7 top tips for property investors

In his blog Tony Clarke, MD of Rawson Properties, shares property investment tips with young investors.

I have recently been in touch with two adventurous young South Africans who did a two-year stint in Afghanistan where they earned in the region of R50 000 per month - far more than either ever earned in SA.

One came home and blew most of his savings on a R400 000 car.  The other, on my advice, put the same amount into buying a flat at Gordon's Bay and an old, cheapie car. 

The two are likely to return to Afghanistan in two years time.  By then the expensive car, if sold, will have lost almost 50% of its value, but the cheap car will probably sell at very close to what was paid for it.

The Gordon's Bay flat is producing a rental of R48 000 per annum, which will rise at 10% annually on a compound basis. It will also appreciate at 8% per annum, giving it a value in five years of R590 000 (47% up on the purchase price).  By then, too, it will have generated an income of R360 000. 

Which of the two young men has shown the most investment sense?

I have 7 pieces of advice for other upwardly mobile people contemplating property as an investment, all of which have been tried and tested in the market and in my own career.

1.    Accept that property is always a long term investment with ups and downs.  If you are out for a quick buck, you will not find it in property. 

2.    Secondly, set yourself the goal of building up a property portfolio which you expand steadily.  Do not sell your investment property, even to buy another.

3.    Third, do not rush this process:  avoid the temptation of buying many highly-bonded properties.  Rather buy one and gear it correctly before you move on to the next purchase.  Later, as your income increases, it may be possible to buy more than one property at a time.

4.    Fourth, diversify your portfolio.  Try to invest in both freehold and sectional title residential property, as well as small commercial and industrial units.  Try also to avoid being in one area. The markets fluctuate: if you are spread wide this will cushion the rises and falls.

5.    Fifth, accept that your own home is part of your portfolio.  Too often, as salaries increase, so does the desire for a bigger and better home, resulting in huge bond repayments.  Rather have a moderate home and save by having a small bond here and use the spare cash to buy elsewhere where you will earn rent.

6.    Sixth, unless you face financial disaster, do not sell.  The ancillary costs of buying and selling are high - you will have capital gains tax, agent's fees, transfer and conveyancers' fees - all of which will eat into your profit.

7.    Seventh, focus on income rather than capital growth.  The more cash you can actually collect monthly, the better your chances will be of buying elsewhere.  Focus on the cash and the capital growth will look after itself.

Our company has dozens of investors who have faithfully followed this advice and are today sitting on comfortable nest eggs.

Got other tips to share with property investors? Tell us below Tony's blog.

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responses to this article

Sage, simple advice It's not complicated. by Simple Simon Says on February 05 2010, 17:21 Find this comment inappropriate? Report it

Gordons bay? Where by Sniffer on February 05 2010, 17:40 Find this comment inappropriate? Report it

Good advive Remember folks it takes time, you will be 20 years older and your investment properties bonds paid off before you know it, Overnight success ALWAYS takes twenty years. (Then buy the fancy car or the boat) by andrewa on February 05 2010, 23:42 Find this comment inappropriate? Report it

gordons bay buying a flat in Gordons Bay or Buying a Renault. you wont find anything else in either asset class that will devalue faster. by bbflames on February 06 2010, 08:53 Find this comment inappropriate? Report it

A few false assumptions Property going up 8% a year over the next 5 years - with the real price still 50% over valued I think this is wishful thinking. Rents going up 10% a year over the next 5 years - inflation presently at 6% and dropping - The Argus food basket y on . .more y is presently over 20% down on 12 months ago - plus house prices falling - tell me again why rents should keep going up 10 % a year. . .less by CJ Says on February 06 2010, 15:21 Find this comment inappropriate? Report it

Supply, demand You tried renting a place lately CJ? People queue in certain areas, esp in Cape Town. by Fred on February 07 2010, 08:31 Find this comment inappropriate? Report it

Gordons Bay is NOT Cape Town People may be queuing to rent in Cape Town City Bowl, but Gordons Bay is a one-horse dump where old Kaaners go to die. Well done, though, Tony, getting your little cash-drunk mercenary to part with R400k - at least one property has sold in GB in the last . .more year. . .less by Chucky on February 08 2010, 02:33 Find this comment inappropriate? Report it

@Fred Confirm that. Just flown down to Cape Town last month to let a batchelor unit in the southern suburbs. Rent was R3 500 last year, it's R4 000pm this year. What is that, 14%?There were over 60 interested parties, I took the best 5 applications and had . .more to chose one. I could have let this unit ten times over. Peolpe arrived with R8 000 cash to seal the deal. One person wanted to pay the entire years rent upfront!! To say there was HUGE demand is to vastly understate it. . .less by CT Landlord on February 08 2010, 09:02 Find this comment inappropriate? Report it

bwahahaha The same tired old "advice", none of which is anything more than luring idiots into bad investments by The Bubble is Popping - what is there to NOT understand? on February 08 2010, 09:27 Find this comment inappropriate? Report it

Top Tips Indeed, can't go wrong here by ea on February 08 2010, 09:45 Find this comment inappropriate? Report it

