How to select the right investment property

South African investors looking to make money should jump into the property market as soon as possible, according to Adrian Goslett, CEO of RE/MAX of Southern Africa. But before diving into this attractive venture, there are factors that need to be taken into consideration finds Moneybags writer, Alina Hardcastle.

Select the right property

First things first, you need to select the right property.  Goslett says this is where a large majority of an investor’s research time will go. The main aspects that need to be considered are: price, property type and location.

Property type

Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty South Africa, adds that there are numerous criteria that realtors find on most standard wish-lists, but the one non-negotiable is usually a secure property. He states: “In the relatively flat economy with the consumer squeeze continuing, the trend for seeking older properties that can be renovated in good suburbs continues, while secure lock-up-and-go cluster and estate living options remain popular.”

Jason Shaw, national sales executive for Pam Golding further highlights that sectional title properties are an extremely popular property type for investors for a number of reasons. “They are very rentable due to being affordable and more secure, the cost of maintaining the properties is far less than houses due to the fact that the common property and the exterior of the property is typically maintained by the body corporate. Properties in secure estates are also extremely popular, especially with expats working for multinational companies.”

Location

Location is key when purchasing a property. Goslett explains that property which may require some attention but is located in the right area will more than likely be a good investment option. “It is often said that it is better to buy the worst house in the best area, then the best house in the worst area,” says Goslett.

So, where are the best spots in the South Africa? Geffen notes that the Western Cape is currently the only region where one is broadly seeing double digit year on year return on investment at the moment, but if you’re in it for the long haul, then everywhere is good because we’re leaning towards a buyer’s market across the rest of the country and if you have the money now is a good time to buy.

On the other hand, Shaw advises that purchasing property in any of the key metropolitan cities due to the influx of people looking for work. He says: “The ideal situation that an investor would want is as high a nett return as possible while still achieving good capital growth.”

Is now a good time to buy?  

Goslett feels that the sooner an investor can get into the market the better, regardless of the phase of the market as it has proven to be a solid asset class over the long term. “While the market will see high and lows due to the cyclical nature of property, it remains an excellent vehicle for creating wealth. “

It’s also important to take transfer duties into consideration. Shaw says that the recent relaxation on transfer duties (there is no duty levied on property purchases up to R900 000) has made it a popular time to purchase property.

What else to consider?

Cash buyers only represent a small portion of the market, while most investors will require a bond to purchase a home. Goslett says that buyers can ensure that their application for finance has more chance of success by reducing their debt-to-income ratio and keeping a clean credit record. He says: “It is also vital in today’s market to have a deposit of between 10% and 20% of the purchase price of the property. A deposit will increase investor’s chances of bond approval and reduce their monthly repayment.”