Real Estate Investor Magazine South Africa July 2013 | Page 26
STRATEGIES
BY KOOS DU TOIT
Investigate thoroughly
Before you buy-to-let
I
t is widely known that selecting the right
investment properties is fundamental to the
success of your property investment business.
The benefits of choosing the right property
are legion: you can be almost assured that you
will enjoy good capital growth for many years,
that you will be able to attract the right type of
tenant, that the property will rarely - if ever - be
vacant, and that the maintenance and upkeep
costs will be reasonable.
Yet, one of the biggest pitfalls that property
investors step into is buying a property without
conducting a thorough investigation. This
may be because investors rarely understand
what a thorough investigation encompasses.
For this reason, the P3 Investment Group
has narrowed down their stringent criteria for
a good investment opportunity to 10 crucial
variables that all investors can apply to their
investment decisions.
10 crucial variables to investigate
1. Price – Given the spectacular returns an
investment in a buy-to-let property produces,
it isn’t necessary to hunt for “bargains” only.
However, you should never pay more than the
reasonable market value.
2. Rental income – Contact several rental
agencies in the area to establish what the average
rental for the property under consideration will
be, as well as whether there is rental demand for
such a property.
3. Break-even – Most investment properties
will require the investor to carry an initial
monthly shortfall, the difference between the
rental income and the property expenses. As
the rental increases year after year, this shortfall
amount diminishes until the rental covers all
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July 2013 SA Real Estate Investor
the property expenses and break-even point is
reached. Calculate what the monthly shortfall
will be each year and how long it will take to
reach break-even, to ensure you are able to fund
these shortfalls comfortably and that the period it
will take to reach break-even point is acceptable.
4. Condition of the property – The older the
building, the higher the maintenance and repair
costs are likely to be. And, in general, the better
the condition of the building, the higher the
rental potential.
5. Vacancy – The rental demand in the area
in which the property in located is crucial,
but even where the demand is high, smart
investors calculate a vacancy factor into their
cash flow calculations.
6. Area – What is the general condition
of the area in which the property is situated
and its longer term prospects for growth and
development? This will determine the capital
growth rate you can expect on the property over
the years.
7. Levies and taxes – How much will you
have to pay in levies, rates and taxes and
how do these compare to similar areas? The
levies, rates and taxes on a property can have
a significant inf luence the bottom line of a
property investment.
implementing changes that could increase
the yield? Can you subdivide, extend the unit,
renovate or add a garage?
10. Bank valuation – Does the bank validate
your decision to acquire the propert y by
granting a mortgage bond?
T hese 10 cr ucia l va r iables shou ld be
investigated for every single property you
evaluate. If it seems like too much work or
effort, it might be better to harness the skills
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