Almost everybody wanted to invest in property in the residential sector. Early investors in this market made huge profits but one should be careful at this stage of the game to invest in the residential property sector if you do not have a long term goal.
Buy-to-let property investments are still a profitable venture on the long term if you do your homework well. One should now recover around 0,75% of your monthly installment in your rental return. On a R600k bond your payment should be around R7,500 (12,5% interest), your rental income on this property would be in the region of R5,500, giving you a shortfall of R2k.
However, if you look at the growth value that you will achieve, it is still worth subsidising. If the market only grow with 10 % this year your growth will be R60k (according to Absa the actual year-on-year growth was 15,5% at the end of April 2007).
You subsidised R24k, leaving you with R36k profit.
However, one must be very careful before you invest now as a number of other factors should also be taken into consideration, such as the availability of good tenants. One should budget for vacant months where you might need to subsidise the total monthly installment. There might be an oversupply of rental properties at this stage of the game.
The commercial and industrial property market is often seen as out of reach for the private and small investor. All indications show that the commercial and especially the industrial property sector will boom from now until at least 2010.
The Naledi Industrial Development between Sasolburg and Vaalpark is an excellent example of this. Vacant land prices in this development have grown from R40/sq m since 2000 to around R200/sq m currently.
For the private investor to invest in vacant land is often not an option as no income is generated. The development of small sectional title industrial units brings investment in this sector of the property market within the financial reach of most private and small investors.
The early investors will again, like in the residential property boom, make the most profit on their property and it is now time to invest in this sector.
On should also be careful of the location of these units as it will determine the income that your property will generate. It will then only make sense to invest in an area like Naledi as the growth in the land values will be a good indicator that this will be a good area to invest in.
Sectional title units in Naledi will sell around R650k, giving you a monthly installment of R8k and an expected monthly rental income of R4,500. Your shortfall is now R3,500.
This might be a huge difference but the capital growth on the property will be again phenomenal like in the early stages in the residential property sector where growth of 35% per year was not unexpected. If this investment of yours grow by only 25% in the first year it will mean R162,500. You subsidised R42k, leaving you with a profit of R120,500 in a year.
The ting that you must remember is that you made R120k from R42k and not from R650k. See it as putting R3,500 a month in a savings account and you are getting R120k in equity as a bonus.
We as South Africans are often prepared to pay monthly installments of R6k to R8k for a new vehicle, which loses 30% of its value as soon as it leaves the dealership's floor, but we are not prepared to drive a smaller or cheaper car in order to invest in a property which will give you wealth.
Be that as it may, one should take all factors in account before committing yourself to any investment. At this stage the numbers of tenants looking for suitable and affordable industrial rental properties outnumber the available properties by far.
It is now also within the financial reach of small and medium enterprises to buy their own property instead of allowing your landlord to get rich out of your rental income.
When you buy a property you have your long term investment planned and do not need to worry about your landlord's change of plans and evictions. Owning a property has various other advantages like deduction on bond interest and property taxes.
For more information contact 083 308 9133 or click here to visit the website.
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