If you are growing or starting a property portfolio, selecting the right property type is equally as important as the location of the property. A common choice investors need to make is sectional title vs. freehold property ownership, particularly in a security estate. If you come to understand the differences between the two types and the pros and cons, you can make the right decision. You will be able to align your property purchase with your long-term financial goals and be able to cater to tenant demand.
At IGrow, we have a selection of sectional title and freehold units for sale situated in a variety of security estates.
What are the differences between sectional title and freehold properties?
To ascertain the differences between sectional title and freehold properties, you must understand the rules and physical characteristics of the property type you are looking to buy.
Purchasing a sectional title property will mean that you own a portion of a security development, and have free use of and shared ownership of common areas.
Examples of sectional title properties include:
- Apartments/flats
- Townhouses
- Duplex units
- Cluster homes found within a complex
“However, no matter what they look like, the most important difference between Sectional Title and freehold property developments is the fact that in a Sectional Title scheme, you are buying a share in the common property in addition to your own apartment, townhouse or house.” (Source)
“This common property includes the land on which the whole scheme is built, as well as gardens, parking, any other shared amenities and security equipment such as electric gates and fencing, CCTV and biometric scanners. And you will be liable to pay a monthly levy to cover the maintenance and repair of this common property, as well as certain other items.” (Source)
A freehold property in a security estate or a full title home means you, as the owner, have exclusive ownership of the whole property, including the land and structures on it. If the freehold property is located in a security estate, you will have to pay a monthly levy to the homeowners’ association (HOA). This covers maintenance of common areas, roads and security measures. Your personal homeowners’ insurance coverage (HoC) is not covered in this specific levy. (Source)
A freehold property, will mean you own the land and the building.
These properties are usually:
Freestanding homes within security estates.
Pros and cons of sectional title vs. freehold properties
When comparing the pros and cons of sectional title vs. freehold, investors need to take maintenance, costs, tenant demand and growth potential into account.
Pros of sectional title properties usually include:
- Better value entry price points
- Shared maintenance costs and responsibilities undertaken by the Body Corporate in common areas. Or IGrows’ Rental Management team can interact with the body corporate on your behalf, pay your levies and attend meetings, if required.
- Monthly levies (these usually increase yearly depending on Body Corporates, and include everything from security services, grounds maintenance, and building insurance).
- Annual Meetings where trustees outline/discuss security complex financials and maintenance costs for the year, affecting levy rates overall.
- A greater demand from students, young working professionals, and busy tenants looking for low-maintenance, lock-up-and-go homes. Rental demand is always high for this property type, and they are easier for landlords to manage hands-free.
The cons of sectional title properties are that you are more restricted by Body Corporate rules, such as when you wish to renovate. Levies can sometimes be quite pricey.
Owners have less control over levy fees and Body Corporate decisions (unless they are trustees of the complex Body Corporate and can affect Body Corporate decisions and rulings).
Pros of freehold properties typically include:
- Some flexibility regarding freedom to renovate your property (according to your security estate rules)
- Greater appeal to bigger families and very long-term tenants
- Better outlook for the potential of the property’s capital appreciation
The cons of freehold properties are that there is greater maintenance responsibility and usually higher purchase prices. You have more maintenance, in general, to take care of.
These factors will directly affect an IGrow investor when looking at sectional title vs. freehold preferences. Their unique financial position and goals will determine which property type they will buy.
Sectional title vs. freehold preferences among potential investors
Making a choice between sectional title vs. freehold properties is based on the tenant profiles you want to attract in your buy-to-let property. This also influences your investment goals.
Sectional title units are frequently preferred by IGrow investors due to:
- High demand by a variety of tenants
- Higher rental yields and better affordability
- Lower maintenance and upkeep involvement and expenses
Freehold homes are sometimes preferred due to:
- Larger family tenants seeking a bigger home and garden space
- Ideal for long-term tenants
- They offer favourable capital appreciation
Portfolio diversification in buying different property types
A great advantage you will discover as an investor with IGrow is that you will have the opportunity to diversify your property portfolio across differing property types within security estate set-ups.
“IGrow helps our investors choose property types and locations based on a thorough financial assessment and alignment with investors’ long- term goals. This is so investors can set themselves up for an early, financially free retirement where their properties’ rental income provides passive income streams. They will also be able to leave a legacy by owning a property portfolio they can leave behind to their loved ones. They will be leaving their families in a strong financial position.” – IGrow Property Investment Strategist Team
Conclusion
Opting for sectional title vs. freehold investment property is about which option best fits your unique investment strategy. In grasping the differences between sectional title and freehold properties, the pros and cons of sectional title vs. freehold, and exploring your sectional title vs. freehold preferences, ensures IGrow investors make informed, smart property investment moves.
In partnering with IGrow, investors have automatic access to prime sectional title and freehold investment options. These properties are located in well-managed security estates. Not only this, but you will be guided by IGrow’s expert team every step of your journey.
Contact an IGrow property investment strategist today, and let’s ascertain the best property type for your needs. Choose a property within our variety of A-grade, prime security estates throughout Cape Town and Gauteng (Johannesburg and Pretoria). You will be set up for life!
