secure environment.
This style of urban living is attracting widespread interest; from working professionals and first-time buyers to corporate and property investors. Millennials are particularly keen on the concept of the urban village style of living. They see the value of balancing significant long-term returns on their investment with an enhanced quality of life.
Good investment
There are other reasons why mixed-use developments are becoming highly sought-after, not only in South Africa, but internationally – the speed of construction, reduced disruption to the location, the quality of materials used and the benefits to the environment.
Owners have already started reaping the rewards of their initial investment. Take the apartments at 40 on Oak in Johannesburg’s Melrose Arch precinct, for instance. In 2009, apartments sold for R14,000 per square metre. Today, the same apartment will fetch more than R50,000 per square metre. In fact, so successful is the Melrose Arch precinct, that a further 241 residential units are now being added through the One on Whiteley development.
According to Home Construction Guide of South Africa, you can get away with spending much less on a self-build, but then you’d still need to factor in land costs, professional fees, transfer duty – and all for a typical middle-class suburban home in Johannesburg. But then you get none of the benefits or conveniences of a new urban village lifestyle, and will probably be stuck with a long daily commute to work.
New urban villages are riding the storm of SA’s sluggish economy, weak rand and muted GDP growth. It’s setting the tone for a property trend that’s rapidly spreading across the county.
Property pioneers have already taken the first steps in shaping Africa’s urban landscapes, constructing landmark malls, hotels and office blocks that could be called iconic. This is just the start. Modern, fully functioning cities require a well-oiled system of residential, commercial and industrial development and civil infrastructure, with the real estate skills and services to match.
The question is: Who will design, build, manage, maintain – and of course fund – the many different commercial developments that Africa’s cities demand?
The short answer is that a local property ecosystem must emerge to take over from where the big-ticket, mostly foreign, private equity-funded pioneers have left off.
Without an effective, self-sustaining ecosystem, comprising all the key components of a workable property market, the continent’s urban centres could suffer the effects of what is known as “urbanisation without growth”, or “poor country urbanisation”.
That means more urban sprawl with little or no economic growth potential and worsening shortages of urban housing, commercial space and inadequate civil infrastructure.
On the other hand, a well-functioning property ecosystem could enable the kind of orderly, planned and constructive growth that Africa’s property markets need. Such an ecosystem would also give funders the comfort that property investments made today will still be standing in 20 years’ time and that their loans will indeed be repaid.
African funding for African property transactions
When it comes to financing, it seems likely that property markets across Africa will rely increasingly on African sources of funding. One need only look at property transaction trends on the continent to see that foreign funding is in short supply and unevenly spread.
Research commissioned by Barclays Africa Commercial Property Finance shows that between 2003 and 2016, only two of the top 10 African cities that received significant inflows of foreign real estate investment were in sub-Saharan Africa. They were Lagos in Nigeria and Johannesburg in South Africa. The other eight were all in North Africa.
The continent has a number of African-based funders with the resources to provide financing to property market players. Their ability to do so, however will depend on how smoothly and efficiently the African property ecosystem develops.
Critical components of an ecosystem
Essentially, a property ecosystem should have all the components needed for a well-functioning, nuanced property market that caters for property developments of all sizes and in all market segments. It would encompass planners, regulators, developers, owners and service providers, from architects and engineers through to contractors, construction businesses, environmental impact assessors, leasing agencies and facilities managers. All of them would operate within clear parameters and abide by well-enforced rules and regulations. Funders would observe this and invest accordingly.
At this point, however, there are numerous gaps that need to be addressed before this ecosystem can get off the ground in earnest.
Attributes of well-run ecosystems
One of the hallmarks of well-run property ecosystems is that there are significant players, owners and developers with formal corporate governance structures in place. Another characteristic would be the existence of well-understood contracting mechanisms between sector stakeholders such as lessors, lessees, owners and contractors. However, in certain jurisdictions, family-owned businesses with less established governance structures dominate.
In addition, our research indicates that inappropriate urban planning regulations and inadequate urban service provision deter foreign real estate investment attraction and economic growth within some jurisdictions in Africa.
