Three golden principles of sound property purchases
Not all property purchases are equal. Buyers need to be savvy, well-informed decision makers from the start to ensure success and make the property purchase a cornerstone to wealth creation.
Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa emphasises that decision made during the purchasing process will have a massive bearing on the potential return on the buyer’s investment. “Purchasing a home at fair market value doesn’t guarantee healthy returns over the long term,” he says, pointing out that there are certain golden principles for any property acquisition that buyers would be wise to follow:
If buying the home with the intention of using it as primary residence, decisions are more likely to be guided by emotions. However, if the property is for investment purposes it is important to do research on what will appeal to possible tenants, and who the tenants might be.
“While a buyer will be able to find a great deal of information online regarding the area, estate or complex, nothing can replace checking out the location in person,” says Goslett. He suggests taking the time to drive around the area and walk the streets. If you plan to live there, consider what the traffic is like and who your neighbours could be. Also have a look at the facilities and amenities in the area.
The property’s location, the value per square metre and the potential rental yield are all basic principles that successful property buyers consider at all time. Regardless of the phase of the property market or external influences these fundamentals always apply.
Buyers should not underestimate the importance of location, two homes offering the same features can differ greatly in value depending on where they are situated. Goslett advises that, from an investment perspective it is better purchasing the worst home in a sought-after area rather than purchasing the best home in an area with less appeal. He adds that investment buyers should also look at how much rental stock is available in an area before purchasing a buy-to-let property, an investment could fail if there is an over-supply of rental properties in the area.
Both property buyers and investors need to have a plan in place when buying a home. “As a property investor, it is important to think about what you would like to achieve with your property portfolio and what needs to be done to get there,” says Goslett. “As a property buyer, it is essential to think about where you would like to settle for the next five to ten years.” Buyers should never limit their thinking to what they can afford right now, but rather what will be possible in the future.
To increase the chance for success of a bond application, a buyer should start planning now to reduce their debt-to-income ratio. Keeping a clean credit record and saving for a deposit of between 10% and 20% of the envisioned property’s value will increase a buyer’s chance of bond approval as well as reducing the monthly repayment.
While the return on investment is an important factor when purchasing property, it should not be the only consideration. The property has to appeal to the buyers and they have to want to own it. The most important aspect is to research as much as possible, only buy a property once all options have been considered.