How to invest in property as a first-time investor: a crash course

Article summary

• Location is the most important factor when investing in property.
• Research the area you plan to invest in as well as current trends in the property market, and consider seeking the advice of an estate agent.
• Keep abreast of investment opportunities offered by new developments, which are built with certain target markets in mind, and incorporate many modern property trends.

The world may be undergoing rapid change thanks to the rise of tech, but bricks and mortar remains the safe investment, as it has been for decades. And with a new generation entering the property market and the prospect of interest rate cuts in late 2024, now is a good time to invest.

How to invest in property: 9 tips for taking your first step onto the property ladder

If you’re looking to take your first step onto the property ladder, it may seem intimidating initially, but with the right advice, the mystery begins to unravel.

Here are some tips for first-time property investors.

1. Location, location, etc

It may be a cliché, but there’s no escaping the importance of location. This requires a lot of research on your part.

For example:

• Ensure the location matches your target market. For example, if you’re looking to target the younger market, look for apartments in neighbourhoods within walking distance of restaurants and cafés.
  Also bear in mind that young professionals are less likely to stay in the apartment for a long period, meaning you may have lots of phases where the apartment is vacant and in need of an occupant.
  If you’re targeting families, look for houses with lots of space and proximity to high-quality schools, hospitals, and other amenities.
• Consider whether the property caters to short-term or long-term rentals, as each has a different target market and thus different requirements. Short-term rental properties like Airbnb will usually be aimed at tourists.
• Check how many properties are available for rent. If there are a lot in your targeted area, it might mean that demand is low.
• Check the average rental rate in the area to get an idea of what you’ll be able to charge.
• Check the crime levels in the area.
• Speak to people in the neighbourhood to get a first-hand account of what it’s like to live there.
• An estate agent is a vital resource for finding out which areas have the most potential for growth.

2. Get your financial situation in order

You’ll want to offload as many debts as you can so they don’t weigh you down during the property investment process, whether it be credit card debts, student debts or other loans.

This will have the additional benefit of improving your credit record, making it easier to have a bond approved.

If you’re still paying off your home loan on your first home, it helps if you’ve paid off a significant portion of that, although you don’t need to have paid off the entire loan.

3. Research property trends

Take the time to understand current trends in the property market.

For example, the last few years have seen a succession of interest rate hikes, but as of July 2024, the South African Reserve Bank has left the interest rate untouched over the past, and experts predict interest rate cuts in late 2024.

Such trends also play a role in choosing where to invest. It’s currently a buyer’s market in more high-end areas, as lack of demand has led to price deflation. As an investor, it’s up to you to weigh the advantages of lower property prices in the area versus the disadvantages of lowered demand.

Trends apply to lifestyle as well as economic factors. For example, if you’re targeting the younger market, you need to bear in mind their preferences, which currently favour micro-apartments in buildings that include gyms, restaurants and communal facilities like swimming pools.

This in turn affects the property market as we see an increase in micro-apartments in suburbs close to the CBD.

Again, an estate agent can bring much knowledge to bear with their in-depth knowledge of the property market.

4. Inspect the property

Ensure the property is in good condition. First-time investors shouldn’t opt for the strategy of buying a cheap property in poor condition and increasing its value by fixing it up.

As your first property investment, you’ll want to keep it simple and focus on buying a property that won’t have repairs and maintenance eating into your budget.

In the case of new developments, property inspections will not be possible, but you can still focus on the location of the property, and check the developer’s website to find plans.

Tools like Google Maps can be useful for understanding the location of the property in relation to nearby amenities, such as schools and hospitals if you’re aiming for the family market, or activity hotspots if you’re aiming at young professionals.

5. Prepare for the responsibilities of being a landlord

Remember that, as a landlord, keeping the property in good condition will be your responsibility, and you have to be prepared to handle problems on behalf of the tenant.

Ensure you’re ready for the responsibility of running a property until you get to the point where you can have estate agents act as the buffer between you and the tenant.

It’s recommended to set aside resources for potential repairs and maintenance.

6. Keep abreast of new developments

New developments provide great investment opportunities, as they’ll be built with current property trends in mind and the needs of their target market.

Another advantage of new developments is that you don’t have to pay transfer costs, as a purchased property will have VAT paid on the purchase price by the developer.

7. Bear in mind tax implications, levies and other costs

Look for costs that are tax deductible when you invest in property. For example, if you’re renting out a property, be aware that costs which generate rental income — such as levies, repair costs, and insurance premiums — are all tax deductible.

Take into account expenses that depend on the type of property you’re purchasing. For example, buying a sectional title requires you to pay rates and levies for the maintenance of the communal facilities, whereas a freehold property does not.

8. Be prepared to put down a deposit

100% home loans may be a good idea for home buyers, but not for property investors.

You want to reduce your monthly repayments and interest as much as possible so that you can profit off the rental rate, and putting down a sizable deposit will help you achieve that, so have a down payment prepared.

9. Slow and steady

Many approach property investment with dollar signs in their eyes, thinking of those who have become millionaires through successful investments.

However, a first-time investor should not be overly ambitious. Slow and steady wins the race, so focus first on acquiring a property that will grant you rental income higher than the cost of repaying the bond.

Once you’ve purchased your first property and made a successful investment out of it, you can focus on acquiring a second, then a third, and so on; gradually building up your portfolio.

Securing the bond on your investment

It’s advised you get prequalified before beginning the search for investments, so you’ll have an idea of what you can afford.

Furthermore, a home loan comparison service like ooba Home Loans can assist you with the bond by applying to multiple banks on your behalf, increasing your chances of finding a good deal that will maximize your return on your rental income.

So when you’re ready, apply with ooba Home Loans and get the best deal on your bond.