Investing in property

Location: who will rent or buy it from you?

Demand comes from people: students near the universities, young professionals near work and transport, families near schools. Ask who your tenant is, and who your buyer will be in ten years.

Rental yield

Gross yield is a year's rent divided by the price: R18 000 a month on a R2.4 million flat is 9%. Net yield is what's left after levies, rates, insurance, maintenance, letting fees and a month or two of vacancy. That is the number that matters.

Capital growth

Growth follows scarcity and demand. The Western Cape has had steady semigration from other provinces, and the Peninsula has little land left to build on. But not every suburb or building grows at the same pace; look at the actual resale history.

Cash flow and the bond

Test the numbers at a rate 2% higher than today's. If the rent doesn't cover the bond and costs, know how you will fund the shortfall.

Short-term letting

Check the body corporate or estate rules, and the City's zoning, before you buy for holiday letting. Many complexes restrict it.

Tax and exit

Rental income is taxable, and interest, rates, levies, repairs and agent fees can usually be deducted. Capital gains tax applies when you sell. Know how you will sell before you buy: a home that appeals to owner-occupiers is easier to sell than a niche investment unit.

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