SOME PROPERTY INVESTMENT INSIGHTS
Category Advice
In this article, our commercial division shares some thoughts on property as an investment class. Investing in residential property is generally motivated by one of the following three reasons: 1. as a home to live in; 2. as an investment with long term capital growth prospects and monthly income generation; 3. as a speculative transaction with short term retention and benefitting from the almost immediate capital appreciation that can be extracted.
When purchasing a residential property such as a house for investment purposes, the intention is normally a medium to long term hold so the property cycle in which you buy the property is not so critical. The important factors in this type of purchase are that the property is:
- Desirable - Does it appeal to other possible investors?
- Rentable - Is it located in an area where there is a rental demand?
- In a good condition - Is it dilapidated or require renovation before it can be occupied or rented out?
- Compliant - Are the property alterations or additions compliant with current municipal regulations - if not, the result can be costly redrafting of "as-built" plans and possible fines from the local authority.
When purchasing a flat in a sectional title scheme, it would be advisable to check the financial position of the body corporate as well as the body corporate rules that apply to owners of the sectional title flats. Some schemes don't allow short term letting, which could negatively affect its income-producing potential had you intended purchasing the property for short term letting.
When buying a residential property for speculative purposes, the timing of the purchase becomes crucial. The appropriate timing of such a purchase is when the property market is enjoying an upswing, ie. prices are escalating.
Some investors will buy a property requiring modernization with the intention of making a profit once this is done. Such transactions again will occur in a rising market as it is extremely difficult to buy a property requiring modernization, spend the capital required for modernization and then still make a profit in a stagnant property market or downward cycle.
For speculative property transactions timing is everything.
Author: J-P Questiaux