Trouble = distance squared; stay close to home or have excellent management if you invest elsewhere

Article 8 of 8 in the series:

YDL Property Investment’s Eight Golden Rules of Property Investment

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Trouble = distance squared; stay close to home or have excellent management if you invest elsewhere

The pleasure of property is that it gives you a flow of passive income, which you can manage in your spare time. But tell that to an investor who lives in Windhoek, sees on the 10th of the month that his tenant in Bloemfontein has not paid the rent, and after two days of phoning has still not been able to get hold of the managing agent to find out what is happening. It will cost the owner at least two days and R5,000 to fly to Johannesburg and then Bloemfontein to collect his rent of, say, R4,500. Nothing passive about that.

All things  – rent, yield, potential growth – being equal, the investment nearest you is the best one you can make. Within a 20 minute drive is best of all. You can deal with all problems as they happen. This makes management or control of your managing agent, tenant and body corporate easy.

But, if all things are not equal, investments in areas where you don’t live, including overseas, might be wise, but only if you can overcome the management problem described above. What do you do if you have a strategy to generate R100,000 pm in passive income from property, but you can’t get there as your local market does not provide attractive returns? You either wait for the cycle to turn, which could be many years, or you invest elsewhere.

The latter has the benefit of diversification, which conversely is one of the risks associated with the “default position” described above.

If another market provides attractive returns (for example the US at the moment as their market “fell off the cliff” before starting on a recovery path), the benefit of investing there might well outweigh the downsides. For example, in Atlanta, affordable properties can currently be bought at 60% of replacement cost and at net yields of 9%.

But, you will have to choose solid, reputable sourcing and management partners, who are experts in their markets. Once the property has been bought, it is all about management, management, management. Even if you have good, trusted, managers in place, make sure that you manage them well by staying on top of the detail. If their statement contains an error of a few cents, call them to follow up. They need to know that you know everything that is going on with the property. This will ensure that they treat you and your property with the respect that it deserves.