A common but serious drawback in many sub-Saharan African countries is the lack of reliable data for risk assessment. It is extremely difficult for funders to control their risk without access to good data on demographics and pricing trends, among others. There is definitely a gap in the market for property indices in Africa.
Another concern for funders is the underdevelopment of the regulatory environment in some jurisdictions, hampering efficient planning, approvals and transfers.
Time for focused conversations
These components will take time to put in place, but the sooner we start having focused conversations about them, the sooner a much-needed property ecosystem will take shape and the sooner our property markets will grow – and grow sustainably.
The signs are encouraging: Barclays Africa research shows that property finance in our target jurisdictions grew by an estimated 13% between 2013 and 2015, which is significantly faster than normal GDP growth. Granted, property markets in Africa are highly diverse, with some growing above 20% and others at zero. There’s no doubt that Africa’s nuanced property markets face challenges, but there are opportunities as well.
Traditional savings vehicles may not always be the best option for small and medium enterprises (SMEs), says Jeremy Lang, regional general manager at Business Partners Limited, investing for growth may be more beneficial than sitting on a lump sum of cash.
Lang says that in the current economic environment, investing in property may be a viable option for SME owners to consider as a long-term savings mechanism.
“In 2016, industrial property was the top performing sector in the South African property market, with a total return of 13.6%. Over the last 10 years, it has proven to be a relatively stable and resilient asset class in terms of generating positive returns over the medium- to long-term,” says Lang. “As such, both commercial and industrial property are good investment options for small business owners to consider in current economic conditions.”
Lang says that quality commercial and industrial property in South Africa continues to generate positive risk adjusted yields, especially in the larger metropolitan areas, and that property is generally a stable asset class as it is less exposed to shocks in the global economy. “Any of the imminent setbacks to the global and local economy will reflect immediately in the JSE indices, but not necessarily in property values.
“Property is an asset class that can generate monthly cash flows as well as capital appreciation where value cannot be eroded as quickly in comparison to some of the other asset classes.”
Lang, however, says that although property generally offers good returns, it does require effort to ensure that these are maximised. He provides SME owners with a list of factors to consider before taking the plunge into property investment:
Timing: Although any form of savings should be kick-started sooner rather than later, it is imperative to only buy property once a business is established and operations are relatively stable.
Affordability: If the business is currently operating from a rented space, consider the current rent paid and compare it to the proposed bond repayment (include the property rates and taxes, maintenance expenses and deposit). It is important to ensure that the business’ cash flow is healthy enough to cover all of these expenses and repayments. Ensure that affordability checks have been carefully calculated and that the bond repayment is within the business’ reach.
Financing: While property can be an income generating asset, borrowing too much money can leave the business over in-debted. Be careful not to over pay for the property, and if the property needs to be financed, ensure that the monthly repayments are within your means.
Due diligence: When considering investing in commercial or industrial property, business owners should conduct the necessary technical due diligence – especially around the structural integrity of the building, business zoning rights, site development plans and any other restrictions listed in the title deeds of the property.
Don’t rely on inflation: When planning to invest in commercial property it is imperative to note that in the current economic environment, rental escalation is under pressure, and that a 10% increase may be unrealistic. Business owners also need to be cautious about the rising costs related to owning a property, including rates and taxes, maintenance, security and general cleaning costs. If this is understated, it can materially affect the return on investment.
Diversification: As a property investor, consider diversifying the investment portfolio by investing in properties in different geographic locations and industry sectors.
In today’s property market it is common practice for a deposit to be made when the buyer provides the seller with an offer to purchase.
So what happens in the case where the buyer, for whatever reason, is unable to pay the agreed-upon deposit? Does the deal fall through? According to Goslett, the short answer is yes, it can.
So what happens in the case where the buyer, for whatever reason, is unable to pay the agreed-upon deposit? Does the deal fall through? According to Goslett, the short answer is yes, it can.
This is according to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who says in most cases, an agreement is reached between the parties that involves an agreed-upon deposit amount to be paid on either the signing of the agreement or alternatively, at a later specified date.
This is according to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who says in most cases, an agreement is reached between the parties that involves an agreed-upon deposit amount to be paid on either the signing of the agreement or alternatively, at a later specified date.
