I am often asked whether property is a good investment or not.
Just like a piece of string the answer must always be “it depends”.
Why do I say that?
In my mind when you buy the right property with the right intentions then property is by far the best investment you are ever likely to make.
While some of the big multibillionaires made their money from railways and oil and latterly Bill Gates from computers, most made their money from property.
Property accumulates value over time.
A house bought today for R1 million can easily be worth R2 million in 10 years’ time.
You don’t have to do anything, you just have to be the owner.
But unlike other investments that grow based on created value, property also provides annual income.
So, while your property is keeping up with inflation just by being there, it is also providing you with a place to live or rental income from a tenant.
When you take this into account by adding the annual increase in price to the rental income you can look to very high overall income.
Take for instance a five percent property inflation in a very low inflation scenario plus the rental that your tenant pays and you get the picture.
“It depends” relates more to whether you bought the right property in the first place.
Buying a property in an area that is going downhill would not be a good idea versus buying a property in an area that is improving.
One skill that serious investors in property have is that of buying first in new schemes or developments.
This means that not only do you buy at the opening price but you have a choice of the best units.
There is an automatic increase in price as later phases in the development are invariably sold at higher prices.
Your choice of building to buy will also influence future growth.
Buying into a building that needs high maintenance will mean ongoing maintenance costs compared to a low maintenance building.
The low maintenance building will be more attractive to potential buyers and receive higher offers when selling compared to the same design high maintenance building.
If you have the ability to upgrade or remodel a building you would be able to buy a poor property in a good area and by upgrading turn it into a profitable investment.
The same applies to buying into poorly financed and badly run buildings where changes in management can turn around a building and create exceptional value.
Lastly, I would suggest taking the long-term view.
While builders can buy, fix up and sell at a profit, real investors in property have an eye for the long term.
Buying a property, paying it off, then using the value of the first property to buy a second and have both properties pay off the bond on the second and then use those two properties to buy a third to pay off that bond even more quickly to buy a fourth property, a fifth, a sixth and so forth.
Those are the people who make money in the long term.
What it really boils down to is to buy the right property at the right price at the right time.
Need help? Just contact Mike Spencer of Platinum Global and he will help you set up your property buying strategy.
- Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia.