Let’s say you buy a property for R750k and put down a 10% deposit and pay all bond and transfer costs so that the total initial expense out of your pocket is R120k. Now let’s say the property shows capital appreciation of 5% per year over 5 years. This means that the property will then be worth R957k, growth of R207k. This implies the return on your R120k investment is an astounding 172%!
Yes, there are other aspects to bring into consideration like any cashflow shortfalls over this period where the rent did not cover the bond and all other expenses, but the point is still very clear, and the performance exceeds the stock market at a substantially lower risk.
With many other investment options one of the main concerns is to really understand the risks you will be facing, and 99% of people do not have the necessary background or skills to do so. With property it is a very different picture, and most people can learn how to understand and manage the risks themselves. And even if some of the risks play out, the net impact on their investment might be to reduce their profit, whereas with most other investments there is very often a risk to your capital as well.
Do you need to save for a child’s education? If you buy a good investment property by the time your child goes to school, it will often be paid off by the time they matriculate with most of the money coming from your tenants. A typical R750k apartment will yield enough rental income to fund their classes and books for most courses. And if you need more you can then refinance the property to borrow the money you need, and the tenants will simply pay the “student loan” off for you. If your child needs to change direction or do post-graduate studies, you will be able to afford that too.
The best part? After they have finished their studies you will still have the asset and the income that goes with it into your retirement years.
Speaking of retirement, owning a number of paid-up properties is a great way to supplement your pension income. If you can purchase your first investment property while you are in your 30’s or 40’s, and have a plan how to grow this into a portfolio of properties, this can be fully within your grasp.
Many people have a desire to start their own business – whether full-time or as a side hassle, having access to start-up capital is very important. Commercial loans are expensive and come with tight pay-back terms and conditions that often doesn’t leave enough breathing space for the business to flourish. But if you own a property which you can refinance, then not only can you provide capital to your business at a much lower interest rate and lower monthly installments, your tenants will be paying off that loan for you. Now your fledgling business will have a much better chance of survival.
Every once in a while, an amazing opportunity comes by to purchase a valuable item at a huge discount. If you have funds available, you can grab the opportunity and make some good money from it. If not, you can only shake your head and think “if only I had…” But if you have owned a property for a number of years, you will most likely have money available in the bond or be able to refinance the property to get hold of some capital. Times like these the expression “It takes money to make money” can become true for you.