08 Feb 2010
“I have recently been in touch with two adventurous young South Africans who did a two year stint in Afghanistan where they earned in the region of R50k per month – far more than either ever earned in SA.
“One came home and blew most of his savings on a R400k car. The other, on my advice, put the same amount into buying a flat in Gordon’s Bay and an old, cheapie car.
“The two are likely to return to Afghanistan in two years’ time. By then the expensive car, if sold, will have lost almost 50% of its value, but the cheap car will probably sell at very close to what was paid for it.
“The Gordon’s Bay flat is producing a rental of R48k per annum, which will rise at 10% annually on a compound basis. It will also appreciate at 8% per annum, giving it a value in five years of R590k (47% up on the purchase price). By then, too, it will have generated an income of R360k.
“Which of the two young men has shown the most investment sense?”
Clarke has seven pieces of advice for other upwardly mobile people contemplating property as an investment, all of which, he said, has been tried and tested in the market and in his own career.
“First, accept that property is always a long-term investment with ups and downs. If you are out for a quick buck, you will not find it in property.
“Second, set yourself the goal of building up a property portfolio which you expand steadily. Do not sell your investment property, even to buy another.
“Third, do not rush this process: Avoid the temptation of buying many highly bonded properties. Rather buy one and gear it correctly before you move on to the next purchase. Later, as your income increases, it may be possible to buy more than one property at a time.
“Fourth, diversify your portfolio: Try to invest in both freehold and sectional title residential property, as well as small commercial and industrial units. Try also to avoid being in one area. The markets fluctuate: if you are spread wide, the rises and falls will be cushioned.
“Fifth, accept that your own home is part of your portfolio. Too often, as salaries increase, so does the desire for a bigger and better home, resulting in huge bond repayments having to be paid. Rather have a moderate home and save by having a small bond here and use the spare cash to buy elsewhere where you will earn rent.
“Sixth, unless you face financial disaster, do not sell. The ancillary costs of buying and selling are high – you will have capital gains tax (CGT), agent’s fees, transfer and conveyancer's fees – all of which will eat into your profit.
“Seventh, focus on income rather than capital growth. The more cash you can actually collect monthly, the better your chances will be of buying elsewhere. Focus on the cash and the capital growth will look after itself.
Readers' Comments Have a comment about this article? Email us now.
What an excellent read! The seven tips from Tony Clarke are concise, conservative and very effective.
If you appreciate his property paradigm and execute accordingly you should be able to look back in 10 years with a content smile. – Craig Gillot
Great advice thanks!!
I currently own property in Cape Town, Northern Suburbs. It's a free standing unit. As I am working in East Africa, I have been renting this property out over the past 2years. With agent fees I basically need to subsidise 20% of the bond with an additional 35% extra as I can currently afford to do so.
I need to diversify my portfolio and I am currently in the market for an apartment in the R400k mark. Also in the Northern Suburbs but not in the same area. I have raised the capital for a decent deposit. 15% on a R450k property. Is this a wise move and will I qualify for a second propery bond? – Athienne Summerton
If you are using Internet Explorer 8 or higher, please verify that your Internet Explorer compatibility view settings are not enabled.
For the best browsing experience, update to the latest Version of Internet Explorer or try out Google Chrome or Mozilla Firefox.
Please contact our Property24 Support Team for further assistance. Tel. +27 (0)861 111 724