What are the five traits of property investment?

At its core, property is a conservative, steady, long-term, income investment.

Conservative

Historically, property’s income and capital growth have been lower than more aggressive investments such as equities. Sometimes property prices rise very fast, but this usually happens in the recovery phase after a deep recession. For this reason, property investment is typically positioned towards the conservative end of a balanced investment portfolio, which could also comprise equities, bonds, offshore investments, and cash.

Steady

Residential rents tend to increase gradually over time. It is this regularity of income that makes residential property a steady investment. This lack of volatility, compared to other asset classes, is the main reason it is considered a low-risk investment.

Long-term

The prudent buy-to-let investor will take a 10-to-20-year view on their investment. Income and capital may fluctuate over that period, but the total return will grow.

The prudent investor will also avoid rushing in and out of investments, usually only making changes when there is a sound strategic reason e.g. moving from one city to another and wanting their investments to be close at hand, or calculating that the type of property in which they have invested does not have as good a long-term prognosis as another type.

Income

There are many opportunities for short- and long-term capital growth and speculation. Take them if you can, but build your investment on the income (and income-generating potential) of your property. This is the basis on which to value it over time; it is also your main reason for choosing it.

Devote attention to the income of your property and the rest will tend to look after itself. This income should be measured in terms of both the net income of the property (after the property costs but before external costs such as bond repayments), and in terms of the net income after those external costs.

Investment

Certainly speculate when the opportunity arises. But your main objective should be to invest in a property portfolio so as to build your wealth and income.

Property allows you this opportunity without bothering about the short-term ups and downs of the marketplace. Of course timing, i.e. the stage of the cycle in which you buy, can have a major impact on your return.

There are many types of properties that you can invest in. A few examples include:

  • Low-rise suburban flats and townhouses
    These are probably the most popular buy-to-let investments. They are usually sectional title units and a body corporate looks after costs such as insurance, cleaning, gardening, and maintenance.
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  • High-rise suburban flats
    These behemoths are rapidly spreading over the world’s urban landscape, mainly around city centres. They are part of the return to city living that has gripped the world, largely as a response to migration to the cities and urban congestion.
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  • Grand apartments
    This phenomenon has been taking place mainly on Cape Town’s Atlantic Coast and around the Sandton central business district, where the price per square metre of these properties is much higher than your typical suburban flat.
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  • Inner-city flats
    Inner cities in SA are still considered high-risk areas because of physical and social decay, crime and poor by-law control.
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  • Low-income suburban houses
    Townships, such as Soweto and KwaMashu, have strong rental markets. This includes demand for backyard rooms, while the owners occupy the main houses. The investment market is still relatively undeveloped.
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  • Middle-income suburban houses
    These are usually in older suburbs (clusters and townhouses tend to dominate in newer suburbs, such as Fourways) and provide solid, if unspectacular, rental returns. The initial yields are usually higher than in more expensive suburbs because of the relatively high rent-to-price ratio.
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  • Upper-income suburban houses
    These will tend to have low initial income yields, with high but volatile capital gains.
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  • Transitional suburban houses
    These are usually on the periphery of prime areas, such as Johannesburg’s northern suburbs or the central business districts of cities. They are often older, slightly run-down suburbs (for example, Sydenham, Mayfair and Highlands North in Johannesburg).
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  • Golf estates and other gated communities
    These remain the suburban homes of choice for well-heeled city dwellers with families. They are safe, have a pleasant environment and are often well located for work. There is also relatively strong rental demand for them from executives contracted to work for companies for short periods, of from six months to a year.
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  • Renovation properties
    These can be any type of residential property, in any area. Investors buy them and increase their income yield and capital growth by upgrading them. This suits investors with a proven skill in renovation, but amateurs can make costly mistakes.
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  • Trading properties
    This tends to be popular during a property boom. These properties are mainly bought off-plan in new developments and the return on cash invested can be enormous. This is not really investment, however.
    Read more …

Email Anton de Leeuw for Property Investment AdviceBecause property investment is so versatile, a savvy investor is sure to find the right investment type for their needs.

At YDL, we take care of property investment for our clients. Call me today on 011 465 3756 or email anton@ydl.co.za to find a property investment solution that works for you.