Renting

Property Investment Is a Good Plan

Story Highlights

  • Permanent feature
  • Wrong impression
  • Steady as she goes
  • Rental growth

A huge number of homes have been repossessed and auctioned following the 2008/9 recession and it has had a negative impact on the reputation of those who call themselves ‘property investors’.

Many people, including real estate agents, no longer view them as savvy financial gurus but have started forming a poor opinion of these property investors.

Permanent feature

The reason why the term leaves an unsavory taste in a lot of mouths is that they are seen as ‘vultures’ who prey on others’ misfortunes by striking a property deal at rock bottom prices only to sell it off at a profit again.

In addition to this, many believe that property investors are not a permanent feature of the market, but rather that will lose interest in the market once it starts turning and a number of distressed properties drop.

To support this theory, they point out how much the percentage of properties supposedly bought to be turned into rental units, have dropped off in the past few years. This emphasizes the negative view and opinions that many people have of property investors.

Wrong impression

In actual fact, nothing could be farther from the truth. The vast majority of this group of real estate “investors” are actually owners of residential units who have little or no intention of ever using it or selling it.

This group may consist out of business owners, executives, attorneys, doctors, lawyers, teachers, policemen, or even real estate agents themselves. Usually, they are in the position of having acquired an additional residential property with the intention of keeping them.

The reasons can be very different from person to person, but these properties are often kept as a supplement to their retirement fund or to even move into this home as soon as they retire and sell the original one.

Steady as she goes

These investors have absolutely no get-rich-quick scheme that they are plotting.

In fact, they have witnessed how well rental property ownership worked for their parents, friends, or neighbors and they are simply following in their footsteps. They acquire extra rental properties, pay off the bonds as soon as possible, and they create a rental income stream for their retirement years.

Many young couples who are in a fortunate position to own a rental unit also use it in order to supplement their salaries and assist them in financial planning, like starting a university trust fund for their children.

Rental growth

It is always a tried and tested plan, even in the current market where the rental growth is very slow. A shortage of housing stock combined with an increase in demand is causing property prices to soar beyond the means of many prospective buyers. This forces buyers to rent first which causes higher demand in rental units.

In addition to this, there is a huge percentage of students who need student accommodation in South Africa when they decide to go to university. That figure shows no signs of slowing down with the ever-expanding university culture and the fact that more than half of our population is under 34 years old.

In recent years, data indicate that of the 14.5 million households in the country, 25% (or 3.6 million) were rental units. Gauteng had the highest number of rental homes (37.1%) followed by Cape Town (28.9%). There are also other areas where the demand is rising due to workers needed in new power stations and other capital projects.

Closing thoughts

So, the question remains: why aren’t more people investing in rental properties?

Many people are concerned regarding management of the unit as well as the quality of tenants. Luckily this can all be managed with the help of an expert real estate agent.

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