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Tips for building a successful property portfolio

Although there are many ways to structure a property portfolio so that it achieves good returns, certain strategies have proved especially helpful, says Bill Rawson, chairman of the Rawson Property Group.

The first of these, he says, is to create and build on a relationship with a reliable bond originator and/or bank who, having got to know you, will often be able to offer finance less expensively than the norm, ideally locking you into a fixed low rate for a long period.

Obviously, says Rawson, the investor should continue to test alternative finance sources but in practice it has been found that certain originators or banks will consistently give lower rate finance to investors they know and have come to trust.

“It is also important to appreciate that very cheap loans may come with conditions and catches that can be difficult to meet” says Rawson.

His second tip is to keep an open mind about alternative types of property and areas.

“Many investors,” he says, “are reluctant to move away from comfort zones in which they have already been successful, for instance multi-unit apartment blocks in high demand areas.

“Knowing that this market has in recent years had very few failures and in general gives excellent returns they stick to it, in the process possibly ignoring other types of property investment (for example, in outlying suburban areas) which might give even better returns, especially if investors can afford some form of renovation.”

Every strategy, says Rawson, should make allowance for eventual interest rate rises – rents in particular have to have an annual escalation clause.

“With every investment strategy,” he says, “you need to bear in mind that although interest rates are low at present, these may not be in place forever. If, as seems likely, the USA does raise rates either at mid-year or later this year, South Africa will almost certainly be forced to follow its lead to keep our government bonds attractive to international investors.

“Portfolios on which the profit margins are exceptionally lean may find themselves stressed by interest rate rises – we have certainly seen this happen in the past. It is therefore important that investment strategies do allow for some increase in the interest rates.”


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