Property Investment for Beginners – A Guide to Getting Started

Article summary:

• Hire an estate agent to advise you on the movements of the market.
• Buy-to-let is the bread and butter of property investment, but commercial property is also a lucrative option.
• Location is the most important factor and is dependent on your target market, the market, and what you can afford.

Property investment remains a reliable way to generate long-term profit, but many may be intimidated by the complications of the property market.

However, it’s not as complicated as you think. Experts say that you should get on the property ladder as early as possible, instead of getting caught in a rent trap.

With that in mind, we’ve prepared a guide to property investment for first-time investors, so you can take your first step into the property market with confidence.

Property investment for beginners: 5 steps to securing your first property

1. Know the market.
2. Know your target market.
3. Decide on a property type.
4. Location.
5. Acquire the funds.

1. Know the market

You’ll want to do your research before taking your first step into the property market. What kinds of properties are doing well? What is the average price for properties in the area you’re looking to invest in? Is it a buyer’s market or a seller’s market?

Hiring an estate agent can be a big help. They will be able to advise you on the ins and outs of the property market.

Interest rates

An important thing to keep track of is interest rates, as this will significantly impact what you pay for your investment.

As of November 2024, the interest rate is 11.50%. This follows an interest rate cut of 25 points in September 2024; the first cut in years. Experts predict more cuts on the horizon. Knowledge like this will help you decide whether the time is ripe for property investment.

2. Know your target market

Your target market will determine the type of property and location you should be looking at.

Are you targeting young professionals? You’ll want to look at mixed-use developments in urban areas with vibrant nightlife.

Retirees are a profitable market right now, as more people semigrate to scenic areas (particularly coastal areas) to enjoy peace and quiet. They generally prefer secular title properties on secure and peaceful estates with facilities close at hand.

Families usually prefer suburbs with proximity to schools.

3. Decide on a property type

Buy-to-let is considered the bread and butter of property investment. This means investing in a residential property and letting it out.

• With careful planning, buy-to-let provides a reliable source of revenue in the long-term.
• You can use rental income to pay off the bond on the property.
• You can estimate the rental income by looking at rental prices for other properties in the area.

But it’s not the only option. Commercial property is also a viable investment.

The earnings potential is significantly higher on commercial properties. The Capex rate in South Africa is currently +11% for commercial properties, versus 5-8% for residential properties.

However, most banks will only finance up to 75% of a commercial property purchase, meaning you’ll need a deposit of at least 25%.

Commercial properties also require more maintenance.

More about commercial properties:

Commercial property comes in many forms. They include:

• Retail buildings.
• Industrial buildings.
• Office complexes.
• Warehouses.

Retail properties are considered an especially promising investment currently. Retail properties made up 30% of commercial property transactions in 2023 / 2024. Data also showed that mall visits between January and October 2023 were up 3%.

Industrial properties are always a solid investment as they have longer leases and more committed tenants, and there is a high demand and low supply. Downsides include a limited tenant pool, significant maintenance costs, and the fact that owners are liable for injuries that occur on the property.

4. Location

Location is the most important factor when investing in property.

Points mentioned above, such as the target market and property type, play a role in this.

Of course, the movements of the market also determine what locations you should be looking at.

For example, it’s useful to know that the post-pandemic period has made the work-from-home lifestyle more prevalent. This means more buyers are looking for larger properties in remote, scenic areas.

How much will you pay?

When you research a location, you should look at the average price for which properties in the area have been sold, to get an idea of what you should offer.

5. Acquire the funds

The standard way to fund a property purchase is to apply for a bond from the bank.

The chances of the bank approving your application depend on your credit record, which is a summation of your financial situation

A credit record of at least 610+ is required to obtain home loan approval.

You can improve your chances of bond approval by applying to multiple banks. A home loan comparison service such as ooba Home Loans can assist in this by submitting your application to multiple banks. Some banks are more likely to approve an application than others.

It also gives you a selection of packages to choose from, some with lower interest rates than others.

So apply with ooba Home Loans to get the best deal on your bond.

Joint bond applications

Many first-time property investors take advantage of the joint bond application option, which is a bond guaranteed by at least two parties.

The additional parties agree to take on responsibility for paying the bond if another party defaults.

So you could invest with business partners, making the bond more affordable and more likely to be approved.

Find out what you can afford

Before investing in property, find out what you can afford by getting prequalified with ooba Home Loans.

We make the process quick and easy, assessing your credit record and providing you with an estimate of what you can afford.

You can get prequalified by contacting an expert at ooba Home Loans or by using our free, online prequalification tool, the Bond Indicator.