There are many ways to become a property investor. Picture: RDNE Stock Project/Pexels
If one of your New Year’s resolutions is to become a property investor and make 2024 the year you start to build wealth and create a financial legacy, it is never too late to take the plunge.
Even if you do not yet own a home, your first brick-and-mortar purchase can be with the primary intention of making money by renting it out and not for use as your primary residence.
With interest rates expected to stabilise this year before hopefully coming down, the market conditions bode well for aspiring property investors.
You need to understand though that, in the real estate world, there is a big difference between an investor and a homebuyer, so when you judge potential properties for sale, the way you plan on using it will dictate which criteria you use to choose the right one.
For example, says Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, those who intend to live in the home will need to find a property that suits their personal needs. Thus, they should consider factors such as proximity to their workplace and schools, future plans for family expansion, and other aspects concerning the overall functionality of the home.
“Investors, on the other hand, are more concerned with wealth creation, and should therefore consider things such as average annual house price appreciation, area demand, and rental prices in the area.”
Whether you are a buyer or investor, however, you need to consider that unless you plan to flip the property, most real estate investments are long-term investment strategies that can take at least five to ten years to mature.
“If the property you purchase is not your forever home, you need to remember that it takes a while to build up enough equity in the home to help you climb the property ladder. There are also various costs that you will need to cover when buying a new home – such as transfer duties, and bond registration costs, and selling the current home, such as compliance certificates, a municipal rates clearance certificate, and an agent’s commission.”
If your goal as a property investor is to set yourself up for future financial security, then Goslett advises against selling the asset prematurely before its value has had time to appreciate.
“Perform the necessary calculations on what to expect on monthly rental returns to make sure that you can afford to hold onto the home for around five to ten years before selling.”
Ways to become a property investor
It is important to note, however, that starting an investment portfolio does not mean you have to buy property to rent out. Aspiring investors could purchase a second property for personal use, or even look at flipping it, which entails buying a property in need of TLC, renovating it, and then selling it for a profit.
Alternatively, if you cannot afford to buy in an area you would like to live, you could also consider buying a property in one you can afford, and then rent that property out, using the rental income to pay your rent in the area you want to live.
Property is still seen as a lucrative asset class and, if financed correctly, Grant Smee, managing director of Only Realty, says it can become a great source of passive income. Sometimes, people buy holiday homes for use at the end of the year and then rent them out the rest of the time through short-term letting.
Areas that are popular for short-term rentals are busy coastal hubs as well as business hubs facilitating regular business travel.
Echoing this, Paul Stevens, chief executive of Just Property, says the most obvious reason people invest in property is to create another income stream, such as buy-to-let. In this space, there are residential and commercial options, as well as short- and long-term options.
“Another reason to buy a property without intending to live in it is to rezone or refurbish. With shifting working arrangements, this is something worth investigating in your area. Shared workspaces where people can ‘hot desk’, and the increased demand for homes that allow for established remote working, provide opportunities.”
He adds that rezoned and/or refurbished properties can be sold or rented for a profit if they are well-positioned, well-equipped, and well-priced.
Property investor Ben Malapile says the high number of properties in the country that serve as rental homes shows how popular buy-to-let property investment is.
Some investors even enter this market as a result of changed circumstances.
“They buy a starter home and, when the family grows, they decide to keep that home and let it. Some inherit properties from their parents, maybe try to sell, but struggle and end up renting them.”
As a result, he says the property investment market is made up of a large portion of unintentional landlords. Most landlords though – intentional or not – prefer the long-term rental market.
“Only about 10% actually have the capital to commit to buying and running a short-term rental or owning a holiday home and running a short-term rental when they are away.”
Buyers of second properties bought as personal holiday homes are normally directors and shareholders of successful companies and other high-net-worth individuals, Malapile adds.
A higher number of investors – about 10 percent – buy with the intention of flipping. This, he says, has been spurred by the number of property-flipping shows on TV. Another reason people might buy property without intending to live in it is when they purchase for someone else, like children, parents, siblings, spouses and in-laws.
“Some buyers purchase farms and agricultural holdings to farm and sell their livestock but have no intention of living on them.
“Some buyers also buy property to let it to students as fully/semi-furnished student accommodation,” he says.
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