Your first property purchase; why it should be an investment, not your home

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However, making your first property purchase an investment rather than a personal residence could be a gold nugget of advice. This strategy, particularly relevant for young South Africans, can set you on the path to financial growth and long-term wealth.

Start early: Invest while you can stay at home

As a young adult, you may still have the opportunity to live with your parents or guardians, significantly reducing your living expenses. This is an ideal opportunity for purchasing an entry-level property with the intention of renting it out.

It's a no-brainer and will set you up for your journey as a property investor at a relatively low cost. The property can generate rental income, which, if managed well, can cover mortgage repayments and even provide beer money.

Make it a financial decision, not an emotional one

Purchasing an investment property should be driven by financial smarts rather than emotional attachments. Unlike buying a home, where factors like aesthetic appeal and location convenience play a significant role, an investment property is all about the numbers.

The focus should be on rental yield, capital appreciation potential, and the ability to manage the property effectively. This pragmatic approach helps ensure the property generates a return on investment (ROI) over time.

Current market conditions

Interest rates in South Africa are currently high, with the repo rate only recently reduced to 8.00%, after a 15-year peak at 8.25%. The South African Reserve Bank (Sarb) maintained this level for over a year to control inflation.

However, there is growing anticipation that rates may start to decrease further, as inflation eases and approaches the midpoint of the Sarb's target range. This shift could make financing a property purchase more affordable than in recent years.

The thriving SA residential rental market

The rental market in South Africa is off the charts, particularly in major metropolitan areas like Johannesburg and Cape Town. Johannesburg is in high demand due to its status as an economic hub.

At the same time, Cape Town offers lucrative opportunities in both the long-term and short-term rental markets via platforms like Airbnb. However, it's important to note that managing an Airbnb property requires significant time and effort. If you choose this route, consider whether you can dedicate the necessary resources or if you'll need to hire a management service.

Buy what you can afford, not what you'd like to live in

One key difference between buying a home and an investment property is that you need to base your decision on affordability and ROI rather than personal preference.

When buying a home, getting carried away with features and locations that suit your lifestyle but stretch your budget is easy. With an investment property, the goal is to purchase something within your financial means that will generate steady income and appreciate in value over time.

An investment property as a way to build wealth allows young buyers to enter the property market with a lower financial commitment while gaining valuable experience in property management.

The income generated can help fund future purchases, including your dream home, when the time is right. The key is to stay disciplined and focused on your long-term financial goals, avoiding the temptation to overspend on your first property.

Starting with an investment property is a smart way to build financial stability. By focusing on ROI and market opportunities, you can take advantage of South Africa's property market to generate income and secure your financial future.