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When to buy property
Property 24.com
19 January 2009
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Like I've been blessed with some insight into the vagaries of the market or have some extra knowledge that gives me a better clue than the rest of you.
The truth is I don't have a clue and frankly neither does anyone else. The clever economists (or soothsayers if you prefer) make forecasts about the market by observing trends and using those trends to tell us what's happening. They also collect valuable information and data about the economy, property sales and prices, wages and salaries and all manner of things and then extrapolate their opinions from these figures and statistics.
Soothsayers take an "educated guess" whereas you and I just guess. So it's probably worth listening to soothsayers too.
My answer to the question when to buy a property is more simple and probably more practical that an economist's answer. Buy property when you can comfortably afford to do so. Buy when you are relatively certain that you won't have to stress about, fret over or make idiotic sacrifices to pay your bond. Buy a property when you've actually got enough cash to pay the transfer costs, the bond costs, the legal fees, the removal costs and the new deposits that are required.
Because buying any property is always an expensive exercise and you always need cash.
If you're considering buying as an investment (the much-touted buy-to-rent option) make sure that the primary property (the one you live in) is paid off or has such a small bond on it that it's insignificant. Property will always appreciate over time and that's one of its magical attractions. But the chances of making a quick, sizeable profit in the space of a year or two have reduced dramatically with the rising interest rates and a higher cost of living.
I know there are many stories of people who have made a "killing" by buying and selling a property quickly but those stories tend to be the exception rather than the rule. There are many, many more cases of people who have lost everything because they haven't been able to maintain their bond repayments.
You can, if you have the available cash and the necessary income, join the flocks of vultures that are currently swarming around property auctions looking for bargains repossessed by banks. Once a home is repossessed, all the bank wants to do is get shot of its liability and sell it on to someone else.
For banks, empty houses are a real pain because they must be maintained and protected (against looters, vagrants and squatters) and this costs the bank money so the quicker they sell it the better – and sometimes banks will actually accept ludicrous offers for such properties too.
If I was sitting on a pile of cash right now I would be scouring the repossessions market for bargains myself. But I would be very discerning about the property I chose. You see the reality is that if a family has run into financial difficulties then one of the first things to go out of the window is maintenance. So the chances are that the house was not properly maintained while it was occupied and, because it generally takes about six months or more for the legal processes to take their course, the house becomes even more dilapidated as time goes by.
When you see a property on auction you'll often find that the garden is in an appalling state, the pool is probably green and mosquito-ridden, there may be all manner of pests and rodents around the land, the interior is probably filthy and all routine maintenance has been ignored for months. You then have to factor into your calculations what you'll need to do to make the home habitable again and you will probably need to pay contractors in cash to fix up the property too.
If you're planning to rent it out rather than live in it yourself then you must investigate the prevailing rental rates in the area you've chosen. Rentals are determined by the market and a house that stands empty is as much a liability for you as it is for a bank, so before you put in an offer, work out what rental you realistically can expect to get. Then all you'll have to do is find a reliable tenant.
That's not as easy as it sounds. You see, many experienced landlords and estate agents will tell you that tenants can often be scoundrels who will leave you high and dry at the drop of a hat. Most tenants are well-informed about their rights and they know that once they have occupation of a property it is difficult or impossible to actually evict them.
The eviction process has become so extremely complicated over the years that it is really difficult to evict someone. There is a whole litany of legal requirements that must be met before you can execute an eviction order against a non-paying tenant. And, non-paying tenants are a real risk when you have an investment that must be let to meet the bond repayments.
Worryingly, it seems, many agents and landlords have now resorted to using thugs to collect outstanding rentals because the legal process is so arduous. They'll simply threaten to beat a defaulting tenant to a pulp unless he or she pays up.
I know of cases where some people have actually been severely beaten by a landlord's thugs and the landlord has landed up in jail. So threatening to break a tenant's knee-caps is not a realistic option either.
Another legal option of exercising a lien on a property where rental is owed also seems to be of little value. One legal boffin told me that a lien provides no protection because a tenant can actually pack up and leave (after the lien has been served) and then simply pay an admission of guilt fine for defying a court order.
That's particularly worrying for a landlord who's owed thousands in unpaid rent.
So if you are buying-to-rent you must choose your tenant very carefully and go through a detailed check of the information supplied to you before signing a lease. That way you may find a tenant who is not a scoundrel. You may have someone who is a pleasure to deal with, who maintains the property properly and who pays the monthly rental on time and without fuss. They do exist out there – it's merely a question of finding them and it's always much harder to find a good tenant than a bad one.
In summary, when is a good time to buy? When you can comfortably afford it. What should you buy? The options are manifest and investigation is the key. Should you buy-to-rent? If you are reasonably certain that you can find a tenant (a good one) who will pay the price you want and pay it regularly and on time.
In short, understand that property is always a long-term investment. If you want a snappy, quick return then withdraw several thousand rand from your bank account and head for the nearest casino.
Win or lose, it'll happen quickly.
*Hartdegen writes a regular column for Property24.com. The content of his columns constitutes his personal opinion and don't pretend to be facts or advice. Contact him at paddyhar@telkomsa.net. |
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