History reveals that a property acquisition or portfolio of properties is a far more stable asset investment than any other. For centuries and still to this day, it has been included in the investment portfolio’s of the majority of self-made millionaires and billionaires. This is because it is a less volatile asset class than say investing on the stock exchange, which is impacted by events that trigger global and local economic crises.
We have seen this happen many times over recent decades, more recently Covid-19 and the Russian-Ukraine war which squeezed exported food and energy resources. The point is that the world is fraught with such events that can seriously change the quality of lives.
Real estate has been able to sustain through such shocks, and in many cases has proven to be a lifesaver for property owners.
Owning property has a large number of benefits:
It’s a long-term investment that can also secure a great monthly return from rental.
Passive income advantages from rental also includes the ability to purely live off the income or boost a monthly income.
It appreciates over time: a sale in the future can return a solid
profit.- It provides the investor with the ability to diversify a financial investment portfolio, thereby spreading the risk.
- It can subsidise, or hedge against, other investment losses during an economic downswing.
- Provides the ability to leverage funds either from the excess paid into the home loan, or as collateral.
- Helps in building capital. When selling for a higher price than the purchase price, property acquisition is considered a solid mechanism for building wealth.
- Allows for control over personal finances and your financial status.
Risk
It’s important to understand that any property investment is subject to market fluctuations such as interest rates and inflation, even the loss of a job, but those are, generally, short-term or seasonal, and investors can similarly make short-term adjustments and decisions until stability is assured.
There are other risks though that have to be factored into the decision to buy property. These include:
- Buying in an undesirable location.
- Cash flow is negative: when incoming money is less than outgoing money.
- A rental property market that is experiecing high vacancy rates.
- Lack of liquidity: you need cash urgently, which may require the sale of a property during a market downturn, therefore not realising a profit on the initial investment.
Undertaking due diligence minimises risks. This includes doing a thorough analysis of the property sale and rental, including checking house sale and price statistics in a number of different suburbs and municipalities. Speaking to family and friends about their property experiences can add much value when making decisions.
Guidance Before purchasing a property, be that for investment or as a live-in home, give thought to the following. (Although not a comprehensive list, it includes factors that are imperative to decision-making) :
- How much deposit is affordable, and how will it impact on any home loan term and monthly repayments?
- Can you afford the property now and in the long-term, and what home loan do you require?
- Will you still be bonded beyond your retirement?
- Are you prepared to sell the property if you need to?
- Are you willing and able to maintain the property to ensure the investment remains sound when the time comes to sell. -How long do you expect to live on the property, considering ages of all residents?
- Does the area in which you have chosen to live or purchase, experience property growth, and does it have amenities that you require (medical, educational, retail, transport)?
- Is the municipality well-run, inclusive of local infrastructure. And importantly, are there any developments planned that may negatively impact your surroundings (eg: high-rise buildings that may block views, or the erection of a development that will cause high traffic volumes)?
- Which property practitioner is the right fit for you in sourcing properties that tick all your boxes?
If you have a clear objective, and can separate emotions from the financial implications, your property choice will be of enormous benefit in the future, for both yourself and your family.
