Real Estate Investor Magazine South Africa February 2015 | Page 17

upfront

Direct investment in property
Owning property, whether in your own name or in
an investment vehicle, such as a trust or company,
is the most efficient way to create wealth. There are
various property investment strategies which can be
implemented, each of which involves its own risks and
benefits.
Top Tip
Property investment strategies, in practice, are rarely blackand-white. More often, investors employ hybrids of the
different approaches. For example, an investor may acquire
a run-down property to renovate and then rent out. Select the
strategy or hybrid that best suits your risk appetite.

Buy-to-hold
A buy-to-hold strategy involves investing in a
property with a long-term view of 10 or 20 years, in
order to benefit from the natural long-term capital
appreciation of property, which over the past 20 years
has averaged 10.5% a year for residential property in
South Africa. An investor may also use this strategy
to acquire property that is likely to appreciate in value
as a result of developments in the area. As the value of
the property increases over time, the equity (the market
value of the property less the mortgage balance) can
be accessed through selling the property or, preferably,
refinancing or using the property as collateral for a
loan. This applies equally to types of property, from a
primary residence to vacant development land.
Buy-to-sell
In boom times, when property values are rising rapidly,
some investors make spectacular profits using this
strategy. However, just as many investors burn their
fingers in exactly the same way. The objective is to make
short-term gains based on high property price inflation.
Speculating with property involves buying a property
to sell at a higher price in the short term, so for this
strategy significant short-term capital appreciation is
critical. This is, however, a very risky strategy, since the
capital appreciation may not be realised or a buyer may
not be found and the investor could be stuck with a
long-term commitment that cannot be honoured.
Fix-and-flip
A “fix-and-flip” property investment strategy involves
buying a run-down property in a good area and making
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an additional investment to renovate the property,
which can then be sold at a substantially higher price.
It is less risky than simply speculating on short-term
capital appreciation, because the capital appreciation
is not based on market factors, which is beyond the
investor’s control, but rather on adding value through a
calculated investment in upgrading the property.
Buy-to-let
Buy-to-let property investment is the superior strategy
for one simple reason: it delivers an ongoing, passive,
inflation-linked income as well as ongoing capital
growth. The model is supremely simple - it is really a
matter of understanding a common sense strategy and
implementing a proven system that can be encapsulated
in just six steps.

SIX STEPS TO BUYTO-LET PROPERTY
INVESTMENT

1. Find a well-chosen property in an area with good rental
demand and good prospects for future capital appreciation,
harnessing the expertise and experience of a property
investment club and using custom-designed software to
ensure the numbers add up to a solid investment choice.
2. Obtain the ri