Investing in property a smart move?

Andrew Carnegie had a point when he said that 90% of all millionaires become so by owning real estate just look some of the Forbes list entries: Minoru Mori (Japan) $1.9B, Donald Bren (USA) $12B, the Otto Family (Germany) $17.6B and we all know Donald Trump.

Looking at these fortunes – all amassed by investing in property – one might be forgiven for thinking it’s too good to be true. And to a degree it is; certainly not everyone who speculates in the real estate market makes money; in fact many have dabbled in the market only to lose badly. Most investors, including the successful ones, will tell you story after story about bad properties and the lessons learnt there.

It’s clear that there is money to be made in property but, how to do it? “Whether you’re buying a property to live in or as an investment the key at the moment is to take a long term view. The local real estate market is barely recovering and the smartest move at this point is to hold on to your property if at all possible”, believes Jan le Roux, CEO of Leapfrog Property Group.

Le Roux goes on to indicate that he wouldn’t advise buying property to let at the moment; “If you need a home to live in - purchase, if you’re looking for a buy-to-let investment however I’d advise you to bide your time.

A group of property authors confirmed this point of view at a recent breakfast held by the South African Real Estate Investor magazine. Pieter Louw (From Poverty to Property), Jason Lee (Making Money out of Property in South Africa), Mike Smuts (Buying London Property) and Gordon Mackay (The Streetwise Millionaire) have all used property to create wealth and in most cases believe in holding on to an investment for the mid-to long term, they were also unanimous that you only buy when the numbers make sense.

American investor and billionaire Warren Buffett recently made news by claiming that he would buy thousands of American homes at distressed prices if he could find a way to manage them all. As with anything Buffett says thousands across the globe scrambled for ways to apply his strategy locally. In South Africa however the situation is markedly different: “Whilst the local property market has been affected by the liquidity issues it hasn’t hit the same all time low as the American market. As such prices here are not as reduced and investors will have to look harder to find those bargain gems”, says Le Roux. He goes on to state that investing at present is still risky if the plan is to re-sell quickly. The best way to hedge your money at this point is to take a long term view and to hold on to the property. "Short term investors should look at other markets but potential homeowners can buy now".

The South African market may not have bottomed-out but, if like Gordon Mackay, you take a long term view of investing in property there are still deals to be made locally. Jason Lee shared a few pearls of wisdom in this regard:
·         Run your own race, i.e. invest at your own pace not trying to keep up with the guy who has a portfolio of sixty plus properties.
·         Quality over quantity: “rather own one good property than ten bad ones”, believes Lee.
·         Building a portfolio takes time and more importantly patience – bide your time.
·         Be a seller of every property you own – at the right price.
·         Reinvest the money from your property sales into investment property.

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