Educate yourself about investing first before you buy!
Category : Property Investment
Buying your first investment property can be scary, and rightly so if you don’t know the right steps, understand the investment process or if you are incorrectly informed. Paul Stevens CEO of Just Property says, “When your biggest investment of sometimes millions of rand are on the line, it’s imperative that you fully understand the investment criteria and the commitment you are about to make.”
He says a comprehensive step by step guide is necessary to follow before you buy your first house, flat or investment property that you want to rent out. The basic steps will help you minimize the potential problems and the fear that can accompany these issues. Stevens shares some of Just Property’s basic investment steps you need to take before you take the plunge to buy.
Step One: Do Your Homework
Before you even think about placing a deposit, it’s important that you first spend a good amount of time doing research. You should be spending more time reading through educational books, websites like just.property, property blogs, real estate forums, and speaking with current investors to determine exactly what you are looking for as well as educating yourself as to what is out there.
Step Two: Define Your Investment Criteria
After reading everything you can about property, it’s time to nail down exactly what type of property you are want that suits your budget. Will you be looking for a free standing family home, sectional title townhouse or flat, duplex or country side property? This means actually getting out a piece of paper and pen – and writing down exactly what you are looking for. Important questions to answer for yourself include:
- What property type will you be buying?
- How much do you want to spend?
- How much cash flow do you need to service the maintenance and costs?
- What neighbourhoods will you look at?
- What condition do you want to buy in?
- Who will manage your property if you are renting it out?
Step Three: Work out your available finances and budget
When buying a house or investment property, there are two basic ways to finance your property investment:
- Cash offer – You invest the full amount (if you are privileged enough to have that amount of money) which can save massively on interest and finance costs
- Bond or mortgage – Also known as leverage you borrow from the bank, or from another lending institution and pay back with interest over 20, 25 or 30 years
If you are choosing a bond as most people do then decide how much cash need to raise for the deposit (normally around 10%) and also transfer fees. As an investor If you don’t have big enough budget then consider partnering with someone who does have cash available, such as a family member or a friend.
Open up a dialogue between your local lending institutions and get pre-approved for your loan. This way, you’ll know exactly what you can start buying for.
Step Four: Begin searching for your Ideal property
At this point, you’ve done your homework, defined your criteria, and have your financing lined up — it’s time to go searching!
Just Property has access to world-class training material and systems coupled with unparalleled content, educational material and online information for homeowners, tenants and investors.
Make sure to minimise your emotions out of financial decisions. Stick to your investment criteria and your budget, and don’t fall into the trap of trying to buy something outside your price range because it’s attractive and has all the right finishes.
When you find a property that fits your criteria, it’s time to submit your offer.
Step Five: Make the offer
When buying an investment property, it’s important to stick to the criteria you set, so you may find that most sellers are unwilling to compromise enough on the price to be a good deal for you. So be prepared to submit offers on numerous properties, and don’t get too emotionally attached to any one property. It is important to make all offers with a subject to clause such as subject to finance or subject to a ful inspection of the property. This allows you an escape clause in the event of you changing your mind or when identifying a better property.
Step Six: Due Diligence
After you’ve achieved verbal agreement on the property you enter a phase known as final “due diligence.” During this time, you will want to have the property inspected thoroughly to ensure that the property has no latent or patent defects. The signing of the offer will be done with the estate agent and then the signing of the documents will take place at an appointed attorney’s office.