Investment Property is the cornerstone of wealth. You can never truly be on the path to an early retirement without investment property anchoring your strategy. Here are 20 reasons why. Click on the picture above if these #20 reasons make sense and need a step-by-step guide to buy 1 within the next 6 months.
1. You can bet your house on it!
When the stock markets crashed in 2007 and investors lost over 60% of their value on the JSE, property investors held on to their net wealth. Property prices are not volatile. Have you ever seen a house go for R800 000 last week and then R500 000 a week thereafter? In contrast, what you do see is an average growth price of 11% p.a in South Africa.
Amid political unrest, slow economic growth, rand devaluation and general sentiment decline in South Africa, property has remained the safest storage of wealth accompanied by healthy capital growth rates. Even with the land expropriation threat property prices are rising in the urban areas. I love it when there is a market dip, time to get in! South Africans are looking at Dubai for investing in property when in actual fact the best bargains are here and it is way more cost effective and low risk option.
2. You do not need to be an expert
The elite wealthy had expert portfolio managers finding, negotiating and acquiring property in the past. There are also tips and tricks and loopholes to win at the property game. Which was not shared with us common folk. Those days are gone. Now, the average South African can also get in on the action of buying multiple properties, even on shoe string budgets.
3. Finding the right property is easy
Playing with stocks and forex requires a lot of education. You need to understand the complex world of financial instruments. You cannot go in half-baked. Investment property is simpler: You can immediately shop online on Property24 or PrivateProperty and look up for bargains. You get the location, spec, pictures, costs, seller contact and even videos. At the same time you can switch to the "For Rent" mode and look up what your rental income would be.
4. You do not need money to buy property
You may not know this, but lenders love giving you their money for property. The banks have a tangible asset as security and this is why they give up to 100% mortgage bonds. Do not believe the nay-sayers, SA banks still do give 100% bonds. We even have special "banks" called bond originators who have some tricks up their sleeve. Try Ooba or BetterBond. Better yet, my Property Toolkit deals with more interesting methods to obtain financing and buying multiple properties in a short space of time.
5. You can use leverage
You can use property to buy property. By using your existing house as security, you can borrow against your current home equity. This process can be tricky and if done incorrectly can ruin your wealth strategy, so make sure you read my book if going this route. Very few asset classes allow for you to borrow large sums of money against it. Some people buy cars, some horses, some boats. The best way to use your home equity is to buy more property, nothing else!
6. Rentals cost more than Owning
Contrary to what most believe, the truth is that when you calculate the cost of rental, it is much higher than buying a property. With property, your costs are the mortgage, rates and levies. With rental, your costs are rentals and increases. Key word being "increases". Bond costs decline due to inflation. Rental costs increase over time. At the end of the rental you have zero assets and grew your wealth by R'nil value. As opposed to buying, at the end of the mortgage bond you have an asset worth most probably twice the value after 10 years. Investment property results in someone else paying for an asset you will own in a few years time. Shocking to think that people want to even compare buying vs renting right!
7. Property is diversification within the asset class itself
You have multiple strategies to choose from: Buy, Sell, Subdivide, Renovate, etc. The property could even be rezoned for commercial use, then you are in the money!
8. 100% in your control
Unlike shares and bitcoin and other paper assets, property is actual brick and stone. You can break, build and improve as you deem fit. You can control the rental income amount and the lease terms. You can adjust the strategy to become more profitable. This is impossible with shares.
9. You can increase it's value substantially with low investment
When areas such as kitchens, bathrooms and living spaces are renovated, they can add on average 150% value against the cost. You have the power to improve the value before you sell. Flipping properties is a great way to make money and I made sure to include this book in my 5-book free bonus collection.
10. Subsidize your monthly living costs
Assume you have R600 000 cash and you want to buy a car. Instead of buying a R600 000 car, rather buy a R600 000 property and use the net rentals to subsidize the car repayment. Buy assets to pay for liabilities - simple rule. Property allows for this. Or launch a website (asset) and use the monthly income to buy property like I do.
11. Subdivide & conquer
Overnight millions were made in areas such as Harties (Gauteng) and Ballito (KZN) when large pieces of land were subdivided and sold for development. This trend has reached the cities where already small plots are being subdivided into shocking small sizes of 300m and sold at higher margins.
12. Property is cheap
Do not believe the newspapers sensational claims of how property is out of reach for most people. There is a property for every budget. You may need to look just outside your prime location, however, it is wiser to buy outside prime location than to not buy at all. You can compromise on size, location, age, garden, finish. Just do not compromise on the decision to get in! There are basic red flags and some hidden flags of what areas to steer clear from, which you may have read already in my book.
13. Price is always negotiable
Never believe or accept that price is not negotiable. If a willing buyer meets a willing seller and they can each compromise on something (eg. include or exclude curtains, appliances, furniture, etc.). The trick is to always offer less than the asking price. You don't ask, you don't get.
14. Property forces self-development
There's no doubt about it, that property investment sharpens ones financial know-how. The simple act of saving for a deposit teaches financial discipline; working the numbers in terms of affordability prior to purchase is essential, and once an investment has been acquired, the juggling act of dealing with costs, rental income and Tax requires some monetary dexterity.
15. Tax breaks - running costs
One of the fundamental monetary benefits to buying investment property is the fact that the costs can be claimed back from SARS. From the interest on the bond, repairs, levies and other costs for running the rental property business.
16. Tax breaks - Capital Gains & Exclusions
It is no longer beneficial to running the business via a Trust. There may be some benefits to owning it in your own name for Capital Gains and other primary residence exclusions (if you live-in before sale). Best to consult when it comes to Taxes or use industry toolkits.
17. You can borrow against your Pension Fund
Very few investment vehicles allow you to borrow money against your savings. Certain policies (pensions and annuities) allow you to access your savings to finance a property purchase.
18. You can hold on to it if the market crashes
When share trading, margin calls are a common feature, where if you’ve borrowed to invest in the share, the margin call is when you are asked to deposit more money if the assets in your portfolio fall below a certain amount. You are funding the loss. However, it’s almost unheard of for a lender to ask you to top up a mortgage if a property falls in value – as long as you can keep up the repayments, you’ll be able to continue holding your property until its value increases again.
19. You can use it
It is property after all. You can move in if things take a turn for the worse and try and hold on to it. You could allow a tenant to sublease it, to hold on to the tenant. You could rent it out for well under market value to ensure you have some form of income. Impossible to do this with a bar of gold.
20. Everyone is in the market and is the market
The property market is robust. Everyone needs a roof over their heads. The market is: Human Beings. There is no segmentation or geography divide. Investors make up a small proportion of the South African market, under 30%. The remaining 70% is fluidity at work - the needs of every day man to buy a home.
Enjoyed this basic property tips and tricks? Learn more from The Investment Property Toolkit for South Africans.