He says while the inclusion and payment of a deposit is recommended, it is not compulsory to make the offer to purchase a binding, legal document between the two parties.
“In the current market we have seen most agreements call for a deposit of around 10% of the purchase price, however, with the guidance of a real estate professional, this amount can be negotiated and an amount can be agreed on that suits both the buyer and seller,” says Goslett.
So what happens in the case where the buyer, for whatever reason, is unable to pay the agreed-upon deposit? Does the deal fall through?
According to Goslett, the short answer is yes, it can. “If the offer to purchase stipulates that the buyer is to pay a deposit and they do not, they are in breach of the contract and the seller has the right to cancel the deal”.
He says a deposit is paid to show that the buyer is committed to the deal and is financially able to stand up to their end of the agreement, it is a show of goodwill on the buyer’s part.
“Payment of a deposit will prevent the seller from cancelling the contract, so it is in the best interests of the buyer to ensure that they are able to pay the agreed-upon amount,” says Goslett.
According to Goslett, the payment of a deposit will also protect the seller, as a buyer will be less likely to breach the contract if they know that they could forgo their paid deposit.
If the buyer does breach the contract and the breach is not rectified within certain time frame, he says the seller is within their right to keep the deposit to cover any damages they may have sustained as a result of the loss of the deal.
“Payment of a deposit will prevent the seller from cancelling the contract, so it is in the best interests of the buyer to ensure that they are able to pay the agreed-upon amount,” says Goslett.
In the case where the deposit does not fully cover the damages, the seller could proceed with legal action against the buyer in order to recover their losses.
Goslett says that it is never recommendable for the deposit to be paid directly to the seller.
“The buyer has the option to pay the deposit to either the conveyancing attorney, who has been appointed to handle the transfer of ownership, or to the real estate agency negotiating the deal, provided they have the correct set-up to take deposit payments.”
The deposit should be held in an interest-bearing trust account where it will be protected and earn interest until the transfer of ownership goes through, he says.
“While both of these options will incur a marginal administration fee that will be deducted from the interest earned and not the capital investment, it is a small price to pay to ensure that the deposit amount is safe and secure.” he advises.
According to Goslett, a buyer will often enter into an offer to purchase with a condition that the offer is subject to their bond approval. If this is the case and the buyer has paid a deposit, the full deposit will be refunded to them if their finance is not approved.
“However, in the instance where the buyer has deliberately withdrawn their bond application or has failed to co-operate with their lender, which results in them not receiving approval, they could find themselves in breach and could possibly risk losing their deposit.”
Goslett says paying a deposit will help to ensure that both parties honour the agreement of the offer to purchase. A deposit is an excellent way to show goodwill and secure the property sales agreement.
Written by: Property 24 reporter
For many South Africans it’s a dream come to true to design and build their own homes to meet their individual needs, in a style that best suits them.
During the first quarter of 2015, existing house prices rose by 7.2% year-on-year to R1 291 300, while the cost of building a new home rose by 3.9% to R1 869 400, making it R578 100 more expensive to build than to buy, says Swain.
This is according to Bruce Swain, MD of Leapfrog Property Group, who says unfortunately, the latest data from Absa Home Loans indicates that building a new home is just becoming too expensive, especially during this period of economic uncertainty and rising electricity costs.
“We’re seeing demand for existing housing, especially in the lower end of the market, thus properties under R1.5 million, but new housing developments have become scarcer, save in a few areas, as construction costs soar,” he says.
The data from Absa reveals that the average price gap between existing homes and new homes was a mere 1%, or R9 500, in 2007, based on a house size of 80sqm to 400sqm. In 2014 that gap had increased to 30.5%, or R458 000.
Below is the average price gap between new and existing houses from 2006 to 2014:
2014: 30.5% or R458 000
2013: 35.1% or R615 000
2012: 34.5%or R553 000
2011: 31.6% or R478 000
2010: 27.5% or R386 000
2009: 20.5% or R256 100
2008: 11.9%or R128 400
2007: 1% or R9 500
2006: 2% or R16 700
During the first quarter of 2015, existing house prices rose by 7.2% year-on-year to R1 291 300, while the cost of building a new home rose by 3.9% to R1 869 400, making it R578 100 more expensive to build than to buy, says Swain.
