Kate Keeling, junior portfolio manager at TUHF, provides some much needed info on investing in property and expanding your property portfolio.
Briefly tell me more about yourself and your journey in property investment.
I studied BSc Architecture and BSc Honours in Real Estate through the University of Pretoria. I was then offered an internship at TUHF and have loved working in the property investment space so much that I have never looked back. I have been at TUHF since May 2016 and I am now a junior portfolio manager.
For those wondering how to buy/invest in their first property. Where does one start?
It is key to understand the market that you are wanting to invest in. For example, the old saying of “location is key” is still very true today.
The decision on location, or at least area, may be determined by your affordability, but it will also be strongly influenced by the demand in an area. With location, it’s also important to know the type of property you are wanting to invest in and the product you want to bring to the market; what makes it better or more attractive than what is already on the market.
In addition, before making any commitment or investment, you need to understand the income and expenses of the property you are looking at. Often people underestimate the costs of running a property, where not all costs are recoverable from tenants.
Once you’ve undertaken your market research and have a strong grasp of the above, also consider your personal capacity, expertise and experience – and if you may need to on-board some professionals to assist you.
What are some factors you need to consider before buying your first property?
As mentioned above, location is key and understanding your market and potential tenants. I think you must invest in an area that you are happy to manage in, a present landlord is always the most successful. Look at the expenses of the property; a good practice whenever it is possible to, is to get your hands on a utilities bill to understand the ‘real’ costs, rather than working off estimations. Also understand other costs such as security, maintenance, insurance, etc. to get a more all-encompassing view, which can then be compared to expected potential income from the property, to assess if it is viable (ie does it support itself), or profitable, as a sustainable investment.
Many first-time buyers are not aware of transfer costs and transfer duties. What are they and what is the difference between the two?
The transfer duty is a tax payable to SARS – and is calculated based on the value of the property. Buyers are liable for transfer duty fees for all types of properties over R1 million.
Transfer costs, on the other hand, are the costs for transferring the property into the buyer’s name, this includes conveyancer’s fees and bond registration.
What, if any, ‘hidden costs’ should one be aware of?
Perhaps not hidden costs, but there are additional costs involved with buying property that some investors are possibly not aware of, or underestimate, initially. These can include, for example:
- Transfer costs and bond registration costs, which are often more than people anticipate.
- If you plan to do any construction and/or refurbishment on the property, it’s good practice to always allow for a contingency, as there will be something that may have been overlooked in the initial costings, snags or potentials delays, which also may cause a delay for letting the property. And during this refurbishment or construction period your loan will need to be serviced or there will be capitalised interest added to your loan.
- Letting your property takes time; your instalment will be due with your funder and you may not be fully let. In saying this, finding the right tenant is important.
- Running and maintenance costs, as although you recover some costs from the tenants there are generally some costs you don’t recover. Some examples of these can include: general upkeep of the property, cleaning and maintenance; electricity and water in communal spaces (for multi-unit, multi-tenant properties); insurance; rates and taxes; security.
After buying your first property, how do you go about expanding your portfolio?
I think it is important to get your first property up and running properly before moving onto your next project/investment. This means making sure your property is self-sustaining, and ensuring you feel 100% comfortable from a finance and capacity point of view before making another commitment.
You will also learn a lot of lessons from your first property and carry these into your plans for the next property. And although you maybe want to diversify the area or the property type, just remember that when managing multiple properties, it is easier if the properties are close to each other – particularly if you want to be a present landlord – and you already have inside information in the market you are invested in.
Any other tips or advice?
COVID-19 has taught us a lot, not least of all that you can’t plan for everything. But what we have learnt from our clients, as landlords and their approach to their tenants, is that if you are proactive when something does happen, it will soften the blow.
We have seen landlords who have been very proactive during this pandemic and they are recovering quicker from any financial knock-on effects of the economic impacts of the pandemic and the lockdown measures, than for example other market players who perhaps haven’t stayed engaged with their tenants and been present at their properties.
This experience has also shown that it is very important to vet and get the right tenant into your property to begin with, but then to also build a strong relationship with your tenants. As, while the current circumstance surrounding the pandemic are unprecedented, having a strong relationship can help see you and your tenants get through any future tough times together.
And, if you are using a property management company, or planning to, ensure they are proactive and responsive to you and your tenants in situations.