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Tips for building a property portfolio

Although there are many ways to structure a property portfolio so that it achieves good returns, certain strategies have proved especially helpful.

Rawson says the second tip is to keep an open mind about alternative types and areas.
This is according to Bill Rawson, chairman of the Rawson Property Group, who says the first of these is to create and build on a relationship with a reliable bond originator who will be able to offer finance less expensively than the norm, ideally locking you into a fixed low rate for a long period.

Rawson says the investor should continue to test alternative finance sources, but in practice, it has been found that certain originators or banks will consistently give lower rate finance to investors they know and have come to trust.

It is also important to appreciate that ultra-cheap loans may come with conditions and catches, which can be difficult to meet.

He says the second tip is to keep an open mind about alternative types and areas. “Many investors are reluctant to move away from comfort zones in which they have already been successful, for example, multi-unit apartment blocks in high demand areas.

“Knowing that this market has in recent years had few failures and in general gives excellent returns, they stick to it and in the process, possibly ignoring other types of property investment which might give even better returns, especially if the investor can afford some form of renovation.”

Rawson says thirdly, the investor should make allowance for eventual interest rate rises, rents in particular, have to have an annual escalation clause.

“With every investment strategy, it has to be borne in mind that although we are currently benefiting to a remarkable degree from low interest rates, these may not be in place for ever. If the USA does raise rates either at mid-year or later this year, South Africa will almost certainly be forced to follow their lead so as to keep our government bonds attractive to international investors.

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“Portfolios on which the profit margin is exceptionally lean may find themselves stressed by interest rate rises – we have certainly seen this happen in the past. It is therefore important that investment strategy does allow for some increase in the interest rates,” he says.
http://www.property24.com/articles/tips-for-building-a-property-portfolio/21715 – Property 24

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