INVESTING IN PROPERTY

INVESTING

in property

WITH THE CURRENT VOLATILITY IN GLOBAL STOCKS, IT IS NOT SURPRISING THAT MANY INVESTORS ARE REDIRECTING THEIR FOCUS TO THEIR PROPERTY PORTFOLIOS, WRITES CAROL REYNOLDS

Property has always been perceived as a relatively stable investment class and if correctly geared, it can be a wonderful vehicle for longterm wealth creation.

Savvy investors will leverage their property portfolios and effectively use other people’s money to grow their asset bases. However, many of our clients are unsure about which strategy to adopt: a simple long-term strategy of acquiring stock and tenanting it for capital growth and ongoing returns; off-plan investing to enjoy the tax savings that come with owning multiple off-plan units and the benefits of VAT inclusive prices; or renovating and flipping for faster shorter-term gain.

The acquisition costs associated with buying property, make flipping for profit a fine balancing act. If this is your aim, then it is ideal to purchase a property that requires cosmetic changes rather than structural ones, as the key is to avoid spending more than 15% of the value of the property on renovations. If the renovations are extensive – and therefore expensive – you may need to hold on to the property for a period of time in order to maximise the gain.

If you are looking to flip, then acquisition costs need to be factored into your sums, and capital gains tax also needs to be taken into account. Ideally,

Looking at medium to longer-term investment options, there are essentially three key factors to bear in mind: risk, return and growth

you want to buy for under R2-million, spend a maximum of R300 000 renovating, and then achieve a gain on the resale of at least 10-20% of your total expenditure, after costs. Your sums need to include finance costs, transfer costs and then capital gains tax. Some investors prefer to play in the market under R1-million because transfer costs are much lower (R25 000). However, in this price category there is a risk of over-spending on the renovation, then struggling to recover the costs on the sale.

At a higher level, serial investors may be seeking larger scale speculation projects. There is more significant upside on these transactions, but they come with holding costs and greater risk. A good example of a speculation strategy is to purchase vacant land in estates and to develop multiple homes simultaneously to keep building costs down.

The profit of turnkey solutions in estates can be significant with many speculators making in excess of 15% profit. Always evaluate demand and then cut your cloth accordingly. Also be mindful of not aiming too high – it is critical that you build a “sellable” home, which means targeting the middle market rather than the top-end, as there are far more buyers circulating in the median price bands. For example, it is preferable to build and sell two R5-million homes than to build and sell one R10-million home. Ideally, if you are able to sell your plot-and-plan before construction commences, you

ABOVE: Carol Reynolds, Pam Golding, uMhlanga and Durban North.

have a winning formula.

Looking at medium to longer-term investment options, there are essentially three key factors to bear in mind: risk, return and growth. If minimising risk is important, then you should consider a diversified portfolio or perhaps a portfolio with lots of entry-level investments spread across a few nodes. If you have a lot of money to invest, then perhaps long-term capital appreciation is your main priority in which case you require a solid investment portfolio in the most soughtafter areas.

When taking risk into consideration, tenant profiling is key. To this end, statistics show that the most reliable tenants are those in the R8 000-R20 000 a month category. This means that from an investment perspective, properties that sell for between R1-million and R3,5-million are your best investments in terms of rental returns. As a new property investor this is the best way to get started as your risk is minimal, your borrowing needs are small and if you ever need to quickly off-load a property, this price range is the easiest to sell. There is also an abundance of tenants in this price category, so there is very little risk of your property sitting vacant.

In a nutshell, the best way to minimise risk when investing in property is to thoroughly research area demand and price ceilings per area. We are fortunate in that the North Coast of KZN continues to be a high-demand area and hence investing in suburbs like uMhlanga is generally safe and your property investments should attract tenants and/or buyers with relative ease. *

Durban North office · 031 573 6000 Umhlanga office · 031 561 5300 Umdloti office · 031 568 1299

Umhlanga Rocks / R22 million

Ref# 1ND1569079 Bedrooms 5 / Bathrooms 5 / Parkings 3 / Embrace the Umhlanga Coast Lifestyle in this exciting new Penthouse release! This Penthouse is a great seaside investment for either tranquil permanent living or a holiday home. Delmarie Holing 084 727 2144

Umhlanga Rocks / R5.85 million

Ref# 1ND1586387 Bedrooms 2 / Bathrooms 2 / Parkings 2 / The Umhlanga Arch is known for its cosmopolitan lifestyle, state-of-the-art security and modern finishes. This apartment offers another fantastic benefit - dream views and a position.

Adine Marcon 0171 679 4806

Glenashley / R9.98 million

Ref# 1ND1563805

Bedrooms 7 / Bathrooms 6 / Garages 2 / Flagship of Glenashley. Modern and stylishly designed, master precision built home. Complete perfection with exceptional finishes, overlooking quiet neighbourhood. Belinda Du Plessis 082 258 9631

Somerset Park / R4.395 million

Ref# 1ND1588003 Bedrooms 4 / Bathrooms 3 / Covered Parkings 2 / An ideal family home in tranquil Somerset Park. Situated on this peaceful property in Somerset Park is this beautiful family home. A double carport and an automated double garage which has an interleading door to the main house. Bharthie Gangaram 082 434 5359