Jacques du Toit, property analyst for Absa Home Loans, agrees that this disparity is caused by escalating building costs, which he says have continued to increase faster than consumer price inflation in recent years.
Where to from here?
Swain says while prohibitive construction costs are good news for sellers in the short term, as more prospective homeowners will look to buy rather than build, the situation could eventually put too much pressure on the built market where buyers will struggle to find a home to buy, and the cost of existing homes will become too high.
“This situation can’t go on forever as we’re a growing nation that will need more property development, and it is my belief that government and the private sector will need to join hands to make this more financially viable for new homeowners,” he says.
Written by: Property24 author
Buying a home for the first time is never easy, but it is usually quite possible for those who are determined to do so, says Gray.
This is according to Richard Gray, CEO of Harcourts Real Estate, who says most of the financial and economic factors that prospective buyers cite as major obstacles to homeownership can be overcome, given enough time.
“The trick is to make a plan of action and not give up,” he says.
For example, it could take some months to clean up your credit record if you have a history of late payments or any unresolved judgments for debt.
However, if you are really serious about buying your own home, he says you will make a start right away by paying your bills on time, sorting out the judgments and getting them off your record, and not applying for any more credit or incurring any new debts.
Then once you have done this, Gray says you should make a serious effort to pay off or significantly reduce any large existing debts, such as a student loan, the outstanding balance on your car, your credit card or store card balance.
“The banks say a good rule of thumb for those getting ready to apply for a home loan is to spend no more than about 35% of their gross monthly income on debt repayments, so that’s what you need to aim for.”
The third thing standing in the way of homeownership for many prospective buyers is the lack of a big enough deposit. At the moment, most lenders prefer first-time buyers to put down at least 10% to 12% of the home purchase price as a deposit, and are willing to give those who do this a better interest rate on their loans, he says.
“So although 100% loans are sometimes available, it actually benefits buyers quite substantially to save up and pay as big a deposit as they can.”
Currently, if you paid a 10% deposit on a R750 000 home, for example, and secured a rate reduction of just 0.5% as a result, your monthly bond repayment would reduce by about R900 a month, and you would save more than R140 000 in interest over the life of the loan.
What is more, Gray says you have an altogether better chance of being approved for a loan if you can demonstrate that you have the financial discipline to save.
“So if homeownership is a priority for you, it will be worth your while to cut back on spending wherever you can in order to get your deposit together, or maybe even to take a second job for a while.”
There are also easy ways around some other stumbling blocks that first-time buyers encounter, such as rising home prices and rising interest rates, he says.
“When prices are rising, for example, one tactic is to spread your home search to cheaper areas that still offer you most of the amenities you want, and another is to consider smaller and less expensive homes that are still in your ideal location.”
And either of these options would also help you deal with rising interest rates, as would saving up a bigger deposit to start with, or paying more than the minimum instalment each month while rates are still low in order to give yourself some leeway when they do start to rise, he says.
“As they say, where there’s a will, there’s always a way.”
Written by: Property 24 reporter
There is nothing quite as exciting as signing the offer to purchase on your new dream home, especially if you are a first-time buyer. That is, until you receive a statement from the attorneys setting out the transfer and bond costs – which purchasers often forget to factor into their decision to buy a property. These transfer costs include transfer duty.
There is nothing quite as exciting as signing the offer to purchase on your new dream home, especially if you are a first-time buyer. That is, until you receive a statement from the attorneys setting out the transfer and bond costs – which purchasers often forget to factor into their decision to buy a property.
More often than not (and depending on the purchase price) transfer duty is the most expensive “cost” that a purchaser has to pay. This can lead to delays in the transaction as the purchaser may have to source funds to pay transfer duty. A purchaser often does not know what transfer duty is and why he has to pay it.
Transfer duty can best be described as a tax payable by the purchaser of a property to the South African Revenue Service (SARS) for purchasing the property. Transfer duty is calculated on the fair value of the property which is usually the purchase price of the property, in most transactions.
