It is not uncommon for investors to buy a property without seeing it in real time. This is mostly because they are only interested in the property itself and not the improvements thereon. In Cape Town for example, an investor bought a beach front house for R8 million, demolished it, and built a new house to his liking.
But, not everyone has that much to spend on a new investment. Having a look at the property before you waste time planning your improvement project, could save you thousands, if not millions in the long run.
Real Estate Agents often get a listing, and a selling price from the seller. They also receive a bunch of pictures to show how nice the property looks. And often, they are too grateful for the listing, that they don’t go and have a look themselves. It also happens that the property gets advertised and stays on the market for three months or longer. During this period, things will change; things will deteriorate, as the seller is not going to spend money in the upkeep thereof. Afterall, it’s going to be sold soon.
What you see isn’t always what you get!
A nice Villa with a sparkling pool paints a rather pretty picture indeed and one would no doubt be lured to take a closer look.
In your mind’s eye, you envisage the kids playing in the pool, the cocktail parties you and your friends will have in the later summer afternoons, and not to forget the potential for rekindling that early life spark; skinny dipping at full moon.
It all invites you to get in touch with the agent to “find out more”.
What happens next, depends on the agent selling the property, and often it is nothing more than a sales pitch offering “great potential” an an exclusive area. Whilst this might be the whole truth, potential needs to be developed, which in turn, adds to the capital of your investment.
If you can buy at less than prevailing market prices on transfer, you may have some lee-way to spend a little on the property without the risk of over-capitalising. But if the margin is too narrow, don’t haste into any decisions as yet.
Go and see it for yourself. You may save yourself at least a few thousand rand before you organise that summer night cocktail party or house warming.
If you are going to upgrade the property in question, a viewing will definitely reveal the unseen costs you are letting yourself into and the ideal would be to reduce your offer with at least 50% of the cost you would have to add on top. Call it a quid pro quo trade-off.
“It is the middle point between what the seller thinks it’s worth, and it’s actual market value after improvements.” said Rudy Maritz, director at Cape Town based property investment company, The High Option Ltd. “Selling a property is an emotional event and is often also coupled with sentiment. One need not prey on these emotions to pick a bargain, but there are distinct realities in the property market one must never lose sight of, both seller and buyer. On the flip-side, there is also opportunistic sellers, particularly in sought-after places, where the “perceived value rule” is applied in pegging the asking price. The perceived value, is perhaps what a developer will be interested, but an experienced investor will not give it a second glance.”
Price to sell.
When selling a property, you first have to determine why you are selling. Are you selling because you have to? Perhaps you need to relocate to a new city or town. In worst case, you may have to sell because you are in arrears and the bank is threatening repossession. Or perhaps you just want to make a small fortune and hope to find a buyer with enough equity to wage a future value investment.
Regardless, if your asking price does not give you a sale within 6 months, you have to reconsider the following:
- Price too high for current climate
- Condition of property devalued itself.
Then you need to do a careful calculation. Will spending to fix it up give you a better price than just simply dropping the asking price?