15 Jan 2013
Property is one of the few investment opportunities that does not necessarily require much money to make money.
If you wanted to buy shares in a company for example, you would need money upfront whereas with property, you could possibly get a 100 percent bond or a significant portion thereof from the bank or financial institution.
You ultimately spend other people’s money to make your fortunes provided you heed advice and are smart about what you buy, where you buy and what you buy the property for.
There is absolutely nothing new that I will share with you in this article that you don’t already know, well, except perhaps the bit about house prices.
The FNB 2012 House Price Index report last week revealed that investors can expect yields to increase further this year making property an attractive class thanks to low house price growth.
What this means really is that now is a good time for investors to build on their portfolio and take advantage of buying property in a slow market.
Read the article here.
The Absa House Price Index indicates that house price growth is forecast to remain relatively low in 2013 compared with growth of a few years ago.
The bank says in 2012, prices of middle-segment homes increased by a nominal 0.6 percent, after rising by 1.7 percent in 2011.
In real terms prices dropped by 5.4 percent in the first 11 months of 2012 with real price deflation of 2.9 percent evident in the corresponding period in 2011.
Many property experts will tell you that the lower the price you pay for the property, the higher the potential yield, hence the FNB report believes low house prices are good for investors.
When buying property to rent out, you must consider the yield that property will generate.
To calculate the yield, divide the net annual rent by the purchase price of the property and multiply by 100 to give you a percentage.
Here are 10 reasons why you should buy property:
1. You can work with other people’s money, so you don’t necessarily need money to make money.
Yes, you are probably thinking I have lost my marbles, what with stingy banks, but everything that has a price is negotiable, so if you badly want to get into the property market, do your homework - just because your friend did not get a 100 percent bond doesn’t mean you will succumb to the same thing.
2. Property offers a secure income stream and capital growth. In the case of buy-to-let property, make sure you buy in the right location where there is demand for rental property and get a tenant who can actually pay rent.
3. You are likely to make mistakes, but you can recover from these.
For example, your tenant may find himself unemployed and cannot pay rent, which means if you do not have other sources of income you may miss your monthly bond repayment. The bank is not going to take the house away from you, you can recover the next month.
3. It is easier if you multiply your investment. Once you succeed with your first property purchase, you can either sell and make a good profit or you can go back to the bank, armed with strong financial books and apply for a bond to buy a second or third investment.
With proper research in place, you can Invest in two or more properties.
4. The value of your property can increase with the investment. If you renovated the property or gave it a bit of facelift, that will increase its value so that when you sell, you make a good profit from the initial investment.
5. Unlike shares on the stock exchange, you do not need to monitor your property all the time.
6. Property is considered to be one of the most secure investments you could ever make - you may not be at a stage where you are a serial property investor, but owning property rather than renting is a step in the right direction.
7. The value of property does not plummet to the level which shares on the stock exchange may fall.
8. Banks will hardly give you a loan to buy or invest in shares, but they give loans to people wanting to buy property.
9. Property is the most tangible and direct way of watching your investment grow.
10. Remember to buy in a slow market and sell in a fast market in order to make money.
Between December and January as well as the winter months are good times to be making acquisitions and if you can avoid selling your property during this period.
Having said that, there is something about bricks and mortar that appeals, I know because I have tried and tested it, pity when I got into the game, I was not as savvy as I am becoming (one learns something new every day). – Denise Mhlanga
Denise MhlangaProperty journalist at property24.com
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