The Minister of Finance decides on the rates of transfer duty payable each year or whether to keep it the same as the previous year. For the 2015/2016 financial year, the Minister of Finance has changed the rates of transfer duty as follows:
1. If a purchaser buys a property for a price between R0 – R750 000, he will not pay any transfer duty to SARS.
If a purchaser buys a property for a price between R750 001 – R1 250 000, then he will pay 3% of the value of the property.
For example: If a purchaser buys a property for R950 000, then transfer duty on R950 000 will be calculated as follows:
• The amount up to R750 000 – Rnil.
• R750 001 – R950 000 (i.e. the difference of R200 000) will be calculated at 3% – R6 000.
Thus R6 000 transfer duty will be payable on the purchase price of R950 000.
2. If a purchaser buys property for a price between R1 250 001 – R1 750 000, then he will pay R15 000 plus 6% of the value of the property above R1 250 000.
For example: If a purchaser buys a property for R1 500 000, then transfer duty will be calculated as follows:
• The amount up to R750 000 – Rnil.
• The amount between R750 001- R1 250 000 (i.e. the difference of R500 000) will be calculated at 3% – R15 000.
• The amount between R1 250 000 – R1 500 000 (i.e. the difference of R250 000) will be calculated at 6% – R15 000.
Thus R30 000 (i.e. R15 000 + R15 000) will be payable on the purchase price of R1 500 000.
3. If a purchaser buys a property for a price between R1 750 001 – R2 250 000, then he will pay R45 000 plus 8% of property value above R1 750 000.
For example: If a purchaser buys a property for R2 200 000, then transfer duty will be calculated as follows:
• The amount up to R750 000 – Rnil
• The amount between R750 001 – R1 250 000 (i.e. the difference of R500 000) will be calculated at 3% – R15 000.
• The amount between R1 250 001 – R1 750 000 (i.e. the difference of R500 000) will be calculated at 6% – R30 000.
• The amount between R1 750 001 – R2 200 000 (i.e. the difference of R450 000) will be calculated at 8% – R36 000.
Thus R81 000 (i.e. R45 000 [R15 000 + R30 000] + R36 000) will be payable on the purchase price of R2 200 000.
4. If a purchaser buys a property for a price above R2 250 000, then he will pay R85 000 plus 11% of property value above R2 250 000.
For example: If a purchaser buys a property for R2 500 000, then transfer duty will be calculated as follows:
• The amount up to R750 000 – Rnil.
• The amount between R750 001 – R1 250 000 (i.e. the difference of R500 000) will be calculated at 3% – R15 000.
• The amount between R1 250 001 – R1 750 000 (i.e. the difference of R500 000) will be calculated at 6% – R30 000.
• The amount between R1 750 001 – R2 250 000 (i.e. the difference of R500 000) will be calculated at 8% – R40 000.
• The amount between R2 250 001 – R2 500 000 (i.e. the difference of R250 000) will be calculated at 11% – R27 500.
Thus R112 500 (i.e. R85 000 [R15 000 + R30 000 + R40 000] + R27 500) will be payable on the purchase price of R2 500 000.
As you can see from the examples, the transfer duty payable can be quite hefty. Transfer duty also has to be paid within 6 months from date of acceptance of the offer to purchase by the seller otherwise penalties will be payable on the late payment of the transfer duty. These penalties are calculated at 10% per annum on the unpaid amount of transfer duty, on each completed month in the period from the day payment was due until the day that the payment is made.
Furthermore, the transfer of the property into the name of the purchaser will not be able to proceed until transfer duty is paid as the deeds office requires a Transfer Duty receipt to be lodged with the documents at the deeds office.
There are certain exemptions as to when transfer duty will not be payable. One of these instances is when VAT is payable on the sale of the property. This usually happens when a purchaser buys property directly from the developer.
If you are at any stage uncertain as to what the transfer costs and transfer duty payable will be, contact a conveyancing attorney to provide you with a pro-forma account in respect of these costs.
Written by: Chérise Hansen
How would you define an investment property?
Simon Bray: I think the simplest way to describe investing in property is not living in the property. So there are a couple of reasons why someone would invest in property. The one is you would buy a property and you’d rent it out. And there you’re looking for a rental yield, and you’re effectively looking for someone else paying the rental to pay the bond or the mortgage that you’ve got on the place, and in time you’re going to see some capital growth. The other type of investing is where you buy a place that perhaps needs some work and you’ve got an eye for that kind of detail, and you understand how to budget and how to spend, and you’re going to renovate it and then flip it for a higher price. So both of those are really sound investment options if you know what you’re doing.
