Buying an investment property can be a smart financial move, however it is of course a massive expense and commitment that requires thorough research and honest interrogation of your personal finances. Need help? ooba is here to offer some valuable advice.
DECO chatted to ooba Regional Sales Manager, Justin Easthorpe, about the crucial questions one should always ask when making the big step towards additional properties.
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.
What is an investment property?
An investment property is bought with the intention of accruing profits, or an income, either through a long- or short-term rental agreement, or through selling the property in the future.
By informing yourself carefully about every aspect of your purchase, you can set yourself up for a good rental return from your investment property. – Justin Easthorpe
What are the key factors to consider when purchasing an investment property?
- It is important to consider why you’re buying the property 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.
- It is important to separate your own personal taste from those that will make the property attractive to renters or future buyers. This can be anything from the structure of the property, say, whether it or not it has a garage, which may be an attraction to a renter or buyer in the future, or through to the décor and furnishings. The latter is especially important if you are purchasing the property with its existing furniture, or if you plan to lease out a fully furnished unit.
- Location is also important as your return on investment will depend on the demand of the property being rented.
- Ask yourself whether you are able to afford an investment property, as the banks will scrutinise your income and expenses closely to be sure that you can afford the monthly bond repayments.
What are the additional costs and budget requirements to think about should you wish to purchase an investment property?
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. It is therefore important to include this in your overall return on investment estimate.
Another very important consideration is furniture. Some rental homes are advertised as furnished, therefore when you are looking to buy this kind of property, you should assess the condition of the equipment and furnishings so that you know exactly what you’ll need to replace and how soon. Banks do not provide bonds on furniture, so you will have to pay cash for this.
With buying any kind of property, there are different expenses that could potentially ruin your budget, it is therefore important to research carefully and ensure that you account for added costs in your budget.
You can use the calculators at ooba.co.za/calculators to work out your budget for buying an investment property.
What do you need to know about the value and rental prospects of an investment property?
Firstly 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. By informing yourself carefully about every aspect of your purchase, you can set yourself up for a good rental return from your investment property.
With investment homes, there are many different expenses that eat into your budget, so do your research carefully and adjust your budget accordingly – Justin Easthorpe
Featured Image Source: admagazine.fr
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