Buying a property is a long-term investment and its value generally increases over time, despite market ups and downs along the way.
Taking a one- or two-year view is financially myopic. Instead, the best plan is to live in the house for at least five or ten years to ensure capital growth and a healthy profit upon sale.
To ensure a profitable resale, you need to research the type of property that is most popular with the greatest selection of buyers. Generally, it shouldn’t be too big or too small and should have enough rooms to suit a modern middle-income family.
The key to making money from your property is to hold onto it until its value has increased to the point where you will make a profit on the sale. It will also allow you to pay off a large portion of your mortgage so that the outstanding balance does not absorb all of the gain.
First-time buyers are particularly prone to making short-term decisions due to affordability concerns. As a result, it’s easy to get caught up in an upgrading cycle that begins with buying a small apartment or townhouse soon after starting work. Then, when you get married or have kids a year or two later, you may feel compelled to move to a bigger house.
At this point, you will find that your bond repayments have only served the interest on the principal amount. Therefore, even if your property has appreciated in value, it will still take some time before you can sell for a profit. You will also have to pay transfer, moving and other costs associated with buying and selling a property.
Rather than selling your first property, it is often better to keep it and use it as collateral on a larger property while renting it out. If capital growth has been good, rental returns should make it an excellent long-term investment.
Before buying a potential home or investment property, first identify the resale value of the property. Think about the location and research the neighborhood you’re interested in before you even start looking for homes for sale.
Find out if there are any zoning, development, and security issues in the area. Consider infrastructure changes – good and bad. For example, the Gautrain in Gauteng has made it easier for residents of neighborhoods near train stations to commute to work further away from home. This has increased the popularity of some suburbs, which is a positive result. But you should also be aware of possible negative changes such as pervasive industrialization.
Carefully examine other homes in your chosen neighborhood to determine quality and maintenance standards. It is also essential to consider access to amenities such as schools and transport as well as the architectural appeal of a particular home. These factors add value to your property, making it more salable in the future.
Reliable real estate agents will tell you that buying the worst property in the best location is the best way to ensure that your property will increase in value over the years.
Ideally, look for a home with potential that won’t cost the earth to live up to average properties in the area. Keep in mind that installing an expensive kitchen and bathroom does not guarantee the highest selling price. Be practical and keep upgrades within your budget.
Other factors to consider are the size of the erf and the house – neither too big nor too small. Single-family homes with one or two bedrooms and a single bathroom tend to be less salable than those with three or four bedrooms and two bathrooms.
all along the line
Before signing an offer to purchase, you should try to estimate what the property you want will be worth in five years. Consider location, property type and growth potential. Also consider your current life stage and plan for the future accordingly.
And don’t lose sight of the importance of buying within a comfortable price range, to prevent your dream from turning into a nightmare if interest rates rise.