18/08/2024
Property investment in SA 2024: 5 Tips for generating profit
1. Buy-to-let is the bread and butter of property investment
Buy-to-let is the go-to option for investors, allowing you to generate monthly income from properties in your portfolio. That’s not to say there are no risks involved, but with careful planning, buy-to-let provides a reliable source of revenue in the long-term.
If the property is bonded, at the beginning, you’ll be using the rental income to pay off the bond on the property, as well as whatever other expenses go along with it, such as maintenance costs.
The potential rental yield will be your primary concern when determining whether to invest in a property. The yield is simply the annual rent you’re earning on the property divided by its value, expressed as a percentage. So a house worth R1 million, on which the annual rent is R120 000 (R10 000 a month) would be yielding 12%.
You can get an idea of prospective rental yield on a property by looking at rental prices for other properties in the area.
One-bedroom and studio apartments make for a good buy-to-let investment, as those property types have delivered consistently over the course of 12 years. (source)
If you’re targeting the growing millennial market, you need to know what millennials are looking for. Desirable features include good internet connectivity, and proximity to gyms and coffee shops.
2. Buying and renovating properties to boost value
House flipping is a common practice, where you purchase a low-value property and fix it up in order to boost its value and sell at a profit.
Kitchen renovations are most effective at boosting property value, as kitchens sell properties. However, they can be expensive.
Bathroom renovations provide a relatively cheap way to enhance the property’s aesthetic appeal.
Location is important. Buying a low-value property in a good location, or an up-and-coming suburb, is an especially effective form of investment.
3. Get inside information on the property market
Property investors need to stay abreast of trends in the property market, which can be affected by political and economic factors
An estate agent can advise you on property trends, such as the average value of properties in a certain area.
As of 2022, examples of current trends include:
In the post-pandemic era, larger properties in remote, scenic areas have become a sound investment, as many people have become accustomed to working from home and spending more time at home.
Sectional title properties are performing well due to the desire for security and a sense of community.
Properties on retirement estates are in high demand, as life expectancy for South Africans is increasing.
4. Diversify your portfolio
Don’t allow yourself to become too fixated on certain property types or areas. Investing in a broad range of properties, spread across different areas, will make your portfolio less susceptible to market fluctuations.
Commercial properties actually offer a higher return on investment than residential properties, but are more of a challenge to manage.
Commercial property types include retail buildings, industrial buildings, office complexes, warehouses.
Mixed-use properties, meaning properties that include residential and commercial elements (such as gyms and coffee shops), are on the rise.
5. Get the best deal on your bond
In most cases, you’ll need to obtain funding before investing in a property, which usually comes in the form of a home loan granted by the bank. However, each bank has different lending criteria, some of which may result in more favourable interest rates for you.
It pays to shop around for the best deal. This is made easier if you acquire the services of a home loan comparison service such as ooba Home Loans, who can apply to multiple banks on your behalf.
Ooba
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