The first step is to reflect on your motivations for wanting to invest in property and to grasp the risks involved. There are various factors to take into account that could influence your perspective on whether property investment is suitable for you.
The sad reality with Property investment is that you either have money available to buy a property OR you need to borrow from the bank.
The majority of people fit into the latter scenario. So what is needed upfront before you can even consider starting your property investment journey?

1) Deciding on your ownership structure

Before buying a property, you need to decide on what ownership option you prefer. We will discuss these three ownership options in a separate article but suffice to say, choosing the correct ownership option for your circumstances is probably the most important step in starting a property investment.

Tip: Consult a Property Management specialist to understand the pros and cons of the different types of options before you start your property investment journey.

2) Do you have a good track record?

Banks are in business to make money and accordingly will only lend money to people that they consider low risk. They are not going to take a risk lending money to someone with a poor track record.

What is meant by a track record?
This is the record of how someone has managed their finances, in particular how they have paid their clothing accounts, credit cards, cell phone accounts, etc.

Most credit bureaus have records of account payments together with the timing of the aforementioned accounts, whether they have been made timely or late.
A person who does not pay their accounts timeously will receive a poor credit score.

It is these credit scores that banks interrogate in deciding whether a person is a low or high-risk individual and accordingly, whether they will approve a loan or not.

Tip: Therefore a good tip for starting a property portfolio is to always ensure you pay your accounts timeously to ensure your credit score remains constantly good.

3) Having a stable income

The second component that banks look at when considering your loan application is whether you have a stable income. This essentially means that you are permanently employed and earning a constant monthly income of a similar amount.

Often banks will also consider your employment history to see how stable you are and whether you move from one Company to another. Banks prefer to see stability before granting a loan.

Tip: Try and build a good employment history to give the banks the impression that you are reliable.

4) Understanding the risks

Before starting your property investment journey, it is crucial to have an open mindset and understand the risks associated with Property Investment.

Don’t think that investing in property is an easy way of making money. There are risks entailed with property investment and is based on successful strategy, finding the right property, and a bit of luck in finding the right property at a good price.

Tip: Don’t have an expectation that Property investment will make you lots of money quickly. Returns from the property are usually realised over the long term.

5) Reserve funds needed

Before you even consider buying a property, ensure that you have excess funds available to cover the transfer costs and bond costs that you will need to pay conveyancing attorneys before you take possession of a property. It is not just having the means to make the monthly bond installment.

Tip: Have an idea of the property value you can afford by using bond and affordability calculators. This will determine what transfer and bond costs you will need to pay upfront following the pre-approval of your bond.

6) Understanding the effect of Interest rates

Interest rate changes can have a very influential effect on both your pocket and the economy. Before you invest in property ensure you ascertain in which interest rate cycle the housing market is currently in, i.e. whether the interest rates cycle is in an uptrend (increasing) or in a downtrend (decreasing). This is crucial as you may find yourself in a dire financial situation if you overcommit on a property.

Tip: If the market is in an uptrend and interest rates are expected to increase over the short term, factor a couple of increases in your affordability calculation.
This will safeguard you from cashflow shortfall when your bond repayments increase as a result of the increase in the interest rate.

7) Account for increased costs

Buying property comes with additional costs such as rates, insurance, repairs & maintenance to name a few. These costs will increase every year so you must take these costs into account when calculating what you can afford.

This element is often overlooked by people starting off their investment journey and could have a significant impact on your finances if not considered. It may even influence your ability to hold onto your investment property if you don’t account for future increased costs.

Tip: Similar to allowing for a couple of interest rate changes in your affordability calculation, add inflated future costs in working out what additional costs you may need to pay in the following years.

8) Understanding the risk of a tenant

If you have decided to buy a property to rent out, you need to be very aware of the risks associated with tenants. A bad tenant can be disastrous and may result in you defaulting on your home loan.

Tip: Don’t invest in the property market trusting that a tenant will pay their rent. The sad reality is if you don’t treat your tenant application seriously and with circumspection, you will end up placing a bad tenant who doesn’t pay their rent on time or at all.

9) Building up a reserve fund for repairs

Over and above factoring in inflated additional costs, you will need to build up a reserve fund to cover expenses relating to repairs and maintenance that you will at some point have to carry out on your property.

You may not necessarily need these excess funds initially especially if you have bought a new or recently renovated property but you don’t want to be exposed financially in the event of an emergency repair.

Tip: Set a monthly budget for your household expenses to allow for an amount to be placed into savings.

Once you are satisfied with meeting all of the above factors, then you are ready to start your Property Investment journey.