Real Estate Investor Magazine South Africa Real Estate Investor Magazine - October 2017 | Page 24

INVESTMENT SERIES 1 First Time Investor Guide PART GETTING STARTED The building blocks of investor success BY MONIQUE DU TOIT I nvesting in real estate can be tricky business, especially in turbulent economic climates. According to Crispin Inglis from PropertyFox, while now may not be the best time to take large financial risks, there are opportunities “for those who can afford to. It could be a very good time to invest in proper- ty. A recessionary environment sets up a buyer’s market. Many homeowners put their homes on the market – because they are feeling the pinch or because they fear their house value will drop, placing their loan into negative equity. This means there are likely to be a lot of properties listed - and limited buyers. As supply outstrips demand, there is a lot of room to negotiate good prices and potentially pick up a ‘bargain’,which will deliver strong returns in the long term.” If you’re currently considering entering the real estate in- vestment market, welcome. Over the course of this series, we’ll be covering the basics of real estate investment - and how it differs from buying a home to live in. We’ll be looking at the different types of real estate and how to decide on a strategy: From student accommodation, to industrial developments, and everything in between. Depending on the time you have available, you may decide to follow either an active or a passive approach, but what exact- ly is the difference? And what on earth are REITs? There are probably a million questions running through your mind, part- nered with heaps of uncertainty and, possibly, even fear. There are many factors that affect the type of property you’ll invest in, including the neighbourhood, demographic, the broader mar- ket, how much time you have to spend, and your financial goals. SAMUEL SEEFF SHARES HIS TOP TIPS FOR DECIDING ON AN INVESTMENT PROPERTY: Location - Properties in areas with good schools, amenities and convenient access to business and commercial nodes tend to be the most in demand, regardless of the state of the econ- omy. Sometimes, specific areas undergo an economic or devel- opment boom and this can lead to strong rental demand and in turn boost buy-to-let investments. Bear in mind though, that once the boom comes to an end, the demand for rentals might also subside. Affordability - Generally, the more affordable property ranges tend to be most in demand regardless of the economic cycle. For example, in general, anything in the R4 000-R12 000/ month range is highly sought-after. When it comes to holiday accommodation, anything close to beaches or tourist attrac- tions or with great views would command higher rates. Property configurations - together with location, security has become a vital requirement for tenants. That means securi- ty complexes and secure neighbourhoods tend to be most in demand. Speak to a local area expert to assess what kind of accommodation is most sought-after and at what rental rates. Holiday versus residential versus student rentals - each type of rental is unique. Student accommodation for example might be most popular in two or three bedroomed configura- tions because it allows for sharing. The most popular holiday flats on the other hand might be one and two bedroomed units. For residential rentals, three bedroomed townhouses or houses might be most popular in one area while two bed- roomed flats might be popular in another. It is therefore ad- visable to research the requirements of each area very carefully. Supply and demand – just because an area has a very busy rental market, does not necessarily mean that it requires more rental stock, especially under weaker market conditions. It is therefore important to assess whether you are investing in an area where there is a shortage of stock in real terms that is matched by an equally high demand. Be sure to check how sustainable the demand will be in future. Holding costs – property is a costly investment. In addition to the acquisition costs, there are ongoing expenses such as the monthly utilities and services as well as property tax, in- surances and maintenance and upkeep. Maintenance of rental property can be costly. Remember, your tenants are unlikely to look after your property in the same way that you would. Tenant management – ensuring that you have good tenants who will look after your property and pay their rent on time, is critical. Even just one to three months without a tenant can quickly become very costly to a landlord. The laws around property and tenancy is complex and it can be onerous and costly should you need to evict tenants. While there is no one-size-fits-all solution to real estate investments, we’ll share tips on choosing the right tenant, the tools you need to manage your property, the secrets to increasing your investment property’s value, expanding your portfolio, improving returns, and eventually selling for a profit (if you choose to do so). Next month, we’re evaluating real estate as an investment, comparing it to other options. For up-to- date property news and insider tips, visit reimag.co.za or send your questions to [email protected] 22 OCTOBER 2017 SA Real Estate Investor Magazine