Interest rates are likely to start entering a downward cycle later this year, which is a good sign for home buyers and investors.

This is according to Carol Reynolds, area manager for Durban Coastal at Pam Golding Properties.

Reynolds said if investors could secure an investment now and get the numbers to work within your budget at the current interest rates. She said investors and property buyers could seize the opportunity to purchase now before house prices start increasing.

According to Reynolds, as soon as the cycle turns, people will reap the rewards of the declining interest rates and enjoy greater profitability.

“In many areas, it is still a buyer's market, which means you have the benefit of a good selection of homes to choose from,” Reynolds said.

“However, some words of advice - be careful that you don’t over-capitalise, ensure you have sufficient funds to cover maintenance and any period when your property is sitting vacant, and seek high-demand areas where there is low supply.”

Property investors

Location and rental returns are the most crucial factors for people that are looking to invest in property.

A good location will offer you good capital growth and sound returns instead of an area that is not very appealing nor well-positioned where you will find yourself with very little appreciation over time and low demand from tenants.

“If you are purchasing an apartment, invest in a good, solid apartment block with healthy financials and a well-managed body corporate,” Reynolds said.

For those who want to try the short-term letting market, then they should invest in popular tourist hubs where there is ongoing demand for holiday letting.

She said the corporate market was another great market worth pursuing.

“Owning residential properties in commercial hubs where commuters are in abundance will also ensure ongoing rental demand among employees and entrepreneurs.”

Property investors that are looking for a more stable investment with long-term letting potential, then buying in an area where properties are generally in short supply is a good rule of thumb because tenant demand is high so you would be able to secure a tenant quickly.

Property investors that are investing in the student market will benefit from parents being the people that sign the lease and they will stand as surety for the monthly payments, which minimises your risks as an investor.

Students also move on and vacate which lowers the risk of unlawful occupation.

Residential property

Reynolds said that when it comes to residential property is essential that you determine your ultimate strategy, whether it is to build a portfolio to hold in the long-term or to renovate and flip.

“For flipping, a 20% deposit works nicely provided your renovation time-frames are short so that you minimise your holding costs. The finance costs will need to be factored into your profit on the flip, and ideally flipping should entail cosmetic changes where no plans are necessary for a quick turnaround time,” Reynolds said.

“Transfer costs as well as profit margins need to be carefully considered before entering the flipping market. The most critical factor is buying well - essentially, you need to find a renovator's dream in a good area where there is no price ceiling. This will give you the space and grace to avoid overcapitalising.”

For long-term investing and holding, Reynolds said that there needs to be a small shortfall each month which assists with tax liability.

“For example, if your goal is to buy multiple entry level properties that do not attract significant transfer costs, then each unit could be geared with an approximate 30% deposit and a 70% loan-to-value (LTV), with a view to achieving a return of around 6% or 7% which will result in the rental amount almost covering costs, but not quite, leaving a monthly shortfall which can then be offset against your annual tax liability,” Reynolds said.

Reynolds suggest that people buy entry level properties around the R1 million to R2 million mark as transfer costs are significantly lower at this level and rental returns are usually higher in this price band.

If this is your first step into the buy-to-let market, it’s best to start with one small property and a deposit of approximately 30%.

Do your market research and ask local estate agents what rental returns you can expect to get on the property. Once you know how much rent you can expect, you can reverse engineer the numbers to ensure that you can afford the small shortfall each month.

“Alternatively, you could delay the purchase until you have managed to save up for a slightly higher deposit, which will then enable you to do a 50% LTV in which event, the monthly rent should cover your costs in full,” Reynolds said.

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