Real Estate Investor Magazine South Africa May/June 2019 | Page 43

C
ontinued local and international market volatility has
many South Africans actively looking to create a prop-
erty portfolio. Gary Palmer, CEO of Paragon Lending
Solutions, looks at how to take advantage of stalling property
prices and what’s shaping up to be a buyers’ market in order
to get started.
can hit a snag. When preparing your forecasts for lenders ahead
of your next purchase, make sure you factor in a couple of months
without your rental income. Should your tenants suddenly depart
you don’t want your investment plans to fall apart – and you can
be sure your potential lenders for the new property will have done
the same when they assess your risk profile.
Capital growth can’t be your cornerstone
Many new investors will see a great property in a good
area going for a good price and think this equates to a good
investment. Investors should be looking for properties which
immediately generate income and have the ability to deliver
sustained, secure income growth over time. Just focusing on
the property appreciation over time will not yield the kind of
growth your portfolio requires. Properties drain cash. Upkeep,
increasing rates and taxes and other expenses mean investors
must look for good cash-generating properties if they hope to
build a growth portfolio.
Consider partnering with a high net
worth individual
The earnings and serviceability of your first property, rather
than its resale value, will be closely scrutinised by lenders when
you look to secure a loan for the next property purchase.
It’s also important to remember that it’s not just about
maintaining a property, investors need to constantly find
ways to nurture their investment over time. The days of yield
compression are over, and you now need to find ways to add
value to your tenants and the property itself.
Local is attractive
The lure of owning international property can be
intoxicating and, if you can, you should spread your portfolio
to include some exposure to foreign income. However, the
local market is currently offering excellent value. More than
this, being close to your asset means you can take a much more
effective and hands-on approach in terms of managing and
overseeing your investment. As one property investor wisely
said, you will make more money from a property within a one
kilometre radius of your head office than anywhere else.
Build a risk margin into your return
forecasts
Buying a property that has great returns is the goal when
starting a portfolio, but it’s prudent to be realistic about your
future – especially when you are looking to add an additional
property to your investments. Signing long-term leases with
stable tenants is a sound first step, but even the best laid plans
Getting into the property market can be a challenge.
South African lending models are generally geared towards
people who either have a strong balance sheet or who have
good equity. If you want to get a foot into the door you need to
be out on the road and finding the really great opportunities.
Fortunately, there are a number of deals to be had at the
moment and many investors are capitalising on this.
Partnering with a high net worth individual is one way for
new investors to get started. As with all business partnerships,
making sure there is a good cultural fit, a common vision
and long-term expectations, and that all the partnership
agreements and paperwork are settled is paramount.
Many a successful property portfolio has been built on a
Find, Bind and Grind partnership. This is where someone
puts in the work to find a great deal, the other puts together
a great deal and business plan to make the investment work
and finally the investment is made to do the work (grind). In
this way, it may even work out that the partner who found the
property doesn’t even put money into the deal, but rather does
all the work required to make the investment profitable.
Whatever the method you choose when starting a
property portfolio, it’s important to remember that there are
independent lenders who can introduce you to a network of
potential investors. More importantly, they can help you find
one that best suits your unique needs and investment vision.
RESOURCES
Semaphore Communications
SA Real Estate Investor Magazine MAY/JUNE 2019
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