Investing in property: The basics

Investing in property might be the best thing you can do for your financial future, you just don't know it yet. That's why we go over the basics of property investing to make sure you understand the true potential of this form of investing.

This is your chance to get your facts straight and get rid of any misconceptions you have about investing in property. If you thought you're too young or old, uninformed or underfunded to buy an investment home, think again. Buying a property may well be within your reach.

Who can (and should) invest in property

You might think buying a home is not for you. Perhaps you consider the cost of property too high or think it's a risk to buy large assets.

The truth is anyone with a steady income and a salary large enough to afford housing can invest in property. The size of your income is not the most important thing. The consistency of it is. The South African property market offers houses of all sizes, starting from as little as R500 000 for an affordable yet well-kept property.

And you don't need the whole sum to buy a home either. With a consistent salary and wise spending habits, you'll be able to generate a healthy credit score and become eligible for a home loan or bond. Depending on the state of the economy, you might not even need a deposit to access a bond. South African banks have been known to grant zero-deposit home loans to first-time buyers.

You're also (almost) never too old to invest in property either. While fewer home loans are granted to buyers over 50, nothing disqualifies you from applying for a bond. Home loan providers do prefer that bonds are paid in full by the age of 75 though.

It's important to keep in mind that property shouldn't be your primary source of income as a retiree. That's because property investment is not without its risk and it requires some maintenance. It can supplement your income but your never replace your pension.

If you're not sure whether you'll qualify for a home loan, you can contact your bank or a home loan provider to get pre-qualified. That way, you'll know exactly what size bond you might be eligible for.

Contact NS Property Solutions to be introduced to trusted bond originators that can help you get pre-qualified to invest in property in the Northern Suburbs of Cape Town.

When to invest in real estate

If anyone with a steady income can invest in property, the next question is when should you get started. The answer is: right after reading this article.

That's because the sooner you invest in property the better. Why? Because, like a pension or retirement fund, property gives you the option to invest in an asset that will grow over time. The more time you have to invest in real estate, the bigger your gains could be.

Here's how it works: If you invest in a home while you're young, you can start renting out the property as soon as it's yours. Whether your new home has a tenant in it from day one, or you're the one residing in it, monthly payments go towards paying the bond.

Within a few years, you'll have paid enough of the home loan to be considered more creditworthy than when you started. At that point, you might be eligible for another bond. You'll have the option to buy another home using a bond, or, if your property has grown enough in value, you can sell it and use that money to buy a larger home.

As time goes by, you might be able to upgrade from one home to the next, always affording a slightly larger or higher-value property.

This process is most rewarding when you have time on your side, which is why Right Now is always the very best time to start investing. Reality check: If you need to see a return on your investment fast, then property is not the best way forward. Like almost all investments, it's a long-term game.

Where to buy property

Once you've decided that property investment is for you and that now is a good time to get started, you'll be wondering in which area to buy.

You might think that looking in the area you reside in now is your only option, but it's not! In fact, basic free online tools like Property24's South Africa Property Trends and Statistics can quickly show you how the property prices in your neighbourhood has grown - or stagnated.

Investing in a property in an area that hasn't shown much growth over the last decade means that your home won't be worth that much more after another 10 years. If you sell it one day, you'll only make back the same money you spent or you might actually lose money.

That's why it's best to target properties in areas that show consistent growth. A quick internet search will give you an idea of cities, towns and suburbs that offer financially sound investments.

The right area for you is one where property values have been increasing over the last few years yet still offer homes within the price range that you can afford. It doesn't matter if the area is far from where you're located because you can work with an estate agent to rent out the property.

Once you've identified a home, make sure to speak to the estate agent selling the property about the potential rental income you can get. Ask them to show you other properties in the area with good rental opportunities.

Not sure how to pick the right realtor for the job? Read our article What to look for in an estate agent

What property should you invest in

You've identified the area you'll be investing in but you can't seem to make up your mind about the type of property. This can be especially difficult if you're considering properties that you want to reside in, while still making sure it's a proper investment.

