Over the years I have seen different people from all walks of life cashing in their retirement packages before they retire with the aim to use the large sum cashflow from their retirement funds to build rental units in bulk. Some have invested all their retirement money in these units which is not a bad idea as we all have been informed that property is a good investment. Property is a very good investment but it depends in which area you are investing in. Most people spend millions investing in rental units without analysing the market trends of the area they are investing in and investigating what is the going monthly rental income rate. The rental amount of a property is determined by the market trends of the area, the supply and demand, and the preferences of tenants. I have seen some people build rental units in areas where there is no demand or need for those rental units, either because people do not have a need for those units or the market is too overpopulated with rental units, in which the market is not enough for all landlords to get a piece of the pie.
Consulting a area specialist real estate agent is very important when you are going to invest in property because they have knowledge of the area, its market trends, the annual growth rate of property prices and what is the future for the area. Before you make a 20-year commitment towards acquiring a bond with the aim of investing in property first sit down and do calculations of all costs involved. Buying a property with a purchase price of R850 000, with the bond repayment costs of R6718 per month for 20 years at the prime interest rate of 7.25% and the market rental amount in that area being R5000 per month is not a good investment. It means that out of your pocket you will have to pay R1718, plus home insurance for the property and further maintenance costs for the property. This is not a good property investment. Some people would argue and say their property is a good asset investment. An asset is something that generates a positive inflow of cash. Before you make a property investment it is very important to do your calculations. Buying a property is a very exciting process but it needs a sober mind.
Another financial tool for first-time homebuyers to explore is the FLISP housing subsidy. It is beneficial to those who meet the requirements however some people do not explore this since they are not well informed of it. This money can assist you to reduce your bond repayment costs by a reasonable amount. This is like being given free money and you refusing to take it. Home sellers who do not want to hire a real estate agent to sell their home avoiding having to pay commission to a real estate and make more money is a very big mistake. A real estate agent guards the best interests of the seller and buyer. This is an open letter to sellers, a buyer of a property may want to do a private sale with you and they insist that they want to use their own attorney to transfer the property and with the seller having confidence in the buyer they agree to this, you are making a very big mistake. This can result to you never getting the proceeds of the sale of your property. This is directed to buyers, you doing a private sale with the seller is a very big mistake because you do not have anyone representing and guarding your best interest. A real estate agent is there to guard the best interests of both the seller and buyer. This is a open letter to the buyers and this knowledge I am going to give you is very expensive and not even money can afford it. When buying a property, either residential, vacant land or any form of land, the money for the sale of the property goes into the trust account of the conveyancing attorney and not the seller’s personal account. The conveyancer is the only person who has a mandate to control the funds of the sale of the property. If a seller requires a certain portion of the proceeds of the purchase price, this will be requested from the conveyancing attorney. The attorney will then contact the buyer and send a consent agreement confirming that the buyer agrees that the conveyancer can release the requested amount to the seller if they agree to the release of funds before the property is registered in the buyer’s name.
Most first-time home buyers when purchasing a property they insist that they want to do the home loan application with their own bank, this is another big mistake. When applying for a home loan, it is best to give the home loan application to a home loan independent company such as Better Bond, who will apply to all the major banks on your behalf. This allows the buyer the opportunity to compare the home loan offers received from other banks and this also increases your chances of getting a home loan. Going to only one bank, is limiting yourself. Major banks know that if they get a home loan application from a home loan independent specialist such as Better Bond, that Better Bond have also submitted to other banks, so the banks want your business and they will try give you the lowest interest rates than their competitors because they want your business.
Article was written by Nzuzo Dludla(Real Estate Agent at Ocebisa Properties)