Consortiums are an excellent way of investing in property without the burden of owning and managing individual units.
There is a tidal wave of young people who realise that investing in property over the long time is an exceptionally good way to create real worth.
Buying a fancy BMW is not an investment, it’s simply indulging in your fantasies.
How many BMWs will still be on the road in 10 years’ time and what will they be worth in real terms?
A great deal less I should think.
But property tends to keep and in fact increase its value.
You make your profit when you buy property not when you sell.
Location is key – the best property in the worst area is near worthless.
Condition is the goal, so the better the location, the better the condition, the more likely your property will grow in value over the years.
Remember, the cost of building the same building remains the same across the country.
What changes is the cost of the ground you are going to build on and the rental that you will receive.
There is one major drawback with buying individual properties, and that is the cost of getting into the market.
Even the cheapest bachelor flat will cost you R25 000 to R30 000 to cover the costs of transfer and the bond costs.
So, investing in a R300 000 property would cost you about eight percent of the purchase price to have the property in your name.
This applies across the board.
After that you own one unit in a complex that may be made up of hundreds of units.
This means you only have a tiny say on how your entire building or complex is managed or how decisions are made.
It also requires you to take up a lot of time in being involved in body corporate meetings and organising somebody to do the letting for you – plus the costs involved.
Investing in a consortium takes away most of these disadvantages.
For instance, the cost of buying a share in a property consortium is minimal.
On a single R100 000 share investment it is likely to be R1 000 but if you buy two shares the cost may be much the same.
Secondly, the consortium will normally be a brand new building or complex, designed to be very attractive to tenants, modern, bright lights and may include fibre connections, solar energy at a lower cost.
You will not need to get involved in the management at all.
There will be an annual general meeting of the company but you have no real need to attend.
Letting is handled as part of the organisation and you will not be involved in any way with the running of the building.
In fact it is the ideal buy-and-forget investment.
The value of your share should increase as the rental goes up.
In a granny building you would receive an equal share of the net income each month while in a capital gains building all the income is accumulated and used to buy more ground and build more units.
Without buying any more shares the number of buildings that your company owns will increase as they develop new schemes with the income from the first building.
Even if the company builds say five buildings over the next 20 years, without investing more you will now have a share worth five times as much.
- Mike Spencer is the founder and owner of Platinum Global Properties. He is also a professional associated property valuer and consultant.