@The Bubble is Popping Can somebody please explain to me what all these supposed anti-property "experts" are doing on a property website ???????? Very bizarre :-) Is it a case of Stokholm sindrome or are they just plain stupid??? by Frikkie on February 08 2010, 13:16 Find this comment inappropriate? Report it

@Frikkie I'd suggest mostly the latter... by Obs on February 08 2010, 15:24 Find this comment inappropriate? Report it

biased article this article are clearly written from a biased perspective frikkie...it assumes that the investment universe consists only of property (diversify - buy freehold and sectional title...weak, both suffer in a down market). Pay less rent and buy another house . .more instead of a bigger house...hmmm more agent fees. It is a property website, but it is devoid of proper advice still. Simple advice - buy when prices are low, sell when they are high... . .less by whips excite me on February 08 2010, 15:28 Find this comment inappropriate? Report it

Go lash yourself whips excite me, not by Fanny on February 08 2010, 17:22 Find this comment inappropriate? Report it

7 tips If rental income is R48k in year 1 and then increases by 10% pa the total income is R293k at the end of year 5 and not R360. by flatmate on February 09 2010, 16:04 Find this comment inappropriate? Report it

TIP NO 8...DONT BUY IN GORDONS BAY...TIP NO 9...DONT BUY THROUGH AGENTS As a property investor,I never buy via a estate agent especially at the fact that I pay cash. My best investment return in property have comethrough bying at a auction (sheriff or private). Also dealing directly with owners have saved a minimum of 10% off . .more the price. As for Gordons Bay, that suburb must surely rate as one of the worse places to invest in with the market...typical Tony 'baloney' Clarke selling a dead horse to a unsuspecting buyer . .less by WTF on February 09 2010, 18:16 Find this comment inappropriate? Report it

Wishfull thinking Your advice and example is what a child knows,but without the finer points which u dont want to know about. Your property is only worth what somebody wants to pay for it. Please mention how people have lost money on property, like buying just before . .more the slump in prices. They say 6% increase this year,what about the 20 % loss last year so u wont be richer just got 6 % back from the 20 % loss. Also buying in wrong areas,like Parklands thats going down the drain,,whats happening to the value of property there i wonder. Just a thought . .less by alan barker on February 10 2010, 10:39 Find this comment inappropriate? Report it

@ Frikkie You leave the property guys alone to do their thing and before you know it the world is awash with subprime debt, banks are collapsing and the global economy is in meltdown. Someone has to stand up and point out that the emperor is naked because . .more if we leave you guys alone, you all go into a hyped up frenzy that relies on sucking in the unwary to feed your little ponzi schemes. And finally, I'm actually also a potential property owner - I just refuse to buy at bubble inflated prices. Let prices fall to where they should be and I could well be out there cruising the show houses. . .less by CJ Says on February 11 2010, 02:05 Find this comment inappropriate? Report it

@CJ Says Yes CJ, that brings us to an interesting topic, namely was it property speculators that caused the subprime crisis or was it rather greedy bankers that initiated reckless lending for short term monetary gain ? In my opinion, it was the latter. by Frikkie on February 11 2010, 07:59 Find this comment inappropriate? Report it

@Frikkie Once again, I think the latter. by Obs on February 11 2010, 08:44 Find this comment inappropriate? Report it

@CT Landlord Had similar experience with my property near UCT. Ended up letting the most qulaified tenants bid it out:). Otherwise, this model working well for me, although if you can find the right deals you can leverage up more. I really don't mind buying . .more stuff on credit that is worth 30% more than I paid. All you doubters- please sell me your homes at a discount. . .less by Dre on February 12 2010, 14:24 Find this comment inappropriate? Report it

@Dre Good to know. UCT catchment area has extra strong demand. Times like that I just wish I had more units to rent out. Actually, I say that every time I place an ad these days! by CT Landlord on February 12 2010, 16:58 Find this comment inappropriate? Report it

nett assets If someone impartial, I would really like to know what the average financial nett worth/assets is of all the participants in these comments who do invest heavily in property vs those who do not heavily invest in property?! by tjumi gonzales on February 15 2010, 09:11 Find this comment inappropriate? Report it

GB -properties Hey ,Tony's tips makes perfect sense and is proven over time no arguments but this sadly does not apply to Gordons Bay.In reality GB suck's as far as property values go.Perhaps Capetonians should shed their fears and start looking at Industrial active . .more areas like Gauteng & Mpumalanga for proper rental incomes plus investment growth- currently bargain time up here . .less by Eric Smith on February 15 2010, 10:57 Find this comment inappropriate? Report it

@tjumi Good idea, a show and tell session. Any one game? by Fred on February 15 2010, 13:11 Find this comment inappropriate? Report it

GB Properties I bought a 1bedr apartment in GB about 3 years ago. Everyone told me that I would struggle to rent it out as there was 800 rental flats standing empty. I have been fortunate to have good tenants each year since taking transfer and the apartment has . .more never once been standing empty. Go figure and stop trashing GB if you dont know whats going on there . .less by property investor on February 15 2010, 20:34 Find this comment inappropriate? Report it

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