Best to invest?
Category Advice
Property is an investment that, time and again, shows to be a resilient one... if the investor is willing to play the long game.
This is the view of Steven van Rooyen, Principal at Leapfrog Milnerton, who adds that it is almost always a good time to invest in property. "One of the things investors frequently say appeals to them about property is that it is a tangible investment - you can physically touch your money!" Van Rooyen shares but adds that investors need to bear in mind that the mere building itself is not what makes for a worthy investment.
"A property becomes a worthy investment when you make it work for you, which starts with being clear on what your goals are with the investment, and to ensure you approach it with both caution and an open-mind, and with a trusted property professional by your side," he says.
Clear goals and patience
Investors all have different goals, ranging from fast capital growth to a longer term approach to ensure regular retirement income, for example. "Your ultimate goal will determine your approach and thus the decision around the kind of property to invest in. It's important to be clear on your goals as it impacts many decisions taken around the investment," Van Rooyen says.
Patience is an important virtue with most investment types and property is no different. Building a robust property portfolio takes time. Even getting to the point where a bonded buy-to-let property is bringing in noteworthy income can take a long time. As such, a long-term strategy, devised with the help of a financial planner and a property advisor, is crucial to managing your own expectations.
Money matters
Naturally the goal with any investment is to make money, but bear in mind that it is also going to cost you money - particularly at the beginning of your property investment journey. Van Rooyen explains that the first major consideration is the cost of the investment property - irrespective of whether it's a cash purchase or bonded. "In the case of an investment that will be bonded, consider working with a bond originator like BetterBond to get pre-approval on a loan amount so that you know what types of properties you can afford, as this will also inform your investment strategy."
Other costs associated with the investment will be similar to those one has when purchasing a primary residence property, such as transfer duty, bond registration costs, occupational rent and, of course, rates and taxes, levies and general improvement and maintenance costs.
Distinguish between rental yield and capital growth
Seasoned property investors understand the difference between rental yield and capital growth. Simply put, rental yield is how much money you make from renting out a property while capital growth refers to the value of the property over time. "Both rental yield and capital growth are important considerations with an investment property but not to the same extent and not at the same time. Again, it depends largely on the investor's financial goals and expectations," Van Rooyen says.
The goal with an investment property is capital growth, which is why long-term performance should enjoy priority over rental yield. The short of it is that capital growth is the value of the property over time, while rental yield is simply the monthly cash flow.
Last but not least
Whether you're about to invest in your first investment property or adding to a dynamic property portfolio, the next purchase is always a big deal and it pays to heed the following advice points too:
Invest in a growth area: Opt for property in an area where there is sufficient demand for rental properties just makes sense if you're buying to let. A property advisor is your go-to resource for information in this regard.
Opt for practicality over luxury: A rental property only needs to be neat and in working order. Forget the bells and whistles - you want to make money, not spend money.
Use your head, not your heart: Property can be an emotional purchase, but shouldn't be when it comes to an investment property. It is simply the vehicle through which you are going to make money. Opt for one that's going to drive the highest investment returns, rather than the one that you felt "spoke" to you on a deeper level.
Author: Leapfrog Property Group
