Friday, October 19

Bricks, mortar a top investment, but…

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The old saying "you can’t go wrong with property" only holds true if you do your sums and buy with wisdom, says Phil Oakes.

When I received my first salary cheque I phoned my father to tell him the good news. He asked how I planned to spend it. I knew not to tell him the truth (“on a weekend of debauchery”), so I said I was going to invest it.

“I don’t care what anyone tells you,” he said, “you can’t go wrong investing in property.”

A few years later, when I’d finally outgrown debauched weekends, I took his advice and “invested” in a beautiful flat on the top floor of a building with a spectacular view of Joburg’s skyline.

I did my sums, put down a substantial deposit, and worked out that what I made from renting it out would cover my bond and I’d be bond-free after six years. Then I’d have passive income, which I would use to buy another flat. I was a landlord on the road to wealth.

I phoned my father. “I’m a homeowner.”

“Good,” he replied. “You can’t go wrong investing in property.”

He was wrong. I did go wrong. Fast forward three years: both of my tenants absconded, owing months of rent and leaving massive rates and electricity bills for me. In 
my sums, I hadn’t factored in the levies.

When I bought the flat, the building was occupied by retired people, but they had sold (or died) and younger people who liked to party had moved in.

I put the flat on the market – but flats in Yeoville were no longer in demand. I sold it for less than I had bought it for.

But my old man was right – property is a good investment, if you don’t make the mistakes I did. Learn from my mistakes so you don’t have to make your own.

According to real estate experts, investing in property can be very lucrative, but the key to success is doing your homework. “Research, research, research” is the new “location, location, location”.

Louise Martin, of the Estate Living, says before you invest ask yourself what you hope to gain from your investment: are you wanting to buy and sell and make a profit quickly? Are you looking for high rental return? Or are you not in a rush, and would like to rather grow the capital investment?

“Once you establish what you want, you can review the advantages and disadvantages of each option,” she says.
Sandy Geffen, of Lew Geffen Sotheby’s International Realty in South Africa, says in the current economic climate, property is one of the most secure investment options.

If looked after, property accrues value. “Unless you’ve bought badly in an area that is bound to deteriorate you’re going to make money on property. Property is a medium- to long-term investment of at least five to eight years, not a quick fix. When you hold your investment over the long term, you’re able to ride the peaks and troughs of the markets.”

Adrian Goslett, CEO of Re/Max of Southern Africa, says over the long term a home should outstrip most other investments. “Purchasing the right property can be a true asset that outperforms other financial vehicles and provides a solid return on investment,” he says.

Jason Shaw, Pam Golding Properties national sales executive, says property is a popular investment because it can appreciate in value and has the potential to generate rental income. He says a good investment property ideally has good rental, low maintenance cost and high capital appreciation.

The trick, though, is to invest in a sought-after area rather than gambling on a suburb.

Tony Ketcher, Seeff’s Regional general manager in the Cape, says before deciding where to buy, study areas and consider what has happened there. “Ask what the average house price in the area is, whether you can afford to invest there, what historical capital growth shows about the area and what kind of rental is achievable,” he says.

Herbie de Klerk, principal of Jawitz Properties Kuils River, calls property a “safe” investment because of capital growth and potential monthly rental income that escalates yearly, often between 8% and 10%.

He says “normal family homes” are in demand and supply/demand drives property value.
Mike Greeff, CEO of Greeff Christie’s International Real Estate, believes property is a good investment because it’s a vital commodity.
“Needing a home is not a passing fad. What’s also significant is current investor sentiment: with currencies and equity markets on a roller-coaster worldwide, investors view property as a solid and reliable sector, and it is seen as a vital addition to any portfolio.” 
Greeff advises investors to look for additional features which may push up a selling price such as pools, tennis courts and cottages.

What type of property should investors steer clear from?

“If you think the main road a house is positioned on will put off buyers, it probably will,” he says

Homes in Somerset West are good investments. Before buying anywhere, ask questions about the area, including what kind of rental is achievable.

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