Property market conditions might still be great for first-time buyers, but more people should be taking advantage of them to start an investment portfolio.
And investing in property does not only mean buying with the intention to let, although this is still the most popular reason. Current conditions, with low-interest rates, mean aspiring investors could purchase a second property for personal use, or even look at flipping it, which entails buying a property in need of TLC, renovating it, and then selling it for a profit.
Aspiring homeowners who cannot afford to buy in an area where they would like to live could also consider buying a property in an area they can afford, letting it, and using the rental income to pay their own rent in an area where they want to live.
Whichever investment method you prefer says Grant Smee, managing director of Only Realty, not enough people are taking advantage of the lower interest rates to buy investment properties.
“The market is still very much driven by first-time buyers, and homeowners either relocating, upgrading their homes, or moving for lifestyle and convenience options.”
Most of those who are investing are either looking at the long or short-term rental market, the choice of which is made based on the property’s location.
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“Areas that are popular for short-term rentals are busy coastal hubs as well as business hubs facilitating regular business travel.” Investors obtaining holiday homes or buying for the purpose of flipping, he says, only make up a small portion of the general property market.
However, in areas like the West Coast of the Western Cape, the Garden Route, the Eastern Cape outside PE and East London, and KwaZulu-Natal’s South Coast, “a significantly larger proportion of property purchases would relate to holiday home purchases, although these markets would still be driven by semigration”.
Ultimately, property is still seen as a lucrative asset class and with properties selling at attractive prices, many investors are cashing in. “If financed correctly, property can become a great source of passive income.
“In other cases, some want to purchase a holiday house for use at the end of the year, but want to derive income from the property when they aren’t there – so they opt for short-term letting,” Smee says.
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Echoing this, Paul Stevens, chief executive of Just Property, says the most obvious reason people invest in property is to create another income stream, such as buy-to-let.
In this space, there are residential and commercial options, as well as short and long-term options. “Another reason to buy a property without intending to live in it is to rezone or refurbish. With shifting working arrangements as a result of Covid restrictions, this is something worth investigating in your area.
“Shared workspaces where people can ‘hot desk’, and the increased demand for homes that allow for established remote working, provide opportunities.”
He says rezoned and/or refurbished properties can be sold or rented for a profit if they are well-positioned, well-equipped and well-priced. Property investor Ben Malapile states that, of the approximately 6.6 million residential properties registered at the Deeds Office, just over 3.3 million are occupied by tenants.
This shows just how popular buy-to-let property investment is. In addition to intentionally buying property to let to create an additional income stream, some investors enter this market as a result of their circumstances.
“Some buy a starter home and, when the family grows, they decide to keep that home and let it. Some inherit properties from their parents, maybe try to sell, but struggle and end up renting them.”
As a result, he says the property investment market is made up of a large portion of unintentional landlords. Most landlords – intentional or not – prefer the long-term rental market.
“Only about 10% actually have the capital to commit to buying and running a short-term rental or owning a holiday home and running a short-term rental when they are away.”
Buyers of second properties bought as personal holiday homes are normally directors and shareholders of successful companies and other high-net-worth individuals, Malapile adds.
A higher number of investors – about 10% – buy with the intention of flipping. This, he says, has been spurred by the number of property-flipping shows on TV. Another reason people might buy property without intending to live in it is when they purchase for someone else, like children, parents, siblings, spouses and in-laws.
“Some buyers purchase farms and agricultural holdings to farm and sell their livestock but have no intention of living on them. “Some buyers also buy property to let it to students as fully/semi-furnished student accommodation,” Malapile says.
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