Property investment has long been heralded as a sound and smart choice for investors seeking to build wealth and secure financial stability and, with growing economic uncertainty making investors cautious, more and more people are adding real estate to their investment portfolios.
“With its potential for long-term capital growth, rental income, and, in some cases, tax advantages, property offers a tangible and reliable asset class that has historically outperformed other investment options,” says Yael Geffen, CEO of Lew Geffen, CEO of Lew Geffen Sotheby’s International Realty.
“According to the 2024 wealth report by Frank Knight, residential capital values grew by 3.1% across the world’s leading prime markets through 2023 and more than a fifth of global UHNWIs are planning to purchase residential property in 2024.
“And there’s a very good reason for this: not only does property investment offer the potential for passive income through rental yields, providing investors with a steady stream of cash flow, it can also act as a hedge against inflation, as property values tend to appreciate over time, preserving and growing investors' wealth.
“Property ownership therefore tends to offer better long-term financial security and, on another level, being a physical asset with intrinsic value it invokes a sense of security and stability.”
There are various property investment strategies for those who want to add bricks and mortar to their portfolios but Geffen cautions that it’s important to understand the various options in order choose one that best aligns with investors’ current affordability and long-term financial goals.
According to Geffen, investors the following options are well-suited to novice investors looking to enter the market:
Single Buy-to-Let Investments
The most common investment choice, single buy-to-let investments involve purchasing a residential property with the intention of renting it out to tenants.
This strategy offers investors the opportunity to generate rental income while benefiting from potential capital appreciation over time.
When considering property as an investment, investors should calculate the projected rental yield which is the annual income you receive in rent, relative to the purchase price of the property.
Rental yield: Annual rental income ÷ purchase price x 100
It’s also essential to carefully consider factors such as property location, rental demand in the area, and maintenance costs when evaluating buy-to-let opportunities.
Buy-to-Sell Investments
Buy-to-sell investments, also known as property flipping, involve purchasing a rundown property, intending to undertake renovations or refurbishments, and then selling the property quickly for a higher price.
This strategy is a little more complex and requires a keen eye for market trends, renovation expertise, and a thorough understanding of the target market.
If you choose the right property in the right area, there is the potential to make money relatively quickly – and you could learn a lot and pick up new skills.
However, investors should be prepared to navigate challenges such as renovation costs, budgets, and deadlines that are easily overrun, and capital gains taxes.
Student Property Investment
According to another report by Knight Frank, South Africa's student housing sector has experienced steady demand growth, with an increasing number of students seeking quality accommodation near universities and colleges.
This demand is projected to continue its upward trajectory in the coming years, presenting opportunities for investors and developers to capitalise on this growing sector.
And, with the government's focus on expanding access to education and improving the quality of tertiary institutions, enrolment numbers are expected to rise, further fuelling demand for student accommodation.
However, with continuing public sector budget constraints, private investors will have an important role to play in meeting this demand, so there is a massive scope for investment.
As with almost any property, location is one of the most important considerations when investing in student accommodation, and it should, ideally, be within walking distance of the institution.
It also pays to check the safety of the area in which you are planning to buy, as well as the security provisions in the complex or building, and complexes with facilities like a pool and braai area, and possibly a games room, a gym, or other recreational facilities will be especially popular with students.
HMOs (Houses of Multiple Occupation)
HMOs represent a unique investment opportunity in the real estate market. This is the practice of renting out individual rooms within a single property to multiple tenants, which is gaining in popularity as the cost of living and rental, and house-buying prices continue to rise.
This strategy allows investors to maximise rental income by catering to tenants seeking affordable and flexible accommodation options.
Additionally, HMOs can provide a diversified income stream and mitigate vacancy risks, as vacancies in one room can be offset by income from other occupied rooms.
However, investing in HMOs requires careful consideration of regulatory requirements, property management responsibilities, and tenant turnover. Proper due diligence, including thorough market research and financial analysis, is essential to success in the HMO investment sector.
Fractional Ownership
Fractional property ownership involves multiple individuals sharing ownership of a property, typically a vacation home or investment property. Each owner holds a fraction of the property and, in the case of a holiday home, has the right to use it for a certain period each year if it’s not rented out.
While fractional ownership can make owning property more affordable and accessible, it comes with a caution: Owners must agree on usage schedules, maintenance responsibilities, dispute resolution, and potential exit strategies for this type of investment to work well.
“Property investment offers a range of strategies for investors seeking to build wealth and achieve financial success, and it’s a savvy option for those looking to secure their financial futures,” concludes Geffen.
“Each strategy has unique characteristics which investors can leverage to achieve their investment goals; however, as with all investments, it does have potentially costly pitfalls, and it's essential for investors to conduct thorough research, assess their risk tolerance, and seek professional advice to make informed investment decisions in a dynamic and evolving market.”
Make sure you are ready by exploring the possible pitfalls of property investment and how to avoid it
