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Ensuring your property is an asset and not an expense

Investing in property is supposed to provide good returns. How can you ensure a property is an asset and not a liability?

Although property is classified as an asset, there is more to this than initially meets the eye. Assets are purchases that grow in value over time. No matter what the home cost initially – whether it was within the affordable price range or within the luxury market – if the home grows in value and is later worth more than it was initially purchased for, then the property can be considered as an asset.

“Purchasing a home is one of the most expensive investments a person can make. It is easy to feel like owning a home is more of an expense than it is an asset. However, homeowners need to take a step back and consider the long-term growth of the property to appreciate that it is, in fact, one of the sturdiest asset classes in which to invest,” Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett.

According to Goslett, the value of the property will appreciate or depreciate depending on several factors, including things such as the overall state of the market, development in the area, and the demand for property in the area. For second homes and investment properties, Goslett explains that not only will buyers need to consider whether the home is growing in value over time, but they should also consider if it is generating, or will one day generate a profit from the income it receives.

“While paying off the bond on an income property, it might not always be possible to generate a profit once one deducts all the relevant expenses, including items such as levies, rates and taxes, and the home loan repayments themselves. But, once the home is fully paid for, the rental income the landlord receives will be pure profit for the landlord to enjoy,” Goslett explains.

To ensure that the property has the potential to be an appreciating asset and not just an expense, buyers will need to do the research and make the right decision upfront. When selecting a property, Goslett encourages buyers to consider the location, which is a key element in the home’s potential for growth in value. Another aspect to pay attention to is the price of other homes in the area and how they have grown over the last few years, as well as any future development plans that may be happening in the area that could have an impact on the property’s value.

“A great way to assess an area’s potential for future appreciation is to look at the history of the area. By looking back, it is possible to some degree to look ahead. Most real estate professionals are able to pull suburb reports and can tell you how much house prices have appreciated in the area. Useless there are big changes happening in the area, it is a fairly safe bet to gauge the future appreciation potential of an area based on its past performance,” Goslett recommends.

Speaking into the changes that could impact future value, Goslett mentions that any upgrades to infrastructure or the development of new amenities will positively impact the appreciation potential of the homes in an area. “While it depends on the facility, the introduction of something like a mall or a popular coffee shop can boost property values as it offers convenience to the residents. Because many potential buyers look for a property with education in mind, new schools will have a greater influence on property values than shopping malls. A good school that offers an exceptional education will increase demand for property surrounding it, which will push property prices up,” says Goslett.

Ultimately, the success of a property investment is linked to the decisions made at the start of the purchasing process and not when the property is sold. “To ensure that you purchase an asset that grows in value over time, you need to do the research and involve an experienced real estate professional whose advise you can trust. As experts in their given markets, their advice can prove invaluable in helping buyers make sound investment decisions,” Goslett concludes.

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