Guide to investing in property

Many individuals are cautious when it comes to investing in property but the reality is if you understand the market and know what to look out for, investing in property can be straight forward and very rewarding.

Alliance Group have always taken great pride in creating wealth for their clients which is why they are constantly offering new initiatives and product services to ensure all their clients’ needs are met. When it comes to investing in property, Alliance Group are at the forefront of providing professional service. Comments Rael Levitt, CEO of Alliance Group: “Due to our vast experience we’ve become skilled at identifying the value in a given asset and monetising that through disposition, acquisition or financing.’’

Many articles on residential and commercial property investments have been written, though very few concentrate on the core principles relating to sourcing good stock and buying at auction. What are often neglected are the issues surrounding property ownership, how to manage and improve a property portfolio, and critically, what to do if things start to go wrong.

What to buy:

Residential property tends to be the starting point for private investors, but why stop there? Diversifying your portfolio can spread risk and boost returns – just make sure you have a clear strategy. For a private investor looking to diversify assets and risks, the process of buying a commercial property need be no more complicated than buying in the residential sector. A growing number of private investors are measuring up the returns and risks of investing in the commercial and residential property sectors, attracted by their track records for providing a relatively safe haven when equity markets fall.

It is important to establish a strategy for building a portfolio. Whether you are an experienced property investor or a relative novice, the common aim is making and managing a profit either in the long or short term, based on the ability to let and to set targets and margins. The decision to buy and the decision to sell are equally important.

A wise investor is conscious of a building’s potential commercial future at the point of buying and will look for alternative uses to extend its life. Is your’s a long-term or short-term plan? Is it aimed at capital growth accompanied by an income stream created through letting, or is it a vehicle aimed at redeveloping and selling on? Adds Levitt, “The first strategic questions to ask are: ‘Have I assessed the risk?’ and ‘Have I managed the risk?’”

Property is a great asset class and gives good, safe returns most of the time. However, some people are entering for the wrong reasons, and some advisers may be acting disingenuously, because they have witnessed a period of out-performance and believe that past performance is a guide to the future, which it is not. Also, each region acts differently according to its own economic circumstances. Understanding different property sectors – commercial and residential – gives the private investor insight into the benefits of diversity. A portfolio aimed at diluting risk can potentially offer growth across a wider spread of asset classes, and cushion the overall performance of the portfolio in challenging market conditions.

Is there a right time to invest? Markets do rise and fall, but as long as your return is safe and you can afford to hold on, then investments can feasibly be made at any time. Getting the price right at purchase is crucial but so is getting the right advice. An established residential portfolio owner, for example, will know how property is performing in the open market and have a greater sense of value than someone coming into the market for the first time and needs to take advice. But with all types of property, what makes a good investment is simple: location. Comments Levitt: “In residential property investment, location is everything, affecting the owner’s capacity to rent out the building. On the commercial side, location is also important although the strength of covenant and length of lease are also key to value.”

The sector you choose to invest in initially is likely to reflect the kind of investor you are and therefore what feels comfortable to you. It is equally important to be realistic about your limitations, as Levitt explains: “Take a common sense approach. If you have anything below R2m, your options are likely to be limited to residential, retail or the small leisure sectors, rather than shiny office investments and shopping centres. “If you are comfortable with a sector, such as retail, you could spread risk by investing in a mixed-use property such as a shop with flats built over it for example, where there is the capacity to have two types of tenants, one commercial and one residential.”

Before purchasing a property it is very important that the property is valued. Today’s economic environment is one of rapid fluctuation – exchange rates, lending rates, inflation rates and economic confidence levels are ever-changing. These factors have a major impact on the value of all assets. It is important that you establish the market value of the asset as this is the first step and basis on which any financing, investment or asset transaction decision is made.

Over the next few weeks we will cover important points on investing in residential, retail, office and industrial property. Please turn to the second page to view our first guide with helpful advice on investing in residential property.