| Look at the budget before you leap |
Investment property can yield healthy returns -
but investors should budget properly for the ongoing costs of ownership
in order to calculate the real returns they can expect.
A common mistake among new investors is to overestimate
the income, or profit, they will make by only calculating rental
streams while they neglect to factor in maintenance costs and other
regular payments such as municipal rates and insurance payments.
So, before you leap to sign an offer to purchase,
do the sums. It is a good starting point to subtract the deposit
you can afford from the selling price to determine the size of the
bond and thus monthly repayments.
The next step is to conservatively calculate the
monthly rental you could reasonably expect in order to determine
whether it would cover the monthly bond repayments and if not, what
amount you will have to contribute monthly.
Then you need to determine whether you can afford
to subsidise the bond, and factor in other ongoing costs of ownership.
These include fixed costs such as insurance payments and municipal
rates, and maintenance costs, which can vary considerably, depending
on the state of the property.
Prospective investors should thus carefully inspect
the targeted property to determine what might need repairing or
replacing in the immediate future and then, even if it is a new
property that currently needs no repair work, plan to put aside
some funds for unexpected or emergency expenditure.
Next you should budget for management fees if you
are not going to deal with tenants directly and collect the rent
yourself, as well as maintenance staff wages, taxes, legal and bookkeeping
costs and advertising costs to attract tenants.
Only once you have totalled all these expenses
and subtracted them from the projected rental income will you arrive
at the net operating income of your targeted property.
And if you then subtract monthly bond repayments
and any levies, you will be able to calculate the actual annual
return on the deposit you paid to buy the property (which is your
investment).
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| Keep it simple for a quick sale |
Fancy buying that unique house with the perspex dome for a roof
so that you can watch the stars at night? Beware - you may get stuck
with your private observatory for much longer than you want, because
no-one else can get a bond to buy it.
Banks look at properties as security for home loans and are not
really interested in the aesthetics you may find pleasing - they
are primarily concerned about resale potential. And a home that
is so peculiar that it stands out like a sore thumb among its neighbours
will need a buyer with equally peculiar taste. Which of course means
that it will be difficult to resell.
Even a home that is not quite so outrageous but that does not blend
well into the neighbourhood, such as a mansion amid ordinary middle-class
homes, may look like such a hard resell that lending institutions
refuse to finance it.
And even if you can afford cash to buy the property, the same principle
will apply when the day comes to sell and your buyer is looking
for finance, so you'll be stuck.
The same goes for home improvements. Most homeowners realise that
they are unlikely to recoup their costs for quite some time if improvements
push the value of their home far above the average property price
in their neighbourhood.
But if they fundamentally alter the home so that it becomes strikingly
different from its neighbours, they may be courting future disaster.
In fact, even unusual paintwork may lower the value of your home
- a potential buyer may be blind to the artistic value of a carefully
crafted trompe-l'oeil but very much aware of how much it is going
to cost him to repaint that wall a nice, plain cream.
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| Driveways - the new front door |
Kerb appeal is the traditional watchword for homeowners
who want to sell their properties - and that means that your front
entrance should be welcoming and appealing.
But these days increasing numbers of homes are
hidden behind six-foot walls and visitors' first glimpse of your
home is the entrance gates and driveway instead of the front door.
And for many sellers that could be a problem. While
developers nowadays pay more attention to driveways, especially
in high-density complexes where they form part of the hard landscaping,
older properties often have ill-defined examples. Sometimes they
are little more than two dusty tracks with an unruly 'middelmannetjie'
or a dull expanse of concrete with weeds growing in the cracks.
So here are a few ideas to upgrade your driveway
if you want to increase the value of your property or make it more
appealing to buyers:
- A layer of gravel is probably the cheapest option and can look
neat if edged by bricks or concrete to contain the stones. It
needs a fair degree of maintenance.
- Tar and concrete may be visually unappealing, but both are
durable and can be enhanced by creating an 'avenue' by positioning
large shrubs or small trees along the verges. Strategically placed
pots with bright annuals are a quick fix to make a dreary stretch
of concrete or tar look more inviting.
- Crazy paving is not beyond the scope of the average handyman
and is a cost-effective option if you can lay your hands on a
sufficient supply of broken bricks.
- More expensive options include neatly laid bricks, pavers and
decorative surfaces laid by contractors specialising in hard landscaping.
But whatever you choose, remember that it pays
to match the style of the driveway to the style of your house and
that all surfaces require a measure of maintenance, even if it is
just an occasional sweep.
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| Viewing vacant land as an investment |
With the world's financial markets in turmoil,
more and more investors are taking a second look at property, traditionally
viewed as a safe haven in times of uncertainty.
And there is more to investing in property than
just buying rental units with the attendant worry about finding
suitable tenants, collecting rents and maintaining your asset. One
option is to buy vacant land and wait for value growth.
Buying land is not that different from buying built
property and if you plan to apply for a bond the bank will still
want to make sure that there is enough underlying value. Choosing
a stand or tract of land also requires some research. Aspects that
should be taken into account include location - as with other property
- future development plans in the area and zoning.
Coastal, mountain and river-frontage property can
be a keen investment as such areas are targets for lifestyle developers
and buyers looking for a piece of land to build a holiday getaway.
Land on the outskirts of fast-developing towns
and cities may be another good bet. Keep in mind that such land
is often zoned for agricultural or light industrial use.
Even land out in the sticks may turn out to be
a profitable investment if you are prepared to hang on for the longer
term - land is becoming a scarcer commodity and the scarcer it gets,
the more values grow.
Other issues that should be borne in mind are mineral
rights and rates and taxes. The latter is payable on most vacant
land, although it is likely to be much lower than on developed land.
And property on which a mining company, for instance, holds the
mineral rights may be more trouble than it's worth if the company
decides to take up its rights and start mining.
Also keep in mind that even vacant land needs maintenance
such as keeping grass short, especially if the property is in a
residential area.
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