Real Estate Investor Magazine South Africa November 2013 | Page 15

UPFRONT
A direct investment in propert y, using
the tried-and-tested principles of acquiring
income-producing and capita l g row thgenerating property assets, remains the most
effective and eff icient way for individual
investors to create wealth.

straightforward and based on tried-and-tested
property investment principles.

investing would be companies that employ the
same strategy.

1. Acquire a well-located property in an area
with strong current and future rental demand
and capital growth potential.

However, many investors are becoming
increasingly frustrated by the stringent lending
criteria imposed by the banks, which is proving
to be a signif icant obstacle to building a
property portfolio, even now when interest rates
are at historic lows and the property market
favours buyers.

2. Apply the principle of gearing or leveraging
by acquiring the asset through finance.

Fortunately, investors do not have to search
far: the strategy of building a portfolio of
propert y assets that produce an ongoing
inf lation-linked passive income as well as
ongoing steady capital grow th over the
long term, while harnessing the power
compounding, is not restricted to residential
property – works just as well in commercial
property sectors, including office, retail or
industrial property.

Strategy vs tactics
Etienne Pretorius, speaking about building
a property business at the recent SA Real
Estate Investor Magazine annual Wealth
MasterClass events, explained the difference
between strategy and tactics in a succinct way:
strategy is the long-term vision and goals an
investor has set, while tactics are the shortterm moves, more responsive to current
realities, which are implemented to achieve
the long-term goals.
Pretorius pointed out that in the dynamic
and uncertain world we live in, there are many
challenges to overcome to realise a longterm strategy. But these challenges often
require a change in short-term tactics, not the
abandonment of long-term goals.
Applying this insight, property investors
frustrated by the challenges of obtaining
f inance to acquire income-producing and
capital growth-generating property assets may
want to consider a change in short-term tactics,
instead of abandoning their long-term strategy
of creating wealth through property.

The strategy
The long-term strategy for most individual
investors is fairly straightforward: build a
portfolio of property assets that produce an
ongoing inf lation-linked passive income as
well as ongoing steady capital growth over
the long term, while harnessing the power
compounding, which Albert Einstein called
“the eighth wonder of the world” and underpins
both these multiple streams of returns.

The tactics
For most individual investors, the short-term
tactics to achieve this long-term strategy is also
www.reimag.co.za

3. Let the property to a thoroughly-screened
and well-selected tenant through a water-tight
lease with built-in rental escalation clauses.
4. Use the income generated from the tenant’s
monthly rental to cover the finance repayments
and property expenses, including maintenance.
5. Benefit from both the ongoing monthly
income and the capita l grow th to earn
impressive returns over the short and long term.

Change of tactics required?
Since the current property market favours
buyers, interest rates are at an all time low, and
the rental market is strong, the real obstacle
for individual investors in