- No.1: Buying the wrong property
- No.2: Not having enough time to find the right investment
- No.3: Low rental demand
- No.4: Being unable to afford the bond repayment
- No.5: Losing money on a bad investment
- No.6: Maintaining the property
- No.7: Rising interest rates
- No.8: Getting the wrong tenant
While property is still widely acknowledged as one of the most secure long-term investments one can make, particularly in these unstable economic times, people’s concerns are still causing a major barrier to entry for many would-be investors out there.
We will examine the top eight fears that investors encounter and how they can conquer them:
No.1: Buying the wrong property
You need to consider not only the property itself but also the location of that property.
There’s no point getting a great deal on a house if it’s in the wrong neighbourhood!
This can often be overcome by doing research before looking for a property, which will give you a good idea of what and where will provide good potential capital growth and cash flow.
It is important to consider a property’s effect on your after tax position – an aspect of property-buying that is often overlooked by investors.
If your long-term goal is to steadily build your property portfolio over time, consider the benefits Section 13sex of the tax act affords you and look for properties that fulfil the necessary requirements to make use of this huge tax benefit.
Another important consideration for the area in which you want to buy are the planned future improvements.
Is there a dramatic change of infrastructure on the cards, like major new roads or shopping facilities?
Ease of access, as well as being close to employment opportunities and leisure activities are appealing to prospective tenants.
No.2: Not having enough time to find the right investment
Investing in property is an appealing idea, but who actually has time to identify those smart investments?
Work, family and other commitments leave very little time for anything else, never mind the time needed to commit to a serious investment strategy.
Everyone claims to be an expert, but don’t take advice from anyone that has not built their own property portfolio.
Rather align yourself with trusted advisors and speak to people who have already accumulated a portfolio of properties.
Learn from their mistakes and benefit from their experience.
No.3: Low rental demand
No one wants to spend their hard-earned money on a property just to have it stand vacant.
There are a few things, however, you can do to reduce your risk.
When you have an idea of where you want to buy, check online sites that advertise properties for rent in that suburb.
A high number of properties available in that area is a good indication of a possible over supply which could mean you’re likely to battle to find a tenant.
If you buy in a highly desirable area – not necessarily an expensive area, but rather an area affordable to tenants, that offers them the lifestyle and amenities they are looking for – lack of rental demand is likely to be less of a problem.
Also, keep in mind your potential tenants’ demographics.
Certain needs, like security and easy access to transport, are universal, but the kind of property will appeal to different tenant types.
A family will be looking for a multi-bedroom property, while a student needs less space and won’t be able to afford high rent, so is more likely to be attracted to a bachelor or one bedroom unit.
Buy with your potential tenant in mind and you’re unlikely to struggle to keep your unit occupied.
No.4: Being unable to afford the bond repayment
New investors often fear to overextend their budgets and getting caught in a situation where they won’t be able to pay the mortgage, particularly if their property is not tenanted.
It is therefore advisable to get your finances in order before investing, and create an emergency fund to cover the costs should the property stand empty for a short period between tenants.
It is also a good idea to buy property that is affordable for most prospective tenants, which in turn will be more affordable to the investor.
If you buy a unit that is too expensive, you may battle to keep it occupied, or you not get a matching rental return and will be left covering the shortfall.
No.5: Losing money on a bad investment
There are no guarantees, but if you do your research and invest wisely you should not lose money.
It is important to remember that property is a long term investment and you need to be patient and allow the property time to appreciate in value.
No.6: Maintaining the property
It is important to consider the cost of ongoing maintenance before buying an investment property.
When buying a pre-owned property, it is a good idea get a comprehensive building inspection done prior to the purchase to ensure you know exactly what condition the property is in before buying it.
There are advantages to buying a new property as maintenance should be minimal, and if you purchase a brand new property, you also have the added advantage of being able to claim a refund from SARS under Section 13sex.
No.7: Rising interest rates
As an investor, it would be wise to be prepared for future fluctuations in interest rates.
Have an emergency fund that you have easy access to, should the interest rate create a shortfall in your property expenses not covered by your rental income.
No.8: Getting the wrong tenant
Using a reputable rental management company will minimise vacancies through good tenant selection and property management, which also leads to lower tenant turnover, although there may be a week or two where a property stands empty in between tenants.
If you opt to manage the property yourself, or if you appoint the wrong property manager, this can lead to placing the wrong sort of tenant in your property.
It is worthwhile finding a good rental management company with a solid track record who will vet and place reputable tenants for you.
However, despite thorough background checks, bad tenants can still be placed and damage to your property can occur.
Consider insuring your property to cover damage to the building and contents, and for rental default or damage by the tenants.
Most of these concerns can be addressed through careful planning, and lead to an exciting and fruitful property investment journey.