Praven Subbramoney, CEO of Private Bank Lending at FNB, says many inexperienced investors often get it wrong when choosing the first few rental properties, which is both costly and not ideal when starting to build a portfolio.
He points out five mistakes to avoid when choosing the right rental property:
Try and avoid falling in love with the property. Rather weigh its potential to attract quality tenants. Don’t look for features that appeal to you, but the market you are targeting.
Talk to different property agents and view a minimum of five properties or units in the area before making your final decision - unless you are taking advantage of a good deal.
Also let the agents know that you are buying an investment property and will be exploring a few options. This will help you make an informed decision and also negotiate a good price.
Cost of maintenance
Before buying your investment property, it is essential to establish the type of maintenance required. The idea with this property investment strategy is to make as much money as possible from the rental income, while avoiding ongoing expenses such as outsourcing maintenance.
For example, it may be more practical to go a low maintenance unit like a flat or cluster, instead of a standalone house. However, if you are buying a house, it is important to get an expert to thoroughly inspect it for visible and hidden defects that may be costly to repair.
Investigate rental yield
Don’t just take the agents’ word about how much tenants are likely to pay for rent. Do your own research and find out how much other properties in the area are being rented out for.
In this case, you risk ending up with a low rental yield and low capital growth property, which will cost you as you may have to re-sell it.
Talk to experts
Don’t be reluctant to share ideas and seek advice from experienced property investors. If possible, also join credible property investment groups. Taking advantage of advice and learning from the mistakes of experienced investors will go a long way in helping you to succeed.
“After selecting the right rental property, the second most important thing is to consider is how to finance the investment,” adds Subbramoney.
Investors who are planning to build a sizeable rental portfolio can get more value from a structured loan which provides secured finance for larger property acquisitions, allowing them to borrow against mixed collateral such as a combination of property, shares, cash or investment portfolio in order to take advantage of opportunities.
“A viable high rental yield property investment strategy depends on the rental income you get as well as access to capital. As a result, finance and skills required for selecting the right property are critical elements for success,” concludes Subbramoney.