Five golden rules that investors should follow
Rodney Hayter
The property market frenzy may have substantially slowed, but investors can still look forward to nearly a decade of serious money making, says Andrew Schaefer, M.D. of residential property manager Trafalgar.

“But,” he cautions, “investors will have to relearn the traditional investment rules, ” which in his view there are five golden rules they should follow

“Firstly, property is traditionally a long term investment,” notes Schaefer. “You should focus on building your wealth over decades rather than months or years. But the sure, steady and compounding growth in income will make that wealth certain.”

And rule two is you should concentrate on income rather than capital growth. “Having a piece of land worth X rands is not wealth. Having steady income in your back pocket from a portfolio of flats is. Concentrate on the income and the capital will tend to look after itself." Returns today on flats are rarely above 5%. High-risk inner-city flats return below 10%. But that’s more income than on an empty piece of land.

Rule three: accumulate, don’t rush. Accumulate a low risk portfolio and you will end up with a decent living. “You could make quick money by buying off plan when prices were rising by 30% a year,” he says. “Now you must take your time.

Rule four: choose a niche and become an expert in it. “It can be quite a small area like a city suburb or even a street of shops and flats.” The property market is imperfect because information on it is not easily available, so you can quickly dominate your chosen territory

Rule five: a home with a big bond is not an investment. “People tend to buy bigger houses and take on bigger bonds as their jobs improve,” says Schaefer. “But you are paying large monthly installments – after you’ve paid tax. You’ll make far more money living in a smaller house, buying rented flats or townhouses with tax deductable bond payments. But you can use your house to a limited extent to raise, say, a deposit to buy an investment property.”

Article by: Rodney Hayter -