6 Property investment tips for beginners

In times of uncertainty, property remains a safe and reliable investment. Here are some helpful tips for those new to the game.

In times of uncertainty, property remains the safe and reliable investment. South Africa’s economy may not be in the best shape, but the surge of new developments taking place throughout Cape Town and Johannesburg hint toward a bright future; and the market-friendly election result is sure to alleviate some of the tension.

For those considering investing in property, the time is now, as the recent negative real property price growth makes for a buyer’s market. If you’re new to the game, here are some helpful property investment tips.

1. Buy-to-let is the bread and butter of property investment

Buy-to-let is the go-to option for investors, allowing you to generate monthly income from properties in your portfolio. That’s not to say there are no risks involved, but with careful planning, buy-to-let provides a reliable source of revenue in the long-term.

If the property is bonded, at the beginning, you’ll be using the rental income to pay off the bond on the property, as well as whatever other expenses go along with it, such as maintenance costs. As such, the potential rental yield will be your primary concern when determining whether to invest in a property.

It’s an important figure and it’s simple to calculate. “The yield is simply the annual rent you’re earning on the property divided by its value, expressed as a percentage. So a house worth R1 million, on which the annual rent is R120 000 (R10 000 a month) would be yielding 12%.”

You can get an idea of prospective rental yield on a property by looking at rental prices for other properties in the area. Generally, one-bedroom and studio apartments make for a good buy-to-let investment, as those property types have delivered consistently over the course of 12 years. (source)

2. Consider buying and renovating properties to boost value

Purchasing older properties and conducting smart renovations to boost their value is another shrewd investment strategy, and one that happens to be quite fulfilling as well, as you are able to apply your own creative talents to the task.

As a general rule, kitchen renovations are most effective at boosting property value, as it’s often said that kitchens sell properties. They can get expensive though, whereas bathroom renovations provide a relatively cheap way to enhance the property’s aesthetic appeal.

3. Shop around for the best deals on bonds

In most cases, you’ll need to obtain funding before investing in a property, which usually comes in the form of a home loan granted by the bank. However, each bank has different lending criteria, some of which may result in more favourable interest rates for you.

It pays to shop around for the best deal. This is made easier if you acquire the services of a bond originator, such as O-YES home loans, who can apply to multiple banks on your behalf.

4. Take note of property types that are performing well in the market

Property investors need to stay abreast of trends in the property market, which can be affected by political and economic factors. For example, sectional title properties generally perform well in South Africa due to their popularity with students and first-time home buyers. Properties in gated communities are also expected to perform well, due to security concerns.

Trends also vary by area. The current price deflation in the Cape Town market has been especially prevalent in upmarket areas like Sea Point and Camps Bay, which experienced a +5% decrease over the last year, according to The South African. This makes those districts ripe for investment.

5…but also diversify

That said, don’t allow yourself to become too fixated on certain property types or areas. Investing in a broad range of properties, spread across different areas, will make your portfolio less susceptible to market fluctuations.

6. Take it slow

Remember that property investment is a long game; the slow and steady alternative to playing the stock market. You shouldn’t be in this industry if you’re looking to get rich quick.

It requires long-term strategy and planning. Selling properties is generally not advised, not even to fund the purchase of another property. The various legal costs, fees, taxes and so on can take a sizeable chunk out of the profits, so the smarter option is almost always to keep the property and use it to generate income in the long-term.

When you’re ready to try your hand at property investment, bear in mind that O-YES Home Loans home loans offers a range of tools that can make the home-buying process a lot easier. Start with their bond calculator, then use the O-YES Home Loans Bond Indicator, a free, online prequalification tool, to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.