5 Things To Consider Before Buying An Investment Property
Buying an investment home is a big expense and commitment. You need to make sure that you know as much about the property and the local market as possible before taking such a big step.
This is the view of Justin Easthorpe, ooba Regional Sales Manager, who says that there are a few considerations to bear in mind when you are investigating purchasing an investment property. ooba is South Africa’s largest bond originator.
He suggests asking yourself or your estate agent the following questions:
Why are you buying the property?
It’s important to understand exactly what you are buying the property for, as this will affect the decisions you make. If you’re looking at it as an investment, you need to be sure that you’ll be able to rent it out and that there is good price growth in the area.
“If you are buying for investment purposes, it’s important to separate your own personal tastes from those that will make the property attractive to renters or future buyers,” says Easthorpe. “Location is important as your return on investment will depend on the demand of the property being rented.”
Can you afford it?
Your affordability for an investment property will be scrutinised by the banks. They will almost certainly require a significant deposit and will scrutinise your income and expenses closely to be sure that you can afford the monthly bond repayments.
“Most banks are also unlikely to take potential rental income into account when considering your bond application, because they need to be confident that you can afford the property, whether or not it is rented out,” says Easthorpe.
You can use the calculators at www.ooba.co.za/calculators to work out your budget for buying an investment property.[clickToTweet tweet=”By informing yourself carefully about every aspect of your purchase, you can set yourself up for a good rental return” quote=”By informing yourself carefully about every aspect of your purchase, you can set yourself up for a good rental return.”]
What are the additional costs?
You will need to consider the costs of refurbishment, maintenance, rates, taxes, electricity and water, as well as any levies if the property is an apartment or part of a development. You will also need to research the costs of insurance and security.
Another very important consideration is furniture. Some rental homes are advertised as furnished, and you should assess the condition of the equipment and furnishings so that you know exactly what you’ll need to replace and how soon. If the furniture is being itemised and sold separately, banks do not provide bonds on this, so you will have to pay cash for this.
You should obviously also bear in mind the transfer duties and legal fees and include this in your overall return on investment estimate.
“With investment homes, there are many different expenses that eat into your budget, so do your research carefully and adjust your budget accordingly,” says Easthorpe.
What do you need to know about the property?
As with any property, you will need to check the building and the roof for any structural damage. Look for damp or weak areas, and any poor finishes that will need replacing.
The seller will be obliged to provide you with an electrical compliance certificate, and, in certain municipalities or areas, a gas compliance certificate, a plumbing certificate and a beetle-free certificate. The beetle-free certificate can be waived by agreement between both parties.
What do you need to know about the value and rental prospects of the property?
Speak to more than one estate agent in the area to find out about local property price growth and rental rates. Find out about how many months out of the year you can expect occupancy – considering as well that you might like to use the property during rental high season.
If you are purchasing a unit in a holiday rental block, you can ask the estate agent for the holiday occupancy rate from the last year, to assess whether you will be able to make a sizeable return on your new property.
“You can also assess the going rental rates by searching for similar properties in the area online,” suggests Easthorpe. “By informing yourself carefully about every aspect of your purchase, you can set yourself up for a good rental return from your investment property,” he concludes.
This article “5 Things To Consider Before Buying An Investment Property” was issued by ooba – http://www.ooba.co.za/