So, if I was thinking of buying or looking into such a property, what would be the first things that I would need to consider when searching for a property like this?
If we talk about the one that most people think of when you’re talking investment property, and that’s buying to rent – so there’s this idea that you want to buy a place and then put a tenant in it – you got to think completely unemotionally about it, and that’s what people battle with. When it comes to property, there’s always this emotional connection, “Do I like it? Is it in a place that I would live?” But when it comes to investing in property, you actually need to treat it like a business. So, draw up a business plan. Put down what is the financial commitment that you want to make. What can you afford? What do you intend to get out of it financially? The location – look at the location through the eyes of good data, good statistics. What are the prices doing in the area? What are the rental demands looking like in the area? And then you should look at the type of property. Some types of properties are fantastic to live and own for 20 years. You can bring your family up, and all of that. But not all of them are geared towards renting them out. So look at two-bedroom flats and apartments. They’re very, very popular with tenants. A broad spectrum of people are in that market. And I think the last thing is the type of tenant that you want to address. Tenant demand tends to really be in the young or the older. So, you’re talking about students, student accommodation, and small, lock-up-and-go places, or places for retirees. So those are some good points to look for when you’re investing.
Now let’s talk about the tenant part because that can present problems. How does one go about acquiring the right type of tenant for your property?
It is critically important to find the right tenant. This is your little business, this your investment, and when you’re picking your tenant you’re effectively picking your business partner. So you’ve got to be really, really careful who you let into the property up-front. It’s like hiring someone, you know? Hire right, and you won’t have to manage them. So get your property out there on online platforms like ours, make sure that it’s advertised as widely as possible, take as many tenants through as you can until you feel that the fit is right. And then there are lots of great services that you can use, on our platform or others, where you can check on the tenant’s credit history, or you can get a reference from their previous landlord. It’s really good to do the background checks, to do the research that you need.
Speaking of background checks, there seem to be a lot of scams and a lot of fraudsters out there offering properties for sale or rent. How does one get around this and protect yourself from these fraudsters?
It’s a really tricky part of our business, actually. You’re dealing with people that might list a property online and it’s a fraudulent listing. They realize and they prey upon the fact that there’re lots of tenants and very few properties on the market for rent. So they’ll call you up and say if you want it you’re going to have to pay a deposit before 3 o’clock. And you haven’t even seen the place. You don’t even know if the guy owns it. So we’ve put a lot of effort to clean up that kind of scam. Every single listing that you’ll see on Private Property’s actually been verified. We call up the landlord and we find out whether they own the property or whether they know someone that owns the property. So we do our best to get rid of that fraud, but you’re right. It’s a tricky business and it’s worth just being aware of it and being cautious.
But it’s good to know that there are people out there that are protecting you from that.
Yeah, we try.
Landlord and tenant relationships can be tricky and can lead to disputes. Where can one go to get advice about that?
It’s amazing how many questions people have when it comes to renting out property. Tenants – what are my rights? What do I need to sign in a lease? What do deposits look like? And then on the landlord’s side, it’s also really, really important. What if my tenant’s not paying electricity? What if they’re denying me access to the property? So we see these types of questions all the time. We get expert panelists to come and comment on articles. And then we put it into a real easy-to-use database of information and advice. So if you are in the market either as a tenant or landlord and you’ve got questions, we do have a space for you to come and answer those questions.
So basically privateproperty.co.za is a one-stop shop for everything?
Yeah. We like to think of ourselves as basically the premier rental platform in the country. We’ve got more rental listings than most. We’ve got fantastic resources in terms of information and insight. So if you are in the market to either buy a place and let it out, or you’re a tenant looking for one of those properties, then we’re the right place to come.
Do you have any final tips for would-be property investors?
Yeah, I think buying to let is a great opportunity to make money. It’s a sound investment, but you need to consider if you are picking it for the right rental demand areas? And are you looking at the costs of ownership closely enough to ensure that you make the money at the end?
Written by: Tahir Desai
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