A property is ultimately a home, a roof above one’s head, but it can be much more than that – property can be a source of wealth that can be passed on to future generations through investment.
Residential property has always been perceived as a relatively stable and safe investment class, having proved its ongoing resilience over decades through changing market cycles, says Carol Reynolds, Pam Golding Properties area principal for Durban Coastal.
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“Property is appealing as a solid investment class because, if it is correctly geared, investors can leverage their property portfolio and effectively use other people’s money to grow their asset base.”
This asset class has the potential to provide a regular, escalating income as well as, over time, enjoying healthy capital growth. Globally, many fortunes have been made through investment in property and today’s tighter market conditions present an opportunity to acquire property at reasonable prices, she says.
The first priority is to decide what type of property investment you are looking for. For example, you may want to buy and then flip for profit, which is a shorter-term investment strategy and involves ensuring that you acquire a good purchase with potential to renovate and resell in a short space of time.
“From a broader perspective, if you’re looking to invest in property generally, then you will need to consider both your potential returns as well as the potential capital growth on your asset. Your strategy may be to buy, renovate, and flip, or it may be simply to buy and hold either to live in or rent out for additional income and as an investment property”.
If you are considering medium to longer term investment options, Reynolds says there are essentially three key factors to bear in mind: risk, return and growth.
“If minimising risk is important, then you should consider a diversified portfolio or perhaps a portfolio with a number of small investments spread across a few nodes. If you have a lot of money to invest, then perhaps longer- term capital appreciation is your main priority, in which case you require a solid investment portfolio in the most sought-after areas.
From a rental perspective, she suggests you consider investing in multiple smaller properties, gear them and let them pay for themselves over time. Take your budget and spread it over a mix of properties, rather than tying it up into a single property. If you want to minimise risk then property investing, like all investing, requires diversification.
Reynolds adds: “By applying this strategy, after an initial investment of R500 000 you may be able to acquire two or three units each valued at R1 million to R2 million over a few years, and suddenly you own an asset base of several million rand. As a small investor this is the best way to get started as your risk is minimal, your borrowing needs are small, and if you ever need to quickly off-load a property, this price range is the easiest to sell.”
Tips and advice
Even though we are due for an interest rate hike soon, Wilmot Magopeni, franchisee at Leapfrog Sunshine Coast, says the buy-to-rent market is still a good one to get into if you wish to use property as an investment.
She offers five tips for those wanting to go this route.
- Choose your location wisely
“Location is one of the most important factors when purchasing an investment property. If you want to target students, you want a location close to universities. If you want to target workers, perhaps something close to the city would be best.”
Other things to consider when it comes to location would be how close the property is to public transport routes, what the closest shopping centres are and if there is a high demand for rentals in the area.
- Be realistic with your expectations
“There are many landlords who have made a small fortune by purchasing investment properties, but that won’t be the case for everyone,” Magopeni notes.
“The property market value isn’t growing at the rate that it once was, so manage your expectations before you make a final decision.”
- Look outside of your comfort zone
Don’t only consider properties in the city in which you live, she says. If you can’t afford an investment property in the heart of Cape Town, for example, that doesn’t mean you can’t afford a property in a prime location in another city.
- Budget for upgrades
Even if you think you’ve bought the best property, you will find that somewhere it could use an upgrade. It might not be as big as a full-on renovation, but the property might need a fresh paint, perhaps a new cupboard door, or even new taps and other hardware.
- Don’t take the first bond offer that comes your way
Shop around before signing a bond as you might find a better deal elsewhere. One offer might have better interest rates than the other, so don’t jump at the first one you receive.
Tafelsig property investor Darren Francis, who recently won both the Investor for Change and Investor of the Year awards at the SA Property Investors Network (SAPIN), offers this advice for aspiring young property developers: “Dream. Follow that dream. Follow it up with dedication, determination, and discipline. Don’t be afraid to fail. Failure is part of the journey to success. Remember, you are always one step closer to succeeding. Make sure you have sound financial goals and live by them. Then get the right education to assist you in getting you to that property dream.”
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