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Investment in property needs constant hard work

blog3Investing in property is hard work; needs constant attention and should be treated like a business.

Some property investors consider investing in property as part of a syndicate or group of people, but the problem with this sort of scheme is that you have to bring an equal amount of money to invest as the others in the syndicate do and there is a chance of arguments between shareholders. If you’re one of the lucky few who have large amounts of capital to use it may seem like a sound business proposition but for the average property investor every rand counts. It might then happen that there are shareholder disagreements, financial disagreements, cash calls/injections, and bad management which could lead to potential losses down the line and resulting in failure of the venture.

Bill Rawson, chairman of Rawson Properties, always says that you should buy one property a year – and this is great advice for the property investor. A year is a long time to source a viable and, hopefully, cash flow positive property investment. Spend most of the year finding that one property that is cash flow positive and then the following year you put the surplus either into paying off that bond or as a deposit for the next property (but which time you would possibly have found another to invest in). You repeat this process year by year and you might in ten years time find yourself with ten properties that each have a good rental and are being paid off. You might even, as you gain experience, buy two or more per year once you know what areas to buy in and in what price category.

The risk is lower when investing in properties on the lower end of the market, for example, if you buy ten units priced at R400 000, each bringing in a rental of R4 000, you have an income or turnover of R40 000 per month. Whereas if you took the R4-million and invested it in one unit, you might not get R40 000 in rental and your risk is higher when your tenant does not pay. If you suddenly found yourself without a tenant for a month or two, it’s a loss of the whole rental whereas if you had a portfolio smaller units each bringing in R4 000, it’s not such a huge knock if one of them does not pay for one month.

The disadvantage with the lower priced units is that the capital growth in absolute rand value might not be high, but you have to realise that in property investment, you’re buying the income, not necessarily the capital growth (which is the “cherry on the top”).

Strategise carefully and your portfolio can grow steadily. A good strategy to have is once the first property is paid off, take all the rental income and pay it into the next, and then the next one will be paid off sooner, and so on. So in ten years time you might have a portfolio where you have only 40% debt in total.

The real skill is not only in finding the properties; it is in planning well, knowing your pricing and investigating the areas carefully. Some more good advice is investing in areas within 30 minutes of where you live because you might at some stage either need to attend to an emergency or problem with the building or with a tenant,” said Bauer. Be cautious with your choices and be logical with your decisions. Property investment is just like any other business: you invest time and capital and, over a long period, you will reap the rewards.

 

http://www.privateproperty.co.za/advice/property/articles/investment-in-property-needs-constant-hard-work/150 – Private Property

 

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