As a result of uncertainty in the South African property market, opportunities for first-time investors are on the rise. But in the current economic climate, are new investors fully versed in the risks involved in property investment and how to navigate these?
Grant Smee, founder of OUST South Africa
First-time investors are particularly vulnerable. Tenants are perceived to have more rights than owners and this automatically puts you at risk. South Africa is shedding jobs at a rapid rate and first-time investors need to know their options.
Top five issues that first-time property investors may face:
Make sure you understand what you’re getting into
The property market is currently caught in a war between agents, tenants and owners that stems from a lack of education around finance and property. We allow our emotions, views and opinions to be driven by partial facts or misinformation. This leaves us vulnerable and results in poor decision-making when it comes to property.
Potential investors should do their research into both the area they are considering purchasing property in and the tenants they are considering renting to, to avoid any nasty surprises down the line.
See yourself as an entrepreneur
Investing in property is like owning a business and, as such, transactions, management and administration duties will be constantly required. First-time investors who are unfamiliar with the requirements of these responsibilities should seek advice from industry experts.
Knowledge-sharing platform EPiC Networking was founded with this in mind, to educate investors and agents alike. EPiC is designed to encourage open conversations regarding the state of the market, innovations and ideas. It is important to remember that property investors are entrepreneurs who require guidance, knowledge and mentorship.
Accept that the process will cost more than you anticipated
Unfortunately, additional and unforeseen costs are an inevitable part of the property game and first-time investors find themselves over-budget and overwhelmed.
Special levies, insurance and added products are often overlooked. A provision for eviction costs should be considered a necessity because in cases where tenants default on their rent, the legal process is lengthy, and the fees add up almost immediately.
A high-value item like a property is vulnerable to negligent tenants and unforeseen costs. Educate yourself on what’s available and spend small amounts now to save big in future.
Location, Location, Location
The phrase may be overused, but there truly is no factor more important to consider when investing in property than location as it directly determines your ROI. You may pay a little more when you buy, but to buy in a better location means you have many more profitable options down the road.
When choosing an area to invest in, prospective investors should look for transport infrastructure, the presence of other residential and commercial property development and the lifestyle options the area offers. Three areas on the rise are Soweto in Gauteng, Ballito in KZN and the Western Seaboard in the Western Cape.
New breed of tenants
With the longer-term trend of rising house prices, it comes as no surprise that millennials now make up the dominant demographic within the rental market. In an economy of sacrifice, tenants look for value and convenience.
Whether or not one succeeds as a property investor is dependent on how well they understand the property market (and tenants) in the area which they operate. If you research each aspect of your investment thoroughly, and budget for external fluctuations, you will be protected from most of the hurdles that trip-up first-time investors.