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Secrets to successful property investment

Once again, diversity is key.
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With the interest rate at an all-time low and the market geared to favour buyers, now is a great time to consider building on your property portfolio. Property is simply an investment vehicle where the growth is determined by the investor’s commitment, patience and expectations. 

Patience is key when it comes to property investments – we tend to see good returns in the medium to long term.

While the ins and outs of each investment property should be individually considered there are certainly some hard and fast rules that seasoned investors never ignore when looking to add to their property portfolio. 

Patience is a property virtue 

Hasty decisions could cost you big bucks down the line. Take the time to understand the investment, research the market, consult experts and do comparative analysis before committing.

Compare price and value, and don’t allow perceptions of value to cloud your judgement about price, or vice versa. 

Most property investments are long-term commitments, so be prepared to sit tight for the long haul. “If you’re looking for a get-rich-quick scheme then property will be a very frustrating choice of investment for you.

Location, location, location 

The tagline of every great property investment, location is a key determinant of a property’s anticipated appreciation. 

The best property in an average location will always fetch an average price, while an average property in a desirable location can demand very good prices.

Demand drives pricing and prime locations are always in high demand. As such, consider the property’s proximity to amenities like schools, shopping centres and hospitals, as well as to major transport routes.

Rental income vs capital growth 

The real value of the investment is determined by capital growth and not rental income. So while your investment property might fetch a good rental price each month, be sure to consider the capital growth. 

Snag list

Seasoned investors approach a property with a checklist to ensure that it is in good condition and to help them better anticipate and plan for maintenance, renovations and repairs. 

Pay particular attention to things like the integrity of the walls, the foundation, the condition of the finishes and the workmanship of the electrical components and the plumbing. 

A trusted property advisor is able to help you establish the state of an investment property, or you could consider hiring a certified building investor to do an in-depth inspection for you. While this might cost you in excess of R2 000 it could save you hassles and money later on.

Maintenance

Maintenance costs should form part of the budget for the property. “Investment properties need to be looked after in exactly the same way as a primary residence. Even if an agent will be managing the investment for you, the onus is still on the owner/investor to ensure the property is properly maintained.

Affordability 

Obvious as this sounds, don’t forget that something is only an investment if you can afford it. Affordability is determined by completing a personal cash flow statement of all your income and expenses. 

If you’re financing the investment, the lender [typically the bank] will need proof that you can afford the monthly bond payments on the property, which is concluded by looking at both your fixed and variable monthly income and expenses.

Be sure to shop around for the best financing deal, as even the smallest difference in the interest rate can make a very big difference in the long term. 

Diversify 

No investment is 100% fail-proof, which is why a diversified property portfolio makes the most investment sense. 

In the property game diversification means opting for a flat if you already have three large family homes, or looking to areas where you don’t yet have investments.

Diversification is the way to manage exposure to risk and maximise your returns, and can be a smart way of managing your cash flow. 

The level and extent of the diversification will be different for every investor, and typically depends on lifestyle choices, net worth, preference and risk appetite. 

Most important is that you are comfortable with your investment. And of course it should be in the kind of property you are interested in. No need to invest in agricultural land, if you’re particularly interested in developments in security estates, for example.

Giel Viljoen, principal at Leapfrog Stellenbosch. 

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With property timing is everything

Imagine you are trying to find your way to the Louvre Museum. You are studying the map of Paris and trying to orientate yourself on the map. You scan your surroundings for street names or businesses that correspond to places on the map. After some time, you decide to ask for help from the waiter. He tells you “Sir, you have got the right roadmap, but you are in Berlin at the moment. It is the right map, but you are in the wrong city.”

Someone who invests in property in a socialist country has the right roadmap, but he is in the wrong country. The redistributive municipal rates and taxes, capital gains tax, the redistributive cost of electricity, the security of tenure laws, the loss of purchasing power of the currency, the effect of crime, cadre-deployment and BEE plus the implosion of service delivery consume the capital value of the property. The property owner pays the insurance and the bond, he protects and maintains the building and the garden, and the government earns the income.

A property owner in a socialist country works to protect what is in effect, the government’s property. An employee who does not earn an income from his employer is a slave. A property investor in a socialist country is a slave to that socialist government. He has the correct roadmap, but he is in the wrong city.

Excellent. As with any investment, it’s about risk vs reward. In socialist countries, the risk is the government taking what you thought you owned, either blatantly or by stealth. With property especially, the risk vs the paltry returns you can expect, is just way too high.

You really sound like a man who has lost his way and has no clue in life how to make money.

Keep reading from people who know what they are talking about. There is a reason people come to Africa, because they do make money! Simple. You might be clueless so leave it to people who do.

Thank you for your kind advice. I will follow it to the letter. The Somalis, Zimbabweans, Kongolese and Mozambicans come here with nothing, while thousands of high-net-worth capitalists leave here with everything. I am most willing to follow the money. It is clear that the debt is here yes, but the money to service that debt isn’t. Africa is bankrupt, not because of a lack of resources, but because of a lack of cognitive ability to monetise those resources.

Of course people make money here. But, they buy their houses in Mauritius (or Dubai).

The biggest threat to property rental income is the non paying society protected by the law.

Excellent comment.
Secret of a good property investor? Don’t buy property in a country where there is no rule of law.

If you are not a DIY person and do not live in close proximity to property beware . Maintenance costs is a killer( as agent fees, a necessary evil) Ideal for non-diy person is to have enough rentable properties to afford to provide free housing for a handyman in xchange for maintenance/security. Article quite superficiaql, does not cover eg formula for a good rental ROI

Evidence for Location and Diversification?
Prime Location and diversified: Intu
From their website – “Intu owns some of the best shopping centres in the UK and three of the top ten shopping centres in Spain”
Lowish LSM in SA: Fairvest
(as always, check the scoreboard)

SENSEI, great comment and accurate.
Cadre deployment is the killer.
I have invested patiently for 20 years in Pietermaritzburg only to see value stripped away by incompetent Municipal and city leadership.

You clearly don’t know how to invest correctly. Very sad you waited 20 years to read this article. There are many people who have made chunks of rental income from PMB. You are just one of those on the wrong side.

Do up your property. Do up the area. Think out the box. Otherwise stay in your small town and it will always be a small town.

End of comments.

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