Gearing can enable property investors to achieve spectacular returns on small outlays

Gearing can enable property investors to achieve spectacular returns on small outlays

Private Property South Africa
Rawson Property Group

The big advantage of buying property (as compared to most other assets) is that it can be geared by means of a mortgage bond, thereby greatly increasing the investor’s return on his capital outlay, which can be relatively small.

This simple fact is quite frequently overlooked by analysts who compare the returns on different asset classes.

Just how profitable a quick in-and-out transaction in property can be has been shown recently by purchasers of Rawson Developers’ units at the recently completed The Rondebosch. A good example of this is one investor who bought a unit with a 90% bond. His unit was priced at R950 000 and, having secured a bond for R855 000, he only had to put down R95 000 deposit on signing.

Within a year he resold the unit for R1.2-million. He then paid his agent R50 000 commission. This meant that his net gain was R150 000 and his overall profit was R200 000.

On a total initial investment of R95 000, this purchaser made a profit of over 200% and has put himself in a position to repeat the process, possibly this time buying two units. Although it is unlikely that he will net quite such spectacular dividends this time, he could add a significant amount to his profit.

While the level of profit quoted here is unusual there are several new Rawson Property Group developments and other development projects which will benefit in the same way from the factors that had made The Rondebosch so popular”

  • Its close proximity to UCT, Varsity College and the lively Rondebosch retail and entertainment hub;

  • The appeal of ‘clean’ modern architecture in established areas where many of the other buildings are now ‘a little dated’;

  • The enhanced security that modern intruder detection technology can impart to a new development; and

  • The widespread increase in the popularity of sectional title living in suburban high density areas.

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