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Investing in property is usually done to earn a return through rental. One may even want to sell the property in the future, receiving a significant return, considering that land and buildings do not depreciate in the same way that other assets do.
Last week I visited one of my favourite clients in the property development space. As I was about to leave, the managing director’s secretary and I got into a candid conversation about how most developers have a network of investors they invite for the initial phase of a new development. She explained that these investors would buy into the development before even the first brick is laid. They believed in the company, but most importantly they understood the investment upturn.
This reminded me of the sales of my first book, “What’s your move”. We sold over 1000 copies as pre-orders. The book had not even been printed at that moment. The difference is that there is an immediate appreciation in value when the first phase of a building is completed.
In my experience as a property investor, I ferociously dislike the idea of tenants, but also dislike buying property shares. The secretary had just given me an idea worth looking at. But there was the icing on the cake. She vaguely went into a tax incentive for investors with five or more new development properties. When I got home, I did some digging. I found that: “The South African Revenue Service permits a significant tax benefit on residential property under section 13sex of the Income Tax Act. This allows purchasers of residential units to ‘write-off ’ a percentage of the cost of buildings, or improvements thereof, acquired or built after 21 October 2008.”
Property is an exciting asset to invest in when you genuinely understand it. Most people think investing in property is buying a massive chunk of land or a building. But it’s not necessarily the only way to do it.
There are different forms of property investment:
- Buy-to-let: you buy a property and rent it out to tenants. This form of investing provides you with high capital growth, especially in and near city areas where people are not looking to settle down to buy their own house. You may also want to consider renting to commercial tenants, as they may be more stable, sign a lease agreement for a longer term, and pay higher rent.
- Indirect Investing: using real estate investment trusts (Reits), unit trust funds, property company shares or land banking schemes allows you to invest in property through shares and stocks instead of holding actual physical property.
- Property flipping: you can buy an old, damaged property that may not sell on the market for a high amount and renovate it inexpensively. After that, the property can be sold for profit.
- Rent out a room: one of the most accessible investment strategies for a quick, lower amount of income for your everyday needs would be to rent a room in your house or an outside cottage, as done on Airbnb. You could even rent your entire home when you and the family are away on holiday.
For any sort of physical property investment, there are always additional costs involved. These include tax on rental income, bond repayments, insurance, administration and agent fees, so be prepared. Always ensure that the rental yield or selling price factors in all these costs.
Finding a tenant is not always easy; you may need to start the first few months on the market without tenants. Make sure your finances can stomach paying certain costs until then.
In choosing a property, remember “location, location, location”. Look for areas that are on the rise. Think about areas where youth may want to start their adult life, places where families may wish to settle down. Think about areas where old people may wish to retire. The location of your property will determine the degree of success of your investment.
Nothing is guaranteed in this life, but one thing you can count on is that the ground under your feet is not going anywhere unless there is some earth shapeshifting. Investing in property with its risk remains a better bet compared with others if done correctly. Yes, depending on the market, economic indicators, interest rates, certain investment factors may vary. Still, you can count on a tangible asset that, if taken care of, will take care of you.
Nicolette Mashile is the co-host of the SABC1 talk show Daily Thetha, an actress on Generations and the founder of Financial Bunny, a financial literacy platform. She has now written a book, What’s Your Move? A Collection of Ordinary Financial Lessons.