INVESTING
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2 . Financing There is no point beginning the search and wasting realtors time until you know your financing capability . The first port of call should be a mortgage originator that can give you a very clear indication of your purchasing power . If your purchasing power is low , then you need to think about partnering on the deal with friends and family to make it work . Unlike buy , renovate , sell deals where the less equity you inject the greater the returns , for medium to long term deals it is crucial that you inject enough equity to make the property cash flow positive .
Owning a property that is severely cashflow negative every month is a recipe for disaster , particularly when interest rates suddenly rise . It goes without saying that your numbers should also look at the impact of interest rate fluctuations on your cashflow . One bit of advice I always give is to negotiate your interest rates as hard as possible with the bank . After I suggested this in my first book , I was surprised at how many readers responded that they did not know the rates were negotiable and that this advice had saved them thousands in interest payments over the years .
3 . Location If I have learnt one thing in my 25 years in the property game , it is that properties in prime locations always weather downturns and storms better than properties in not so prime locations . And trust me I learnt this lesson the hard way ! When I was once looking to invest in a noncore area one of my very seasoned property mentors said to me : “ when Cape Town gets a cold , that place will get pneumonia .” I did not listen , and I got burnt .
A property ’ s location more than anything else significantly impacts its value , rental potential , and longterm appreciation .
For residential investment deals the following aspects are crucial in considering the location you will invest in :
• Proximity to amenities such as good schools , hospitals , shopping centers , recreation and public transportation
• Safety and security of the area
• Upcoming infrastructure developments or urban renewal projects
• Growth potential of the neighborhood
Areas with good transport infrastructure and essential amenities will attract higher rental yields and appreciate better over time . They are also easier to exit if you need to .