Buying an investment property

Posted on Mar 01, 2019

"The Best Investment on Earth Is Earth” – Louis Glickman**

A lot of value can come from buying an investment property. It can provide an additional income stream and allow you to diversify from the usual investments of bonds and stocks. But, making such a big purchase also comes with challenges. It takes capital, time and patience - dealing with tenants isn’t always smooth sailing.

The most effective way to approach such a big decision is to:

  • Know all the steps involved
  • Understand the investment process
  • Understand the commitment you are making

What are the 5 important tips for buying an investment property?

Consider the risks involved

Before you buy another property, take the following risks into consideration:

  • Maintenance and upkeep costs can add up.
  • You will need to be financially prepared for months where the property is vacant or in need of renovations - or any other emergencies.
  • Legislation protects non-paying tenants. So, it may be difficult to vacate your premises if your occupants are unable to keep up with rental payments.

Research the market

Don’t simply listen to success stories and think the same results will apply to you. You are about to invest a lot of capital into an investment property. Make sure you have a clear understanding of the relative markets.

Typical factors, such as location, size and structure of the building, the condition of the building and property in general, affect the resale value of a property. Also, keep in mind, crime and rezoning of districts as this can negatively affect property value in certain areas. Properties that are close to malls, schools and other important centres are most likely to uphold a strong value.

Critically check the property

Be aware of a house that needs a lot of fixing, especially if you’re buying your first investment property. You may want to buy the cheapest house out there, but it could come at a bigger cost in the long run.

Renovations can be financially crippling. So, unless you have great connections and a lot of money to spend on fixing up the property, rather purchase a property that doesn’t need too much work done.

Identify costs and potential profit

If you’re not paying cash upfront for the property, have a deposit for a bond before applying for finance. You can decide to pay back the bond with interest over 20, 25 or 30 years. Remember, the longer you take to pay off the bond, the more you will pay on interest.

You will need to take into account a few costs over and above the purchase price, including maintenance and repair, levies, utility bills, transfer costs, commission and VAT on the commission.

It may take some time to make a profit so make sure you have enough money to cover extra costs involved in the purchase.

Get the lowest interest rate possible

When applying for a home loan:

  • Apply for a loan at a few banks to see where you can get the lowest interest rates for your bond.
  • Don’t assume there is nothing you can do to reduce the amount of interest you need to pay for your bond or the terms of your repayments.
  • Pay the biggest deposit you can to save money on your monthly installments and reduce the amount of time it takes to pay off the bond.

Find a property auction

If you’re looking for a once in a lifetime property deals, visit Van’s Auctioneers to see when our up and coming actions are taking place. You can check out our tips on buying property on auction here.