Last week we examined some of the things investors should avoid or be wary of when considering starting an investment in real estate. In this, the second part of IGrow’s article on the dos and don’ts of property investing we will consider the things investors should do:
- Keep a cool head
The property market is cyclical and largely driven by the economy and market sentiment. With this in mind, it’s important to not get over-enthusiastic during a market boom, nor get too despondent during a property slump.
Emotions – particularly with regard to things like the property market – tend to be counterintuitive: people tend to be pessimistic when the market dips, thanks largely to the media spreading messages of doom and gloom. But this is what’s known as a buyers’ market for a reason – you can secure some excellent deals during these slumps, and really maximise the return on your investment over the years to follow. Conversely, people are optimistic when the cycle is booming, at a time when one should proceed with caution.
Take advantage of these cycles in the market and use it as an opportunity to grow your portfolio and ultimately your future wealth.
- It’s as much about money as it is about property
Over recent years the banks in SA have been getting a bit more cautious about credit, and scrutinise those who apply for financing more now than in the past. This is not necessarily a bad thing, but it means you need to put the work in too. If you can’t get more financing, then you can’t buy more properties and expand your portfolio. The best bet is to make use of a professional team of expert property investors who only have A-grade investment properties on their books – helping to ensure your property is as successful as it can be. Professional bond originators are also able to guide you through the process of acquiring a home loan to secure your investment property.
- Different areas have different markets
While people talk about ‘the property market’ it is important to realise that within one country there are thousands of different submarkets. Each province not only has property that is performing differently, but one can narrow that even further to not only cities and suburbs but different pockets of areas within these. Each province the markets are segmented by geography, price points and type of property, and each province is at its own stage of its property cycle.
For example, Parklands on the West Coast of Cape Town is enjoying fantastic development and there is keen interest from buyers and renters alike, making this a wonderful area for investors to buy in right now.
- Only a fraction of properties can be considered “investment grade”
Less than 2% of properties on the market in SA are suitable for investment purposes.
Investment-grade properties must, among other things:
- Appeal to a wide range of high-calibre tenants.
- Be in the right area.
- Be sought-after – demand tends to outstrip supply in these areas.
- Be secure.
For more information on selecting the right type of property for your investment watch Jacques Fouché’s video on how to select the right investment property by clicking here. (http://igrow.co.za/how-to-select-the-right-investment-property/)
- Be systematic
You need to have a system that works regardless of the market conditions. The best approach is to strategically follow a system to remove all emotion from property investment decisions and avoid speculation to be able to realise a steady profit while minimising risk.
- Money won’t make you wealthy
It sounds counterintuitive, but stop and think about it. The true wealth of your portfolio lies in the value of the assets – the capital appreciation of the properties themselves – rather than the short-term cash created by rental income. Besides, this money is used to pay off the property and, for the first few years at least, is unlikely to generate much, if any, real profit.
To begin or expand your property portfolio, call IGrow Wealth Investments and ask to talk to one of our skilled property investment strategists.
Cape Town: 021 979 2501
Durban: 031 110 0817
Pretoria: 012 943 0201