Property is a tangible, well-respected asset class, but as is the case with all investments, the key to maximising profits is buying well and then ensuring that you sell well, says Carol Reynolds, Pam Golding Properties area principal in Durban, Durban North and La Lucia.
She says some investors maintain the philosophy that you simply shouldn’t sell property, and their modus operandi is to collect and build an asset base without having to offload. “This is however, utopic, and is ultimately a luxury that only the wealthy can enjoy. For the most part, the average investor will have a dynamic property portfolio involving both buying and selling, with the ultimate goal of generating wealth.
“As a starting point, investors should ensure they buy well, namely make a sound acquisition achieving good value in a good area, so that at any given time, if they need to offload they will be able to do so at a profit. To this end, area is critical and it is better to find a property that has not yet reached its full potential. The idea is to buy a property that presents very poorly and needs some ‘TLC’, so that the property sells below its market-value. Area is critical, so you need to try and find the worst house in a good area, so that you can enhance it – without over-capitalising – and then sell at a good price.”
Reynolds says to achieve this goal, good ‘bones’ are also vital. It is very difficult to transform an ugly duckling into a swan, when the ugly duckling has really bad bones. Bad bones mean that the basics have been carried out poorly: for example: there is simply no flow and it is impossible to create flow because the house has been badly designed. Or, the property is positioned incorrectly on the site, and hence it is impossible to maximise the views or garden without literally demolishing the property and starting again.
“What you need to find is a property with great bones but poor cosmetics. Ultimately, your goal is to add some make-up without having to undergo a full facelift! This way, you minimise the time spent on upgrading the property, and you will minimise your costs. Often, all that is needed is a coat of paint, some landscaping in the garden and new light fittings. If you need to spend a bit more on the renovation, spend your money where it counts: open up spaces by demolishing internal walls, and then spend your money on the bathrooms and kitchen. Don’t overspend on high quality fittings as these are never fully appreciated – instead invest in creating good spaces and great flow and then modernise the kitchen and bathrooms tastefully rather than extravagantly.”
She says once you have found your ugly duckling, there are two other important factors that render a property a good buy. Firstly, you want to try and buy in a buyers’ market, where there is an abundance of stock and sellers are being forced to reduce their prices to compete in the market-place. If you have missed the boat and are in a more buoyant seller’s market, then you really need to be astute with your buying, as market conditions are not favourable for buying.
The second important factor is the motivation of the seller – irrespective of market conditions if you find a motivated seller, you will get a better deal. Ask your estate agent why the property is on the market. The agent will not be able to disclose everything to you due to client confidentiality, but will be able to give you an indication as to the reason for selling. Generally, sellers who are emigrating or getting divorced have to sell because of their circumstances. Conversely, those sellers who are simply testing the waters are not genuine sellers, and you don’t really want to waste your time offering on these properties.
Reynolds makes the point that when you are seeking a good purchase you also need to make yourself an A-grade purchaser. This means that you need to be able to make your offer as attractive as possible by putting down a deposit and ensuring that there are no conditions in your offer. As a rule, cash buyers are able to acquire properties at a better price because their offers are ‘clean’. As far as possible, avoid being a purchaser who needs to sell a property in order to buy, as this is not at all desirable to the seller.
“Once you have secured a good buy with great potential, your role as an investor is to maximise that potential to ensure a good profit. This involves a cost-effective transformation that is quick and seamless, making the property present beautifully to the next purchaser. Simple basics like ensuring that the property is well lit, bright and sunny and painted in neutral tones can have a huge impact on selling price. Always ensure that the property appeals to the widest possible market, by creating a fresh, blank canvas so that new purchasers are able to easily envisage their furniture in your tasteful space and themselves living in the home.
“Ideally, you want to time the process so that you acquire the property in a buyer’s market and then rent it out while you wait for the market to turn. As soon as the market begins its upward trend, you should then spend a month renovating it and preparing it for sale. With the right combination of market conditions and a fresh upgrade, you should be able to maximise your profits and capitalise on your investment. For a longer term view, it is recommended that you buy, renovate immediately and then secure tenants, and hold onto the property for as long as you can. A renovated property will always generate better returns ie rental income, than a property in poor condition.”
Concludes Reynolds: “The golden rule is to buy well so that you can unlock the potential of the property. However, don’t buy a property in its prime, as you will be paying top dollar – rather buy a property in a prime area with great potential.”