The best guide to property investment for beginners

Have you been bitten by the buy-to-let bug? Here’s what you should know about property investment for beginners.

Property investment allows you to build wealth and secure your financial future. It’s an attractive option for any South African hoping to bring in passive income, build a portfolio of assets, and escape the financial hardship so rampant in our beautiful country. Property investment for beginners, however, is a daunting prospect. 

Samuel Seeff, chairman of the Seeff Property Group, states that rental property (in particular) can be a great investment if you buy in the right area and there is demand for the type of property (for example, apartments).  

Property Investment for Beginners: Top Tips

For first-time property investors, it’s important to understand the basics and to be aware of common pitfalls. From understanding the basics of the process to taking into account the risks and rewards, these tips provide guidance on property investment for beginners:

• Research the market thoroughly to understand the area and the local real estate trends. 
  
  
• Work with a qualified Property Practitioner to get the best advice. 
  
  
• Carefully consider the risks and rewards of each potential investment.
  
  
• Understand the tax implications of investment property ownership. 
  
  
• Prepare for unexpected expenses. 
  
  
• Hire a property manager to assist with rental and maintenance tasks.
  
  
• Stay informed about rental laws and regulations in your area. 
  
  
• Understand the importance of tenant screening and vetting. 

Property Investment for Beginners: Costs to Consider 

A guide to property investment for beginners would be incomplete without mentioning costs and the importance of planning for unforeseen expenses. Maintenance and repair costs, property taxes, insurance, and other fees can quickly add up and cause you to lose money on your investment.

Without a plan and a budget, your situation could go disastrously wrong. Consider the following costs before you invest in property: 

• Purchase Cost. You will need to accumulate sufficient funds to finance the purchase of the property. It is ideal if you can pay in cash, but if not, consider a mortgage loan. However, remember that you must still pass the credit and affordability checks. 
  
  Important note: Some banks offer buy-to-let products, but this can result in you paying a higher deposit.
  
  
• Rental Cost. Delve deep into the local area, pinpoint the rental hotspots and ensure your property investment is strategically placed to guarantee maximum occupancy. How much you charge for the rental will largely depend on the property’s location and the condition of the home. 
  
  Important note: Don't expect the monthly rental income to cover the mortgage loan repayment fully. 
  
  
• Maintenance Costs. You have to deliver the property in a habitable state to any prospective tenant. This will cost you, and it’s critical that you allocate a budget for maintenance and other repairs that may be required before, during, and after a tenant’s stay. 
  
  
• Transaction Costs. Transfer duty, attorneys’ fees, Property Practitioner fees, drawing up a lease agreement, and even vetting tenants can cost you. 
  
  
• Tax And Rental Investment. While you may be able to deduct certain expenses pertaining to your investment property, its rental income is taxable. You need to add this to your income on your annual returns. We recommend you consult a tax consultant and visit the SARS website to navigate this specific aspect of property investment.

Property Investment for Beginners: Your Responsibilities 

Are you wondering which of the above expenses can be passed onto your tenant? It's crucial that your lease agreement outlines who pays for what. Typically, tenants are responsible for rental fees and utilities, while landlords cover property taxes, levies (if applicable), and maintenance not caused by tenant negligence.

Here are two important considerations for you:

Landlord Insurance. As the owner, it’s your responsibility to insure the property itself. As for the contents, it's the tenant's responsibility to insure unless the property is furnished (in that case, you should insure the contents). 

Effective Lease Agreement. Ensure that your lease agreement provides for periodic property inspections with the tenant's permission. 

For extra peace of mind and convenience, it's advisable to enlist a Property Practitioner to manage the property, particularly if you're a novice investor or live far away from your investment property. A Property Practitioner can help you navigate the intricacies of property management and guarantee that everything runs smoothly. 

Property investment for beginners is daunting but exciting. With the right strategy and guidance from a qualified Property Practitioner, you can confidently begin your journey into the world of property investment. Seeff is here to help. For more guidance, read our blog on the best property investment tips for South Africans.