What to look for in an investment property?
Category RealADVICE
"Homes are where we raise our children, host our friends, and make memories, but they also make for excellent investments," says Gerhard Kotzé, CEO of the RealNet property group. "And that's why it's so important to make your choice of investment wisely."
"The only bad time to buy property is later because almost any home will generate a return on your investment if you're willing to wait for long enough. But, with an investment property, you will more than likely want to generate that capital sooner rather than later."
"The key to finding a great investment property is to find a home that is appealing enough to generate decent rental income in the short-term while also having the potential to appreciate in value in the medium to long term."
"Unfortunately, striking this balance isn't always easy. If you get into a new market early enough, you'll often be able to pick up a good property for a fair price. Then, as the area becomes more desirable over time, house prices will increase, and the resale value of your property will increase alongside it. However, because you're in a new area, you might not be able to charge as much rent as you would in a more established area."
The other factors to keep in mind when looking for investment properties include:
* Future development: Areas earmarked for future infrastructure developments or urban renewal projects often see increases in property values. It's important to find out about the nature of these developments first, though, as not all of them will affect property values positively. For example, large factories will often have the opposite effect.
* Economic growth: Areas that are home to growing industries are always great options. Industry growth means more job opportunities and population growth, which means more people will need homes. This can have a significant positive effect on property values.
* Vacancy rates: Lower vacancy rates in an area are indicative of a healthy demand for property.
* Historical price trends: Before you purchase any property, for investment purposes or otherwise, you need to analyse historical price trends in the area. This will help you gauge the potential for your property to appreciate in value and help you set fair rental rates.
* Cash flow potential: You always need to weigh up if your rental income will be enough to cover your home loan repayments, taxes, insurance, maintenance, management fees, and other recurring costs. Otherwise, your investment will cost you money instead of earning you money.
Sadly, like any other investment, there is no guarantee that your property will increase in value significantly. In these cases, you should sell to increase your cash flow or to finance a more promising investment
Author: RealNet
