Top 10 lessons for investing in property

Investing in property can be intimidating if you don’t know where to start. Luckily, seasoned investors have found a formula that works.

As with any investment, conduct extensive research and speak to experts in the field before investing.

Last month, the Reserve Bank’s Monetary Policy Committee kept the interest rates unchanged at 3.5%, with the prime lending rate at 7%.

The low interest rate environment, affordable property prices and banks’ willingness to lend, all bode well for property investing.

Additionally, cheaper homes are showing the most price growth. These are properties priced below R500,000, according to FNB.

Prosperity Enterprises founder and property investor, Jaco Grobbelaar, says we all make mistakes but we have to learn from these. “Minimise the risk of repeating the same mistake by getting the right advice and guidance from the start.”

Grobbelaar shares his 10 lessons in property investing learnt in the last 10 years.

1. Do not be emotionally attached

This is the biggest mistake most investors make. When thinking about buying property, be clear about your motives to avoid this mistake.

Is the property for lifestyle purposes, such as buying in coastal areas or even an apartment in the city, when you live in the country, for example? Whether you are a first-time property buyer or investor, having the right reason will save you money later.

Additionally, do not spend more than you can afford on the asset. While the property can be a good investment, think about maintenance costs, rental agents’ commission and bad tenants.

“Property is a numbers game. Work out the capital growth over time, look at cash flow generation and net rental yields to assess the value of investing.”

2. Take consistent action

The saying: ‘separate the wheat from the chaff’ applies to most things in life. In the case of property investing, the saying could be used for educational purposes, in the form of seminars, webinars, property investment books, for example.

However, actionable goals need to be in place, such as the number of properties you intend buying in a year. Think of how many property viewings it would take to find the right properties, and the offers to purchase that would need to be submitted. Set realistic goals.

3. Have the correct structure in place

This is about understanding the types of property ownership and choosing the right structure for your investment(s).

When buying property, it is better to invest in a property trust or company. There is exposure in buying in your name, and the risk of losing the asset if something happens to you.

Investing in a trust gives you the financial capability to build a portfolio you need.

4. Have sufficient cash reserves

When you invest, manage the risk when it comes to the debt acquired. For example, applying for a bond now may be affordable because interest rates are low, so the bond repayment will be less. However, how will you manage should rates increase? Ideally, 10% of the reserves in your portfolio should be cash.

5. Buy property at a discount

Global renowned investor, Warren Buffet says: “Price is what you pay. Value is what you get.” With property, everything is negotiable, and in the current climate there are a number of discounted homes on the market.

Many are selling due to financial pressure, death, divorce or downscaling to smaller homes or emigration.

6. Use your own attorneys

When buying property, the norm is to use the sellers’ attorneys. Insist on using your own attorneys – they will be familiar with your portfolio and can therefore provide good service, as well as discounts.

7. Apply for financing at multiple banks

Different banks have a different risk appetite when it comes to lending, and the interest rate charged on the loan will vary. Don’t assume your bank will give you the best rate, use a bond originator to help you get a favourable interest rate.

It is best to opt for a 30-year bond instead of 20 years. You will have cash flow and lower monthly bond repayments.

8. Be strict on rental collections

Vet your tenants properly and use reputable organisations to help you do this, for example, the TPN Credit Bureau. Be consistent and make sure tenants’ rent is paid on time. If a tenant fails to pay on time, act early and send a letter of demand within three to five days.

9. Keep your properties in good condition

Always work on 10 months’ rent and use the remaining two months for vacancy and maintenance. You will have a good chance of attracting solid tenants who pay on time when a property is in good condition.

Changing door and cupboard handles, light switches and replacing carpets with tiles, for example, make a huge improvement to the property. These can be done on a low budget. Don’t wait until the property is falling apart, as it then becomes costly.

10. Build a strong investment team

To succeed in investing and building a portfolio, it is a good idea to surround yourself with various experts. These include a coach, mentor, accountant with property investment experience, trust specialists, financial expert, bond originator, personal banker, rental agent and a reliable handyman.

Do you have a question on investing in property for our experts? Email infoaroundtheblock@gmail.com or post on the comment box.

GIVEAWAY: To help you on your property investment journey, the Safrea Chronicle is giving away a copy of the book: Prosperity through Property by Jaco Grobbelaar. To win, like and share this post, then email your full name and contact details to infoaroundtheblock@gmail.com. Competition closes on 7 June 2021. To buy the book, click here.

Edited by Gudrun Kaiser