Property is only an asset if you buy it right.
If you buy property wrong, chances are that you are acquiring an extremely expensive liability that will cost you and cost you and cost you… the kind of buy that will give you endless anxiety and buyer’s remorse for a really long time.
So the other day I met a couple at the car wash. We ended up talking about their new home.
I found out soon enough that this new house was not a home- It was a nightmare they couldn’t wake up from. They were almost a million rand in debt over this house – things were falling apart – they realised only AFTER they’d moved in that they had bought in one of the worst possible areas to buy in… the property was already in their name so a little too late to change much.
I gave them my attorney’s number in the hope that because some laws had been violated in the sale of the property they might be able to get some money back.
They might – but chances are the battle will get too costly and way too emotionally draining for them to pursue. I think this because I made similar mistakes with my first property.
So I’ve learned from my mistakes. And continue to invest in property. And continue to learn.
I thought to share with you a few things about buying property that may save you tons of money and hopefully help you acquire a valuable asset instead of a costly liability.
- Number one lesson from Robert Kiyosaki’s Rich Dad Poor Dad and Cashflow Quadrant books: “Profit is made when you buy and NOT when you sell!”
Goodness if I had a dollar for every time an agent told me to not worry so much about the price I was paying for a property right now because “It will appreciate in value” I could probably have made back the THOUSANDS I lost buying my some dud properties.
I’ve since learned that: Do NOT think about what the property will cost in a couple of years, Think of what the property costs right now.
If it’s an investment property it should – right now – put money in your pocket. That’s what would make it an asset. If you have to pay even one cent out of your own pocket to have the property – it’s a liability.
If it’s a property you’re going to live in – most times it’s a liability- period. Unless you lease out a portion of your property and that portion covers all your costs. Then you have an asset. Or you sell a portion of the property which covers the portion you live in then it’s an asset.
Kiyosaki’s simple definition about an asset and liability are this:
– An asset puts money into your pocket
– A liability takes money out of your pocket
This is a powerful lesson that has revolutionised how I buy anything.
Don’t believe anyone who tells you you’ll make money on your property in a couple of years.
If there’s anything the recent recession taught us about property it’s that real estate is not always the safest asset class. Property prices can lose value in staggering amounts. Buy smart by making the profit when you buy.
2. Thoroughly inspect the property:
Never ever view a property at night. You need as much light as you can get.
Don’t be afraid to inspect that property from top to bottom. Open cupboards. Look under sinks for leaks. Look at every window for cracks or components that may not work. Inquire if electrical items you see work as they should. Ask tons of questions.
Remember this is your money not the estate agent’s. So be thorough in checking the property.
Go to a property a number of times before you even look at an offer to purchase.
Drive around the area you want to buy in. See what kind of area it is. No matter how fantastic the property is if it’s in a rubbish area chances are high you’ll lose money in the long run. As you know Property is ALL about Location, Location, Location.
Properties in rubbish areas are very difficult to sell. In some cases you might never be able to sell your property again if you buy in a not-so-great area.
Find out what other properties in that area cost. This is easy with Google.
Some property prices are hugely inflated.
First time buyers sometimes don’t negotiate properly and pay way more than they should on a property simply because they don’t know the real value of properties their viewing.
Do your homework on price and be savvy with negotiating.
There are TONS of properties. Don’t get so emotional about a property you end up paying too much for it.
Research the area you want to buy in. Do tons of research period.
Remember this is a lot of money you’re spending. Be pedantic now. It’ll save you massive financial loss later.
3. Examine the offer to purchase contract thoroughly:
Do not take the contract as is – find out how to amend it so it benefits you.
Offers to purchase are generally in favour of the seller. The buyer’s rights are not as protected. But you can include certain conditions in the contract that will protect you as the buyer.
It is YOUR RIGHT to include these conditions. Do not be intimidated by anyone to leave them out. Again it is YOUR money. You have every right to protect your interests.
4. Remember the conveyancing attorneys are hired by the seller:
So even though you as the buyer pays them their primary client is the seller. So should a dispute arise they are bound to protect the seller’s interests. In the case of a dispute do not try and battle on your own (unless you’re an attorney of course). Get an attorney who will look after your interests.
5. Insist on seeing the electrical compliance certificate.
By law no property should be transferred without it. But my first property was. The couple I met at the car wash did not receive one either.
The electrical compliance certificate MUST be produced BEFORE the property is transferred.
Please leave nothing to chance no matter how nice the sellers, estate agents or attorneys seem. Be polite but be pedantic. Keep your wits about you when buying a property.
6. If you’re thinking of becoming a property investor then Invest time and money in building good relationships with the following experts:
– Successful property investors
– A good financial advisor (steer clear of advisors keen to sell you products).
– A good tax consultant. And not just a number cruncher but someone who knows tax law well and will keep you updated with changes that will impact your investments.
– A good commercial lawyer.
7. My financial advisor provider gave me the following list to include in every offer to purchase. From personal experience this list saved me R150 000 in damages on a property I almost purchased.
Including this list in your Offer to Purchase contract might be helpful.
Apparently the consumer protection act now protects buyers and I’ve been told by agents that the consumer protection act covers this list. I wouldn’t guarantee it.
Had it not been for this list I would have ended up with a dud property that would have cost me more money than I could afford at the time.
I had to hire an attorney to battle the case for me – but still, having this list gave him the grounds he needed to successfully fight my case without us ending up in court.
Here’s that beautiful list:
The seller warrants that the following are in working order:
1. There are no leaks
2. There are no damp problems (do not mention rising damp but rather that there are no damp problems)
3. That all the taps and plumbing work correctly
4. That the stove and hob works
5. That the electrical fence, alarm, pool, ponds, cctv camera, electric gate, electric garage doors, under floor heating, Jacuzzi or Jacuzzi bath and air conditioner are in working order
6. That there are no termites or wood bora on the property
7. That there are no cracks that I should be made aware of and that the house is not sinking
NB: The estate agent will give you certain answers to the above and will be reluctant to put the above into the Offer to Purchase. Do not be persuaded to leave anything out, you are making a huge investment and must protect yourself.
8. Remember to request a copy of the Offer to Purchase when it has been signed by all parties. Ensure that the addendum of the above list is in that copy and that is has been signed by the sellers.
If You enjoyed this article and want similar posts sent directly to your email then sign up for free by clicking here