The 7 “deadly sins” of investing in property (article 2 of 4)

Private Property South Africa
YDL Property Investments

Most would-be property investors trawl the Internet looking for the deal of a lifetime. And all too often, when they come across one that looks attractive, they leap before they do their homework – mostly due to a fear that someone else will snap up the opportunity. This haste constitutes a “deadly sin”: not conducting research and failing to understand local market conditions.

YDL Property Investment is often approached by investors who have purchased property off the Internet and been burnt. There are websites galore that show properties that look really good, but what they don’t show is where these properties are located and what is next door.

For example, YDL worked with an investor who bought a property in Detroit based on a photo. He was enticed into investing by promises of low prices of foreclosed properties, yields of more than 20%, and a rebound after the city’s property prices plummeted due to a slump in the automotive industry.

Like any city, Detroit has its better and worse areas. Based on lovely pictures, investors moved into Detroit in droves. Some were lucky and ended up in areas that have held their own and are currently on the rebound. Many, however, invested in areas that were never going to rebound – commonly referred to as “war zones” by local agents. This investor in our story paid $30 000 for a house that was bought for just over $1000 on auction. After being told that it had been renovated and tenanted, he waited for his rental income, which never arrived. And then the letting agent disappeared.

YDL offered to inspect the house and determined that the cost of rehabilitating the vandalised property would be too high and not commercially viable. He has completely lost his investment and the house will probably join the list of bulldozed properties.

pic1 This "investment" property was purchased by an unsuspecting buyer after being viewed only on the Internet.

pic2 The house had been completely vandalised and had severe water damage.

Unless you have viewed the property that you are purchasing and done the research that was covered in our first article in this series, we advise that deals that look too good to be true almost certainly are.

The SA-based YDL team travels to its existing and potential investment destinations numerous times a year. During these trips we work with our US counterparts to identify high-growth areas and get updates on local trends. This ensures that our clients purchase in areas with the best opportunities for a good return on investment.

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