Investing in property the traditional way can seem intimidating - the whole process, with all the necessary legal processes and admin, is not an easy feat to accomplish. Especially for a beginner.
Financing
Even though this list doesn’t go in order of most important factor, financing (and leverage used) is quite pivotal. In the simplest terms, this informs your scope for investing when you invest in property the traditional way.
Home loans are a popular route to go when financing a property purchase, whereby a buyer would receive a loan from an institution to buy a property, and then pay that loan back (typically with interest in the SA context).
This factor is would vary from transaction to transaction since people can negotiate the loan, the terms of their interest repayment, etc. When securing your loan with a bank/reputable financial institution your income, earnings potential, and credit score are the most important factors they will use to determine your loan agreement.
Another subset of financing are budget considerations (bond costs, transfer fees, attourneys, etc). This deserves it's own entire article, because the peripheral costs to buying property are stress inducing in their own right.
Location, Location, Location
We recently covered the different components that determine a ‘good location.’ But not every home buyer and property investor has the privilege of choice to buy in the best of the best areas.
For instance, CBD rentals would tend to have higher rent yields and not that much capital growth (besides from places like Maboneng).
Invest to sell or to rent?
Deciding what to do with your property might be the first thing you do when deciding to invest in property.
You can buy a property with the intention to earn an income from it in the form of monthly rent payments that come to you, the owner/landlord.
Alternatively, you can buy property with the intention to ‘flip’ it and sell it for a profit. This is when an owner refurbishes or renovates the property to make it more appealing for the next buyers to buy it at a higher price.
Rentability
This is the sum of the parts above because the money and location (as well as other macroeconomic factors) tend to determine the tenants you get. Rentability indicates a property’s demand among potential tenants, which adds a less predictable and social element to the investment.
For instance, an expensive property to rent may not be as easy to find tenants for, as compared to a low-rent property in a country where the unemployment rate is high.
So, consider the price you set for your property, your location (population density is in that area), the property type, security, amenities, and how you’re advertising the property.
End Game (the gains)
This speaks to the long-term considerations when investing in property. Capital gain is just a fancy way of saying ‘profit’ when you ultimately decide to sell an asset.
Your property might be built with the same specifications as the one next door and bought at the same price, but the profits earned on it may not be the same ultimately. That’s because every property is different and comes with its own unique history, appeal, downsides, etc.
You can gauge profitability by looking at how other properties in the area have sold, what future developments are set to be built, the landmarks around the property, and amenities nearby as well.
And those are the basics to look out for. There are, of course, way more factors to look at, including calculations to employ, when assessing a prospective property.
The Alternatives
In 2020, EasyEquities made traditional property investing possible in the digital arena with the creation of EasyProperties.
The online property investment platform gives people the opportunity to invest in exclusive properties through fractional ownership of the units listed on the EasyProperties.
Investors can also gain exposure to property through REITs, buying shares in property companies listed on the stock exchange, or by investing in the entire property sector through exchange traded funds (ETFs). We highlight the differences between direct and indirect exposure to property here.
Have you seen the exciting properties currently listed?
To make investing through EasyProperties even more valuable and exciting, we continue to add more excellent properties onto the platform. We are super excited to show you these amazing properties, and we know you will fall in love with them just as much as we do because of the potential income they will provide.