A seven-step novice guide to savvy real estate investing

For many, property investment is a stepping stone to financial security and wealth creation, says High Street Auctions Director Greg Dart, but it can also be risky for novice investors who dive straight into the deep end.

"The advice I always give to first-time buyers is that knowledge is power. The real estate industry is complex, so you need to understand and plan before you act - not the other way round.
"There are seven major steps to factor into your property investment strategy. Mastering these at the outset will save a lot of pain down the line!"

Step 1: Define Your Goals
Before diving in, identify your investment goals.
Are you seeking steady rental income to supplement your salary? Do you aim for long-term capital appreciation through property value growth? Understanding your objectives will steer your property selection and investment strategy.

Step 2: Be Numbers-Savvy
Think further than the initial cost of buying a property. Factor in ongoing expenses like rates and taxes, insurance, maintenance and (for landlords) potential vacancy periods.

If you plan to develop a property, factor the most effective cost strategy in advance including your equity stake, the availability and terms of senior debt to fund the project, and whether mezzanine financing is required.

Step 3: Rome Wasn't Built in a Day

Real estate is a marathon, not a sprint. While short-term gains are often possible, property investment is best viewed as a long-term wealth-building strategy. There will always be fluctuations in the market, but in the long run, property investments tend to offer significant returns.

Step 4: Build a Solid Financial Foundation
You need money to make money in real estate, which starts with a solid financial footing. If you need to borrow to buy your way onto the property ladder, a healthy deposit reduces your loan-to-value ratio. This makes you more attractive to lenders, which you can potentially leverage to negotiate a lower interest rate.

Focus on improving your credit score and save diligently - even if it means beans on toast for weeks on end.

Crucially, never buy at the upper limit of what you can afford. Ambition is admirable, but rising interest rate cycles can sink overstretched bond-holders.

Step 5: Research Your Market
Study the local property market to understand current trends, property values, rental yields and vacancy rates. Explore more than one area, considering factors like proximity to amenities, infrastructure, and tenant demographics.

Step 6: Learn from the Professionals
Don't go it alone. Attend property auctions to learn the process and actual market value propositions, then approach their reputable brokers or other specialists who know your target market. Their expertise can help you with everything from identifying properties that offer the greatest investment potential to navigating the complexities of the purchasing process.

It also helps to have an experienced financial advisor in your corner to ensure your investments align with your overall financial goals.

Step 7: Define Investment Strategies
Rental Property: This strategy generates passive income through monthly rent. Whether the investment is commercial, industrial or residential, careful tenant selection and property management are crucial for success.
Flipping: This involves purchasing a fixer-upper, renovating to increase its value, and then selling it for a profit. While potentially lucrative, flipping is a high-risk strategy for real estate novices. To flip successfully requires market experience, expert project costing, construction and design knowledge, and market timing skills.
Multi-Purposing: Versatile properties that can be repurposed to align with changing market trends are good value propositions that lower your risk exposure - especially during economic downturns. Flexible properties include warehouses that can accommodate one tenant or 10, studio apartment blocks suitable for short lets, long-term tenants or student housing, and neighbourhood retail developments where the tenant mix can evolve in tandem with consumer needs.
 

Dart says it's crucial for novice investors to remember that real estate success is a long game. 

"Building wealth through property rarely happens overnight so be patient, don't panic when the market fluctuates and be adaptable. Every balanced investment portfolio should include real estate. It's one of the most stable assets available and it offers significantly higher long-term return potential than more volatile investment classes.

"By setting realistic expectations, conducting thorough research and adopting a strategic approach, property investing can become your most powerful leverage tool to build lasting wealth.," says Dart. 

Arnold Maritz, Co-Principal for Lew Geffen Sotheby's International Realty in Cape Town's Southern Suburbs and False Bay, shared the main advantages of real estate investment.

Cash flow: Unlike many other investments, real estate has the ability to generate cash flow, either in the form of profit once you've paid off your mortgage or as rental income, whether from an income-producing flatlet on your primary residence or from separate properties. Cash flow from real estate is also far more stable and predictable than most other businesses.

Ability to appreciate: Generally, the value of properties appreciates with time which means that the longer you've owned property, the more it will be worth, making it the ideal nest egg.

Tax concessions: As a real estate operator, you're able to deduct items such as interest and maintenance over time as business write-offs.

It gives you leverage: By consistently servicing the mortgage, you have the opportunity to tap the equity that you have built up and if you own multiple properties or buildings with several units under one roof, you have the option to cash out at any time.

Loan pay-down: When you buy a property with a mortgage in order to rent it out, your tenant is paying at least part of the monthly bond repayment, which means your property is essentially a savings account that grows automatically without you investing very much more - if anything at all.

Hedge against inflation: When inflation increases, so does your rental income and often your property value as well. In other words, when the cost of living goes up, so does your cash flow.