Property Investments (Part 1)

When we look at properties, we know that people refer to them as investments or as long-term investments.

But what does that mean? When we see so much volatility in the world’s economies, property investment is often the place that an investor will turn to. Properties generally offer long-term safety, with modest growth. What does property investment mean, or how can you make money from properties?

Property as a long term investment — Some people buy properties and hold on to them for a long-term investment. They may buy the property when the market seems low, and sell it later when the market has rebounded. In other words, they buy when it’s a Buyer’s Market and sell when it is a Seller’s Market.

The difference in the two prices, if positive, is known as Capital Gains. This profit is subject to CGT (Capital Gain Tax). There are families who have purchased properties that have been held for generations.

This type of investment is generally considered very safe, and should be part of an investment portfolio. The biggest danger would be if a financial need drives the timing of the sale of the property, this could cause the property to be sold at the wrong time.

Property as an income generator — This is where you purchase a property that will produce a monthly rental income. Rental income can easily be compared to the purchase price of the property to determine a rate of return.

If the property can generate a rent figure that would be equal to the full purchase price in eight years, that is giving you a 12 percent return. If it takes 10 years of rents to recover the purchase price, that would be a 10 percent return. Many properties can achieve a return of eight to 12 percent depending on the rental market and the sales market.

These properties can be residential, commercial, industrial, or even agricultural. One of the biggest dangers with this type of investment however, is the possibility of non-payment, tenant damages, and empty units. Often it is a very good idea to get a Registered Real Estate Agent to manage these properties on your behalf.

There are definitely times where an income-generating property may be sold off as a long-term investment. With the advice of your local Registered Estate Agent, you can understand which way the leasing market is moving, as well as the sales market.

This information is so valuable when making this property investment decision.

Flipping a Property — This is where an investor buys a property that is broken and run-down. They remodel the home, increase the property value, and then sell it for a profit. “Flipping a house” can have very good returns, providing that you have a good understanding of what you are trying to accomplish.

Many investors love doing this type of investment. The returns can be substantial and can happen quickly. Many investors who “flip houses” actually like doing the work themselves.

They like to show off their handyman skills, and enjoy getting their hands dirty. The biggest dangers with flipping can be over-improving, cost overruns, or unseen damage. Over-improving simply refers to improving a property beyond its ability to achieve a profit. It could also be defined as improving the home to a very specific taste, which may not be appreciated by the general buying public.

Cost overruns is a situation where you begin to go past your remodelling budget. Unseen damage is where the remodelling job becomes bigger or more expensive, because there were problems with the house that you did not see or account for when drawing up your remodelling plans.

Some property investors will move back and forth between these strategies to best use the property market to their advantage.

These investment opportunities can exciting, and have the ability to build a long-term security for you and your family.

Jonathan Thompson is a Registered Real Estate Agent who works in Bulawayo. He has nine years of experience in Real Estate in the USA, and another 10 years’ experience in Bulawayo. He is the founder and the Managing Director of Thompson Properties (Pvt) Ltd.