Beginners, should always ask themselves questions like, “Why do I want to get a property and what do I want to achieve out of it”? “Am I venturing into property because I want to build a retirement plan or is it because I just want to build assets outside of what I’m currently doing”? “Do I still want to pursue my job while I build assets using the property as a vehicle”? Or perhaps, you are looking to buy in a highly positive cash flow property because you want a second income stream. In the end, one needs to consider that there are golden principles that must be taken into account before tapping into this kind of investment.
Let’s take a deep dive into 5 top tips for newbie investors who are keen to climb the property ladder
Tip 1: Is it advisable to get into the property during the current recession?
Buying your first property in this market can be a bit overwhelming, this is understandable, it’s natural, nonetheless, newbie investors should understand what they are getting themselves into. As with most investment opportunities, property investment has risks.
And the big question is, do you understand what they are? It’s always a good idea to explore the pros and cons before getting into property investment, especially in this bumpy economy. For example, the current interest rates look favourable and are at low records, so this seems good, right? Let’s say that you go and buy your first buy-to-let (BTL) and it’s giving you a positive cash flow at a 7% interest rate. Within 2 years the interest rates go up, which then causes the deal to be negative cash flow… That’s not quite where you wanted to be and you have to re-evaluate your deal.
When you do buy your first property, make sure that you can afford the property and when the interest rates go up to 10-13%, be conservative when running the numbers. In the end, the key is not to automatically see a low-interest-rate environment as an opportunity to enter the market. So, it is important to do your homework as you will have more control when unforeseen circumstances occur.
Sidenote: Don’t get too caught up in the low-interest rates as they will be temporary. Investors should always plan for the long term.
Tip 2: Structuring and Financing
There are a hundred different ways of approaching property investment, in fact, there are different entities that you can use to purchase the property. However, these different entities come with different tax laws and each option has its pros and cons. If you are keen to invest in property, you need to be mindful that there are golden principles that must be taken into account. You should be asking yourself if you should be investing in your own capacity, a company or a trust.
IMPORTANT TO NOTE: Make sure that you speak to an attorney that has vast experience and specializes in trusts if this is the route you want to take. SA Property Investors Network is proud to have teamed up with the best in the industry, Bruno Simao Attorneys, a boutique firm that provides specialised investment brokerage, advisory and management services in the property space. You can contact Bruno Simao Attorneys directly through our SAPIN connect portal at https://sapropertynetwork.com/bruno-simao-attorneys/
Following that, you will also need to speak to a bond originator who can pre-qualify you. Commonly, investors find a property that they fall in love with but affordability becomes the issue. It’s always a good idea to get pre-qualified so that you can enter the house-hunting process with a concrete idea of what you can realistically afford. On a good note, our new partner ooba works with all the leading banks to help investors secure you a home loan without a hassle. Get in touch with ooba to learn more at https://sapropertynetwork.com/sc-ooba/
Tip 3: Education and Networking
When you are investing in property, you are going to pay your school fees. This will either be by getting the knowledge upfront or by making mistakes. As they say “It’s important to be able to walk before you can run.” in the property game, you can never tell how much you know without learning from other people. A simple interaction with one person can transform your investment journey and result in a breakthrough.
Ever since we started our network, we have found that our students find it valuable to network with like-minded people, where they can learn from others who have tried and tested various strategies, who you can learn from and share your experience with. And that is where the SA Property Investors Network comes into play. If you want to be part of a thriving community of like-minded investors you can join as a free member today and start learning through free ebooks, free webinars and connect with others in the property space.
There are also property training academies out there like The Property Academy, which is a sister company to SA Property Investors Network, that focus more on the educational element of property investment. It can assist you with education through virtual live workshops, online short courses such as the SA Fundamental Course as well as individual coaching. Learn more at https://thepropertyacademy.co.za/sa-fundamentals-course/
Tip 4: Maintenance and Management
Carrying out regular maintenance will not only keep your tenants happy. but it will help prevent damage to your property which in turn will save you money. Damage to your property can also result in unhappy tenants, which may result in a higher turnover of tenants affecting not only the wear and tear on your property but also cash flow.
Regarding maintenance, every cent counts, but most people don’t consider these costs when they run the numbers. If you are buying a BTL then take a percentage (5-10%) of the gross rent and stash it away for rainy days so that when you need to fix something, you have funds available. On an annual basis, you should be maintaining certain aspects of your property, for example, your gutters, make sure there are no plants or anything else blocking the gutters.
Tip 5: The Future and Exit Strategies
No one has a mirror ball so we can’t say for sure what’s going to happen in the property industry future. However, it’s advisable to plan for an exit strategy. During The Property Academy workshops, our expert investors talk about the various exit strategies that you can apply that assist investors to plan for the worst scenario.
Make sure you tick ‘YES’ for the below points before you buy your first property
1 – Do I understand what I am getting myself into?
2 – Do I know what entity I need to use to buy the property?
3 – Have I been pre-qualified by either a bond originator or my bank?
4 – Am I working with an experienced property coach?
5 – Do I have the right professionals around me to support me such as a conveyancer, bond originator, letting agent, insurance broker and accountant?
Final take out
There is never a good time to invest in property, the sooner, the better. On that note, it is essential to know that buying property is one of the most important financial decisions anyone will ever make, just make sure you know what you are getting yourself into and get the required education.