Building a property investment portfolio – Part 2

Building a property investment portfolio – Part 2

Private Property South Africa
Kerry Dimmer

Regardless of the type of investment property portfolio strategy you wish to follow (see Part 1), Miguel Martins, Portfolio Manager: Investor, Absa Home Loans, says it needs to align to your aspirations, personal circumstances and most importantly, your level of knowledge and experience. “Utilising a strategy that does not have a positive outcome may affect your credit rating and limit your ability to raise finance in the future. This means that you should remain flexible and consider adjusting your strategy midway through your plan – if it makes sense to do so – to ensure the project is successful. You may lose some of your investment to gain a better investment, but as a beginner entrant this is understood as a learning curve.”

One should begin their property investment journey as early as possible but this can be actioned at any age. “It’s never a bad time to start putting together a portfolio because the capital from investments can take care of future retirement needs. R10 000-15 000 income a month from a property portfolio is invaluable.”

Let’s give you an example. A purchase decision is made by an investor for a run-down property being sold for R1.4-million, in an area where average values are around R1.5-million. The property requires modernisation inclusive of new kitchen and bathrooms to bring it into the same attractiveness category as other homes in the suburb. The cost of renovation is around R250 000. The house, once rejuvenated, can now be sold for R1.9-million.

An alternative, if an investor does not want to put effort into a renovation but wants a quick turnaround, is to buy the same run-down property for R1.4-million, complete a R50,000 cosmetic paint job and resell the property for R1.6million.

Same property, with different strategies, will yield different profits.

Location is obviously exceptionally important. For self-managing investors, Martins recommends purchasing homes that are no more than 15-minutes drive from the investor’s residence.

You can get to a property quickly to meet prospective tenants and oversee maintenance and repairs with trustworthy suppliers with whom you have built a relationship.

“Another advantage in keeping things close, is that as you get to know an area really well, you’ll understand water or power issues, and other environmental impacts,” says Martins. “I recommend familiarising yourself with a cluster of suburbs before you extend into areas that you’re not as familiar with. A further advantage is that you’ll be developing relationships with the local real estate agents and so you’ll be able to find more opportunities more often, which will enable you to grow your portfolio more aggressively.”

Martins talks about how important it is to connect with estate agents who understand the investor needs, and who will be quick to contact the right investor when the right property deal presents itself. “Investors, for example, solve problems for people, their clients, especially when an agent is exposed to a seller’s need for a quick sale, such as a deceased estate, an emigrating family, or a divorce settlement property.”

But, as Martins advises, you need to think about the type of tenant you want to attract, given the area and its nearby facilities and amenities. Are they single professionals who need lockup-and-go, or families for example, that require excellent cupboard space, or perhaps a home/school office?

You have to think and research all the dynamics about how to attract the best tenant. In the wake of the Covid-19 pandemic, there are glaring risks currently in that a tenant may not be able to pay rent, or that interest rates will again rise and impact on a household’s disposable income.

The relationship between owner and tenant also needs attention, Martins emphasises. “There must be communication and visits to the property at least three times a year. Any maintenance issues in the home should be repaired as quickly as possible, and not just to keep value in the property, but in the interests of not losing a good long-term tenant because of a short-term issue.”

The visits are also important in terms of viewing the neighbourhood. “If the surrounding area is starting to deteriorate possibly because squatters have moved into the area, apartments are being developed, or surrounding homes are being turned into businesses, you’ll need to anticipate the right time to sell or change your investment strategy.”

If a property portfolio is something you’ve been considering, now is the right time, says Martins. “Interest rates have never been this good, but you need to factor into your investment decisioning that at some time in the future, they will rise again.

‘An investor should check their numbers against possible interest rate increases to see if the investment still makes sense. Having said that, bear in mind that life moves fast today, and there’s lots of pressure to get ahead. We seem to be working harder for less or the same. If you can get your money working for you with less effort than you put into your day job, why not put a property investment portfolio plan together. Bring it to Absa, let us see how we can help you manifest your dream of being financially independent.”


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