If you are looking into investing in property within South Africa, your strategy is likely to earn wealth on your investment based on the risk and minimizing the time attending to the investment. In order to accomplish this, you need to make some smart choices from the word go.
Your ultimate goal must be to get as close as possible to these three elements:
1. Fair cash-on-cash return When you buy property you are taking money out of your liquid financial assets and investing it into a very illiquid asset (a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value). As you were earning a rate of return on your financial assets, you must endeavour to earn a fair cash-on-cash rate of return on your real estate. To do this, you need to document deals and buy positive cash-flow properties that earn you decent returns.
2. Choose the right risk All real estate is high risk. Development of real estate,land, Tenant-In-Common (TIC) investments, private real estate funds, renovations, etc., all have much higher risk than just simply buying an established cash flow investment property. In many of those investments, so many things can go wrong, the risk is too high and you may never see a return. So if you want to own real estate as a means for wealth accumulation, do the proper due diligence, analyse, test, review reports, etc., to make an educated decision, and purchase a property with the least risk possible.
3. Minimise time management Some properties require too much time, effort and management to make them great investments. For example, vacation rentals, low quality properties in bad areas, varsity rentals, etc. Nice, ‘boring’ properties rented long-term to great credit profile tenants take the least time to manage. In addition, treating your tenants fairly and with respect goes a long way in keeping good relations with them resulting in reduced hassles when the geyser bursts or the washing machine floods the kitchen. It’s the nice, boring, wholly owned, in good shape, positive cash-flow properties that are the best investments. They are out there, but it is not as simple as finding a property on the Internet and buying it. You need to do some hard work, research, read up,and make smart, educated decisions to acquire the best real estate investments.
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