Maximise your property investment
2014/10/26

"Property is a tangible, well-respected asset class, but as is the case with all investments, the key to maximizing profits is buying well and then ensuring that you sell well."

Some investors maintain the philosophy that you simply shouldn't sell property, and their method of operation is to collect and build an asset base without having to offload.

This is however, 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, 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 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-capitalizing - and then sell at a good price.

To achieve this goal, good 'bones' are also vital. It is 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 maximize 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. Your goal is to add some make-up without having to undergo a full face lift. This way, you minimize the time spent on upgrading the property, as well as 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 modernize the kitchen and bathrooms tastefully rather than extravagantly.

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 purchase in a buyer's 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 want to waste your time offering on these properties.

When seeking a good purchase, you also need to make yourself an A-grade buyer. 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 insurmountable 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 buyer 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 maximize that potential to ensure a good profit. This involves a cost-effective transformation that is quick and seamless, making the property present beautifully to a potential tenant or the next buyer.

Simple basics like ensuring that the property is well lit, bright and sunny, and painted in neutral tones can have a huge impact on the renting or selling price. Always ensure that the property appeals to the widest possible market, by creating a fresh, blank canvas so that tenants or new buyers 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 maximize your profits and capitalize 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 i.e. rental income, than a property in poor condition.

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.

Always buy a property in a prime area with great potential.

SA Property Investor