Keep a cool head, even in a soft real estate market
The banks are keen to lend, homes are selling more slowly and owners
are keen to negotiate, so now is definitely a good time to buy, but
that doesn't mean you should throw caution to the winds, says Rudi
Botha, CEO of BetterBond, SA's leading bond originator.
"There are some golden rules for home buyers and investors to follow
- in any market conditions - and they risk getting stuck with a bad
investment if they deviate too far from these."
For a start, he says, buyers should by all means try to negotiate
price on a promising property but should in most cases avoid the
home that's on offer at a remarkably low price. "It may appear to be
the opportunity of a lifetime, but closer inspection before you snap
it up will probably reveal that it is in need of major repairs that
the owner cannot afford or is heavily encumbered in some other way."
Next, buyers should focus on location. "There is a much bigger variety
of favourable locations these days than there used to be, including
properties close to decentralised commercial hubs and those located
in self-contained estates as well as those in the tried-and-tested
central suburbs, but you should still focus on those where there is
good demand and prices are rising, rather than being tempted to buy a
property in a less desirable area just because is a 'bargain'.
"Falling into that trap is likely to cost you a lot more, in the long
run, than the savings you make on the initial purchase."
Third, says Botha, you really need to do your homework on pricing
before making any offer. "Get help from an experienced local estate
agent who can provide you with a comparative market analysis (CMA)
showing how many sales there have been in the area recently and the
actual selling prices of these homes, as well as the length of time
they were on the market and what their original asking prices were.
"And don't be embarrassed to walk away from a property if the results
of your research are less than favourable. As with any type of
investment, professional advice is very important if you want to
maximise your potential returns, but it is also vital to keep a cool
head and make your own decisions."
As for finances, Botha says that while cash might give you something
of an advantage in negotiations with keen sellers, it is probably not
the best idea at the moment to empty out your savings account and
spend all your cash on a property purchase, because the rate of
property price growth is generally lower than the rate of interest
you would get on that money in the bank.
"A much better idea is to consult a bond originator like BetterBond
and get pre-qualified for a home loan before you start looking for
properties to buy. This will also give you an advantage in negotiations
because it lets sellers know that you are a serious buyer and have the
financial means to complete the transaction.
"You can then use some of your cash to pay a deposit and qualify for a
lower interest rate on a home loan, especially if you apply through
BetterBond, which makes use of a multiple lender application process
to ensure you get the best available rate. This will lower your monthly
bond repayments and make your home more affordable while also cutting
the total amount of interest payable over 20 years by thousands of rand.
"By gearing the purchase in this way, you will only have a share in the
risk in the property but get all the benefit of any future growth in
its value - and you will still have most of your cash available for
emergencies, or perhaps to use as a deposit on a further property
Author: Veda Palmer