The fact is that the best property investment is one that keeps on giving. That means you'll want a home that can bring in money year after year, even when you're no longer staying in it. In a nutshell: Buy a property that you can rent out, even if you're going to be living in it for a while.

Truly ambitious property investors buy homes that they can rent out instead of having to sell them. That's why targeting a small property for your first purchase is a great idea, even if it's too small for your household. With tenants in the property, it will start paying itself off in a few years as the monthly rental amount increases.

You'll want to consider properties that are easy to rent out. If you're buying in a city, that means looking for properties close to business districts and major thoroughfares. If you're buying in a town, speak to a local estate agent about the properties most in demand. Is it homes for large families, student housing or one-bedroom apartments for contractors? A good estate agent will be able to tell you so you can invest wisely.

A word of caution: High-value homes with many bedrooms are often the riskiest investments because there are not many large families looking to rent high-value homes. One or two-bedroom properties are often more sensible.

Why should you invest in real estate

The investment opportunities of property should be clear by now: Property investment is available to anyone with a steady salary, and you don't even need all the money for a home upfront because you can get a bond. You can buy small and rent it out, building your portfolio one property at a time.

But there are even more reasons why property is a wise investment. Unlike other forms of financial investment, property is a tangible asset that you'll always need. If you go through a rough patch, then owning a home means you'll always have a roof over your head to return to. This is something other financial investments can't give you.

Added to that is the fact that you'll always need to pay for housing so you can choose to pay someone else or yourself instead. If you're the homeowner, then your money is not going towards making someone else richer, only yourself. You might not be able to buy a home to suit your household right away, but starting small will eventually get you to a place where you can afford an investment home you'll want to live in.

There are other smaller benefits to investing in property too. You might pay less tax when investing in property when compared to other investments. That's because there are costs you can deduct like repairs and maintenance, that'll keep taxation lower.

Need more reasons why property investment is a great idea? Read our article Investing in property: Why it's still the best investment you can make

How to start investing in property

Now that you know property investment is for you and that Right Now is the time to start, all you need to do is actually invest.

Choose an estate agent: It should also be clear that working with an estate agent is a must, even if you know the area you want to invest in well enough. Estate agents worth their salt help buyers make sound property investments day in day out and are in the best possible position to guide you.

Get pre-qualified: Don't waste your time looking at properties you can't really afford. Once you're pre-qualified for a home loan, you'll know exactly which homes fit your budget.

Do your own research: You can double-check the worth of any properties that your agent suggests by using tools such as Property24's Property Trends and your municipality's General Valuation Roll, if it's up to date.

Understand the total cost: When you've identified a potential property, calculate the total amount that the purchase will cost you. The final amount will include transfer attorney and bond registration fees. It's also wise to factor in what the property will cost you in maintenance to make sure it still fits your pocket.

Make sure about your choice: Before you make an offer to purchase a property, take a moment to make sure it's the right decision for you. Remember that buying a home comes with additional costs that you'll only recover over time. If you buy and then sell the home straightaway, you will have lost money.

Shop around for a home loan: Once you've made your offer, you need to apply for a home loan. Newsflash: you don't have to use your bank. Ask your agent to introduce you to a bond originator that can help you apply to different institutions for a home loan. There may be more affordable bonds available from other banks or loan providers.

Don't stop investing: Your first property purchase is just the first step in your property journey. Work with an estate agent you trust to valuate your property on a yearly basis and find the best possible tenants for you. Working with a professional is the best way to protect your investment and plan your investment journey ahead.

Ready to invest in a property? Contact us to start investing now.

Find out how the value of properties are calculated in our article 9 important factors that affect the value of your property

If you're not yet convinced that buying a property is better than renting, check out our article Decision time: Renting property VS buying a home

You can also start prepping for your first purchase by reading our article Four powerful tips to ace that home loan application

Hobby illustrations by Storyset