Read time: 2.33 mins
The Common Mistakes First-Time Property Owners Make
Property remains a potentially lucrative industry, however many first-time owners underestimate how much it costs to maintain a property and overestimate the potential income that property could bring. This is why it’s essential for new buyers to have knowledge of market trends, property laws, and nuances such as lease agreements, and rates and taxes to ensure they make wise investment decisions and are prepared for the possible risks involved in buying property.
Find out more about common shortfalls first-time property owners experience with Vusi Nondo, Guest Expert on the Property Development and Investment online short course from the University of Cape Town.
Transcript
There are a couple of mistakes, but one of the key ones is they underestimate the operating costs of running a property. They often underestimate the cost of utilities and what that does within the context of property ownership. The other thing they do is they overestimate the income projections associated with property and they have a too optimistic view of what the underlying property is worth.
And then first-time owners are often romantic about property. So they equate the value to the bricks and mortar of a property, the physical structure. Whereas the value is what a willing buyer would be willing to transact on.
Understand the legal hurdles as a first-time buyer
Property is quite unique in that most relationships that are tied to a property are transferred to the new owner. So one has to be very careful in understanding the status of the property in terms of existing leases, in terms of notarial deeds that are tied to the property. The important point that I really wanted to pick up, is just how sensitive the law is in terms of illegal occupational property. For instance, if anyone occupies a property, you’ve got 24 hours to actually evict or remove them before they get rights to be on that property.
Examine the risks and liabilities as a property owner
As a property owner, you need to understand that you are liable for certain expenses on the property: rates, taxes… And as a new property owner, you need to understand what the historic position is with regards to those, because you may be liable for those. What’s also happening in the municipal space is there’s an increasing focus on compliance, with respect to occupancy. So we’re talking about fire, water, and electrical utilities and reticulation, and on older properties, that could be a substantial cost.