Tips on property investment

from one of the most experienced people in the game...

Throughout his 35 years in real estate marketing, he has regularly and steadily invested in property – and this has proved to be financially and emotionally rewarding, says Bill Rawson, Chairman of Rawson Properties.

“I am always surprised that others have not also been investing in property,” said Rawson recently. “It is really not that difficult provided that you do your homework, study the market and work with an agent with a proven track record.”

Successful property investors, said Rawson, devote time to familiarising themselves with their fields of operation. They strive to understand current trends by reading newspaper advertisements, visiting show houses and attending auctions. They find out who the likely end-users i.e. buyers or tenants will be, and what such users can probably afford.

Rawson recently told a small group of mostly retired investors, keen to put money into Cape residential property that property is the logical investment channel for intelligent, retired people.

“It still surprises me,” says Rawson, “how often eminent professionals such as yourselves who are known for the thoroughness with which they tackle legal, engineering and medical work will go into property almost on a whim. Often they do quite well, but seldom, in my experience do they maximise their potential profit.”

Common mistakes of amateur investors, said Rawson, are:

  • To buy in response to an emotional stimulus, often simply because they like the property or are influenced by clever marketing hype. Frequently, he said, this will lead to paying above the market price.
  • To accept the advice of a friend without getting full details or second or third opinions.
  • To neglect the management of the project or, if this is handed over to an agent, to be slack about checking up on the agent’s performance.
  • To go into the deal without a game plan – and then to panic when conditions get difficult. The game plan, said Rawson, should always include a worse-case scenario and spell out the implications in this situation.

Ideally too, property investors, he said, will divide their portfolio into long-term (10 years +) and short-term prospects, designed to bring in a quick profit. When selling they will recognise the importance of leaving some fat in the deal for the next buyer.

They will too, recognise that good opportunities crop up regularly and they will befriend local agents so as to be the first to hear of these. On occasions they will put in a really cheeky low-price offer knowing that these occasionally bear fruit. They see the renovation potential in buildings and build up teams of trustworthy artisans and designers to help them double or even treble the value of such buildings.

They resist greed, limiting their portfolio’s debt to manageable proportions, use bank finance regularly and keep reserves for times when there could be a downturn.

“The great advantages of property,” said Rawson, “are that there are very seldom hidden factors of which the investor is ignorant. In this respect property is very different from the average Security Exchange share where the company can limit the supply of information to its public. In property the likely factors to influence values, e.g. interest rates, shortage or over-supply of stock, defaulting tenants or similar problems, can usually be understood and factored in so that you are unlikely to be caught out down the line. In recent years there have been very few properties that did not increase in value at at least 10% + per annum.”

Right now, said Rawson, is a good time to invest in the residential property market because the higher interest rates, the National Credit Act, the falling rand, higher inflation and a degree of uncertainty about the South African political future have stopped home and apartment prices rising at their previous rates – so there are now good bargains on the market.

“It is now quite clear that the current 4% to 5% returns on residential property will improve this year. I am confident that we will see to 6% to 8% returns and these will raise the capital values on all residential property.”

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