Buying a property that offers good value for money is not as easy as looking at its price, and this is the first mind-set shift that buyers must make: value must not be confused with price.
And just because you were able to negotiate a reduction in the asking price does not make it a bargain because the price was probably inflated to begin with, says Renier Kriek, managing director of Sentinel Homes.
True bargains, he says, have some distinguishing characteristics to look out for, including:
– The reason the home is for sale
Sellers who are experiencing life-changing circumstances such as divorce, have fallen behind on their mortgage payments, or have tenants they are unable to evict will be more likely accept a lower offer. Often, but not always, motivated sellers’ properties end up on auction.
To look for homes selling via auction, bargain hunters can visit dedicated online portals or find court notices for foreclosure or sheriff’s actions.
The market tends to devalue properties by more than the cost it will require to fix them up, so Kriek explains that a fixer-upper property with R200,000 worth of arrear maintenance will likely be on the market for R1 million; once you have done all the maintenance, the value of the property shoots up to R1,5m. This means the value gained by the maintenance is often more than the cost of the maintenance itself.
– Large plots
The average size of plots has been decreasing over time as the trend in urban areas is to densify –a move that is encouraged by municipalities. In a city like Cape Town, it is now possible to build up to three dwellings on a single residential 1-zoned plot.
You must, however, always consider other issues such as rezoning and urban development rules, and may require consultation with a town-planning expert.
“If the size of the plot is larger than the average new development in the area, there is likely to be surplus value. That is, unless the property is marketed as a development opportunity, which likely signals that the price has already been inflated to account for the size aspect.”
– Vacant properties
Generally, vacant houses and flats sell for less than the ones that are occupied, he says. This is mainly because a small crack or a spot on a carpet is more visible than when properties are inhabited. If you are able to visualise the potential, it is a good buy.
– Relative value
When entering the market, it is a good strategy to consider buying the smallest or cheapest property in a particular area as the barrier to entry for these properties is generally lower than for the rest of the area, Kriek says.
Home improvements that deliver value
If you successfully snap up a bargain property you have a good chance of increasing its value significantly by carrying out strategic renovations, says Direct Axis’ Neven Narayanasamy. Costly renovations might not get you the return you want when you sell your house, so if you’re getting a loan for home improvements, consider smaller, cosmetic changes that will make your property more appealing.
“Most estate agents agree that there’s a ceiling on prices in most neighbourhoods, so there’s a real risk that you could struggle to get your money back on a massive renovation. This is particularly true in difficult economic times.”
Personal indulgences, such as jacuzzis, are also on the list of no-nos because, while you might think that champagne-fuelled midnight soaks are the best thing ever, prospective buyers may see just another hassle that needs to be cleaned, maintained, or repaired.
Narayanasamy says home renovation is one of the most common reasons people apply for DirectAxis’ loans, and thus offers some ideas on how to undertake cost-effective upgrades.
1. Create kerb appeal
One of the first considerations is kerb appeal, which is what makes people decide whether to stop at a show house or drive past. A freshly painted exterior, neat garden, and clean windows all point to a house that is cared for and, consequently, one that’s more likely to attract buyers.
Best of all creating curb appeal generally requires more of an investment in elbow grease than cash.
“The research is also straightforward: take a drive around the neighbourhood and consider which houses you’d visit on a show day and what makes them appealing.”
2. Don’t bite off more than you can chew
Have a plan and tackle one thing at a time. This way you can keep your projects achievable and won’t have to deal with a situation in which you’ve taken on too much, have run out of money, and then have to try sell a house with half-painted rooms or unfinished bathrooms.
3. Repair before renovating
Keeping on top of home maintenance and spotting potential problems before they become expensive can be just as important as renovations. A shiny new kitchen may not be enough to offset broken gutters and a green swimming pool.
4. Keep it simple
A fresh coat of paint can go a long way towards improving a room and is a lot cheaper than remodelling or breaking down walls. Similarly sanding down and re-varnishing wooden floors is more cost effective than laying new ones.
Narayanasamy says bathrooms and kitchens suffer a lot of wear and tear which can result in them looking tatty and unhygienic. To keep costs down, avoid changes that involve reconfiguring the plumbing. Instead consider simple upgrades such as replacing old door handles, installing modern light fittings, refacing, painting, fitting new cupboards, or installing new work tops.
“Small changes, such as fitting a Perspex or stainless-steel splashback in the kitchen or installing new taps, can often make a big difference. New mirrors, upgrading chipped or damaged baths and sinks, and replacing old-fashioned built-in cupboards with free standing units can refresh a bathroom.”
Avoid customised features as they are generally expensive and require specialist installation. Use off-the-shelf products wherever you can.
5. Be clean and tidy
Regularly cleaning tiles and grouting is a chore, but a lot less expensive than having to replace them. The same applies to shower floors and remember to look up and check the ceiling for mould. Spend your money sensibly. A new shower curtain may cost you a couple of rand, but an old, grubby one could cost you the sale.
6. Avoid surprises
Getting your house inspected for electrical compliance, rising damp, dry rot, or borer beetle before you sell may seem counter-intuitive, but if you have any doubt, it’s better to know about any problems before the contract is on the table. Leaving it until then could mean losing money on the sale or the buyer walking away.
Being proactive with this also means you can fix problems on your own terms in your own time, rather than when you’re under pressure. Even if there’s nothing wrong, he says saving the certificates demonstrates that you’ve been diligent about maintaining the house. Think of it as having a full-service history for your house.
“When it comes to adding to the value of your house, less is more. Have a plan, do a bit at a time and think about the things which will add the most appeal at the least cost. Remember that upgrading is better than overhauling.”