Property Investment Guide for Beginners
Category Market Insight
Property investment is one of the safest ways to protect and grow wealth. As much as things change in the property market, many things stay the same. And things that stay the same are predictable and can be relied upon. Conventional investment wisdom applies and it may be even easier to become a property millionaire than you think.
Why Choose Property Investment?
"Real estate is an imperishable asset, ever-increasing in value. It is the most solid security that human ingenuity has devised. It is the basis of all security and about the only indestructible security."
Russell Sage
Property is historically the best performing major asset class (and this is a recurring theme). Many trust real estate to be the safest long term investment option there is. South Africa's population has more than doubled from 28.55 million in 1980 to an estimated 60.75 million at the beginning of 2022. Everyone needs a place to stay and the demand keeps climbing. Property as an investment class is also extremely resilient, and fluctuations in the real estate market are less pronounced than they are in other securities.
Get the Right Price
"Ninety percent of all millionaires become so through owning real estate." - Andrew Carnegie
Conventional wisdom for investment says to buy low (and sell high). Getting the right price for investment property is essential. To spot a property bargain you must do your research! But that doesn't just mean looking at the average sold price trends for a suburb you like and calling it a day. Local historical data is important but one should always begin with the bigger picture in mind. On a larger scale, the Western Cape tends to perform the best of all SA provinces and so it's a wise place to begin looking. Consider then which areas have performed the best: Cape Town's Atlantic Seaboard, City Bowl, and Southern Suburbs include some very affluent areas. With that in mind, you can begin to look for the worst property, in the best areas to invest in. If you need help finding the right price, you can always get in touch with experienced real estate agents for assistance.
Learn more:
Understand (All of) the Expenses
"Price is what you pay, value is what you get." - Warren Buffett
Getting the right price is essential, but it's only half of the equation. All additional expenses associated with the property must be accounted for. To do that, you must understand all of your expenses. Rates, taxes, levies, municipal costs, bond origination fees, bond repayments, conveyancer fees, and transfer duties all add up. Over and above that, you must also factor in the cost of refurbishment if anything needs to be fixed. Once you've calculated all of the costs applicable to the property, you will have the real price you must pay and can begin to assess the true value of what you're getting.
Learn more:
Capital Gains vs Rental Yield
"Buy land, they're not making it anymore." - Mark Twain
The debate about capital gains versus rental yield is a heated one. People on each side of the fence are adamant that the grass is greener where they stand. Yet the truth, as with most things, lies somewhere in the middle ground. Property is a limited resource, and money is not (80% of all US dollars in existence were printed between Q1 2020 and Q2 2021). That being said, it's not practical to acquire a property portfolio of loss-makers. Similarly, buying property with a high rental yield but a sluggish appreciation rate won't make you wealthy in the long run. The trick is to build a balanced property portfolio that will increase in value substantially over time while bringing in an additional, passive income stream.
Learn More:
Patience is Key (But Don't Be Stubborn)
"Our favourite holding period is forever." - Warren Buffet
In a perfect world, your property portfolio would always be occupied, tenants would always pay on time, and your assets would always skyrocket in value. Thankfully there are specialised rental property management agencies in Cape Town that can reduce tenant associated risks to the bare minimum, and help maintain property value with routine inspections. But sometimes there are events outside of our control that can negatively impact an asset's performance. A flood in the area, a fire, a global pandemic - all of these things can result in an asset turning into a liability. One must regularly evaluate one's portfolio items and get rid of liabilities for the overall health of the portfolio and partner with experienced real estate agents to price them appropriately.
Learn More:
- House Price Index: #1 Key To Unlocking Property Performance?
- A Trust: The Key to Financial Security?
- Property Portfolio Basics (5 Step Strategy)
- UDZ Tax Incentive Guide (Get Cash Back on CT Property)
- The BRRRR Method & Why You Should Consider It in Cape Town
Author: Paul Wasson
