Invest for better returns in South Africa

blogIt has been said, by a number of experts in property investment, that the biggest mistake one can ever make, is to do nothing.

Sometimes when I look at the Other Half I do think they are exaggerating. I see, sometimes, what could be regarded as a huge mistake, and at times I do wonder what I was really thinking when I jumped at that long-past request to “invest”, or JV, shall we say.

However the experts remain convincing. Whatever mistake you might make investing in property, it will never be the biggest and most costly mistake you can make. Too often, new investors especially become overwhelmed or confused, and then do nothing at all. This is the biggest mistake.”

Figure out your budget

Consequently, experts advise that investors-to-be should figure out their budgets, know what they want to do ahead of time, and then do it. Buy something.

Of course when I was “on the market”, I didn’t strategise quite as much. There were certain considerations that I made from an emotional rather than a business perspective. And judging by investment experts this is indeed a mistake, whatever the actual, or perceived, state of the market at the time.

For advice has it that in every market there are opportunities. By looking beyond the obvious and finding alluring opportunities, investors can come out tops. And sometimes, in a depressed market, that’s easier as there can be fewer people searching for opportunities in a space where many only see problems.

It also seems, when I was on the market, I didn’t have, as they put it, a game plan. In searching for the perfect JV there seem to be a few almost universal necessities as well as a bundle of desirable qualities that are more and less important depending on the individual.

What makes buy-to-let a good property investment

Does simply buying a property to lease out and collect rent every month make for a good investment; unfortunately not all the time. If done correctly, investing in a rent producing property can yield outstanding returns. However if done wrong this investment will prove very costly, with the investor losing a lot of money.

High returns on rental income

A property that is in a good area with high demand for rental properties will yield excellent returns on rent every month. This does not necessarily mean the rental price must be astronomical but the rate of vacancy should be low and the rent realistic to the area. A rental property should always be competitive in price and must be well maintained. If a good tenant is placed in the property and the property is well looked after, then the owner will get the best out of the property and tenants will be willing to pay the asking rental charge.

Low monthly shortfall

The lesser an investor has to pay money from their pocket to make up for the difference in either monthly bond repayments or levies the better the investment.

A shortfall payment which is the difference that an investor has to pay monthly to make up the total amount required by the property should be as low as possible. This does not have to be archived by charging high rentals but by doing your homework on the property before purchasing it. On a good investment, an investor should start seeing a surplus from the rental income collected after 24 to 36 months if all due diligences were made prior to investing in the property.

Annual rental escalations which should be incorporated into lease contracts will also assist in reducing the overall shortfall that an investor has to pay out of their pocket monthly.

Capital gains

What makes investing in real estate one of the best investments worldwide, is its ability to yield good capital gains over a period of time. Property values have shown great positive nominal increases over the past 40 or so years, with statistics only showing 3 declines during this period.

Therefore as an investor it is important to invest in properties which have potential to increase in value over time. And by using property investment factors such as location, price, and market as guide, an investor will be able to purchase property which will give great capital gains.

As the old saying goes, property investment is not for a short term but long term investing but to see excellent outcomes an investor must invest time and attention to their properties.

What is needed – and desirable?

Property investment is the same. In the end, in property investment, we all want to come out in a stronger financial position, but the other “desirables” are slightly more negotiable. For investors this boils down to selecting the “desirables” that complement the game plan, knowing what you want to accomplish beforehand, knowing what your goals are and understanding how you are going to achieve them within the context of the market. Investors-to-be need to ensure they have thought the whole investment process through and are clear about whether their goals are for example, cash flow, a retirement portfolio, a buy and hold, a fix and flip or a long term investment.

For if you buy a property, that does not meet your goals, much like a marriage, no amount of management can really fix the problem. Unlike a marriage, a pre-planned exit strategy is also a boon. Knowing how long you can afford to hold on to a property or what you’ll do if you go over budget really helps.

And last of all, before investing in property, cultivating an “asset owner” mentality is an asset. Take your investment seriously and expect those you deal with in related matters to take it seriously too.


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