By Jason Vorster, National Sales Manager at Just Invest
Whether you are a seasoned investor or just starting out, knowing where to find investment property is one of the biggest challenges facing real estate investors. So, how do you know when you have discovered the right investment match?
Starting your search
Although an experienced real estate agent can help you in your search, you should start looking for your investment on your own. You need to understand the property market and be secure in your decision and believe you haven’t be swayed by a smooth talking agent. The most important thing is to have an unbiased approach to all the properties and neighbourhoods within your price range.
Your price, or investing range will be guided by whether you intend to actively manage the property (be a landlord) or hire someone else to manage it. If you intend to actively manage, you should look for properties which are no more than a two hour drive from where you live. If you are going to get a management company to look after it for you, your proximity to the property will be less of an issue.
Now you know whether you’re looking near or far – let’s look at the top 10 things you should consider when searching for the right rental property.
The quality of the neighbourhood in which you buy will influence the type of tenant you attract and how often you face vacancies. Look at the cars parked in the driveways, how neat homes on the street are, do you see lots of for sale or to let signs?
Rates, taxes and levies
These fees are dependent on your property type and are paid to the authority, which services your property such as a body corporate or municipality.
If you are buying a freestanding property you will be charged monthly for municipal rates and taxes. This charge covers the services provided by your local municipality such as sewerage facilities, roads maintenance, street light maintenance and refuse collection.
If you are buying a sectional title property such as a property in a complex or a flat, you will be charged levies. These are the costs involved in running the complex, and include municipal rates and taxes, limited building insurance coverage, repairs and maintenance.
High property taxes may not always be a bad thing if the area is an excellent place for long-term tenants, but the two do not necessarily go hand in hand. The municipality’s assessment office will have all the tax information on file or you can talk to homeowners within the community.
Your tenants may have or be planning to have a family, so they will need a home near a good school. When you find a property near a school, you need to check the quality of the school as this can affect the value of your investment. If the school has a poor reputation, it will be reflected in the property’s value. Although you will be mostly concerned about the monthly cash flow, the value of your property comes into play for when you eventually sell.
No one wants to live next door to a crime hot spot. Go to the local police station or a local security company for accurate crime statistics for various neighbourhoods, rather than asking the homeowner who is hoping to sell the house to you. Items to look for are vandalism rates, serious crimes, petty crimes and recent activity (growth or slow down). You might also want to ask about the frequency of police presence in your neighbourhood.
Employment and business districts
Locations with growing employment opportunities tend to attract more people – meaning more tenants. To find out how a particular area rates, go directly to the Statistics South Africa or the local municipal offices. If you notice an announcement for a new major company moving to the area, you can rest assured that workers will flock to the area. However, this may cause house prices to react (either negatively or positively) depending on the corporation moving in. The fall back point here is that if you would like the new corporation in your backyard, your renters probably will too.
Check the potential neighbourhood for current or projected parks, malls, gyms, movie theatres, and all the other perks that attract renters. Cities, and sometimes even particular areas of a city, have loads of promotional literature that will give you an idea of where the best blend of public amenities and private property can be found.
Building permits and future development
The municipal planning department will have information on all the new development that is planned. If there are many apartment blocks, business parks or malls going up in an area, it is a sign that it’s a good growth area. However, watch out for new developments that could hurt the price of surrounding properties, for example, developments which result in the loss of an activity-friendly green space. The additional apartments and/or new housing could also provide competition for renters, so be aware.
Number of listings and vacancies
If there are an unusually high number of listings for a particular neighbourhood, this can either signal a seasonal cycle or a neighbourhood that has “gone bad.” Make sure you figure out which before you invest. You should also determine whether you are financially sounds during any seasonal fluctuations in vacancies. Similar to listings, vacancy rates will give you an indication of how successful you will be at attracting tenants. High vacancy rates force landlords to lower rents in order to snap up tenants – low vacancy rates allow landlords to raise rental rates.
Rent is the bread and butter for your rental property, so you need to know what the average rent in the area is. If charging the average rental price is not going to cover your bond payment, taxes and other expenses, then keep looking. Be sure to research the area well enough to gauge where the area is heading in the coming five years. If you can afford the area now, but major improvements are in store and taxes, rates and levies are expected to increase, then what could be affordable now may mean bankruptcy later.
Insurance is another expense that you will have to subtract from your returns, so it is good to know just how much you will need to carry. If an area is prone to flooding, the extra insurance can add up and eat away at your income.