Golden rules of property investment (article 2 of 8)

Private Property South Africa
Anton de Leeuw

Just as producing a beautiful wine or quality whisky takes time, so too does reaping the benefits of property investment.

Property investment is not a get-rich-quick scheme, but rather an investment that matures over the longer term. Article one in this series of eight focused on how important liquidity is when purchasing investment property. Assuming that the investment is funded by a bond it is likely that the initial bond repayments will be more than the revenue generated by the rental, except if you bought an exceptional deal. Over time the income becomes greater than the expenses.

Building wealth in the property market is a steady, cumulative process which is measured in decades rather than in years – and certainly not in months.

This golden rule can perhaps best be described by the following account:

The Grosvenors first acquired an area of land in London called the Five Fields, or the manor of Ebury on the western outskirts of the city when Mary Davies, heiress to this land, married Sir Thomas Grosvenor in 1677. Her grandfather had bought it for 9 000 pounds about 30 years before.

It was 48 years later, in 1725, when his two sons started developing the 100 acres of land that the family had built up as holding stock. The development was called Mayfair and is the most expensive land in the world today, charging the highest office and residential rents. Belgravia, next door to Mayfair, was developed around 100 years later.

Today, Grosvenor, now the Duke of Westminster, is the second richest man in Britain with a 7.8-billion-pound fortune (Sunday Times Rich List 2013).

Property is, in essence, a conservative, steady, long-term, income investment. It is typically at the conservative end of a balanced portfolio. It is important to keep the long-term nature of property in mind when reviewing your strategy and portfolio. Make time your servant, not your master.

As a property investor, you need to be prepared to sit out any downswings in the property market. Downswings generally present buying opportunities for property investors, as property can be purchased at lower prices than before. One of the key markets in which YDL Property Investment is currently working is that of the United States as the economic crisis saw residential property prices fall dramatically, allowing for properties to be bought at substantial discounts to their replacement cost.

Within this context, the following proverb springs to mind: “The best time to have started building a property investment portfolio was 20 years ago – the second best time is today”. But, only do so if it fits into your strategy and if market conditions support you.

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