Grow­ing your property port­fo­lio is not as sim­ple as it seems

Zululand Observer - Monday - - ZO EDUCATION -

In many cases, the most straight­for­ward property in­vest­ment de­ci­sion you can take is to buy the build­ing that your busi­ness is based in. Although no property deal is risk free, at least you know the build­ing, the area - and of course the ten­ant. But what if you're in­ter­ested in expanding your property in­vest­ment port­fo­lio be­yond the build­ing that you oc­cupy? Don't be fooled by how easy property in­vest­ment seems, says Sa­belo Ntuli, In­vest­ment Of­fi­cer at Busi­ness Part­ners Limited (BUSI­NESS/PART­NERS). Com­pared to other lines of busi­ness, the num­ber of trans­ac­tions may be limited, and the op­er­a­tional bur­den of own­ing a build­ing may seem light, but the amounts of money in­volved are such that one mis­take can wipe out all the gain in your port­fo­lio. The most im­por­tant prin­ci­ple of property in­vest­ment is to buy well, says Ntuli. In other words, buy a good qual­ity property at a good price in the right lo­ca­tion with no hid­den phys­i­cal and le­gal de­fects. Again, it seems sim­pler than it is. To find such a property takes a lot of hard work – hours of pound­ing the streets to view po­ten­tial prop­er­ties and to study the dy­nam­ics of an area. Once you have spot­ted a build­ing with good po­ten­tial, hours of due dili­gence work lie ahead to look for hid­den de­fects, in­con­sis­ten­cies with build­ing plan ap­provals, prob­lems high­lighted in the min­utes of body-cor­po­rate meet­ings and the sound­ness of the struc­ture, sometimes right down to the health of the soil. And the price? “A good tip is to visit the build­ing, soak up the at­mos­phere, and pic­ture your­self try­ing to sell it at the same price to some­one else,” says Ntuli. If it seems dif­fi­cult, the price is prob­a­bly too high. Within this ba­sic frame­work there are many different strate­gies to build up a solid property port­fo­lio. It is im­por­tant to know the ad­van­tages and risks in­volved in each strat­egy, says Ntuli. You may ac­quire an ex­pen­sive, sin­gle property with the ad­van­tage that your attention is fo­cused on only one. The down­side, how­ever, is that you are ex­posed to the va­garies of a sin­gle ten­ant. Buy­ing a num­ber of cheaper prop­er­ties, on the other hand, helps spread the risk. Buy­ing a sec­tional ti­tle property is usu­ally more af­ford­able, but then you have to con­tend with the dy­nam­ics and risks in­volved in a body cor­po­rate. Buy­ing a yet un­de­vel­oped property off plan gives you the ad­van­tage of re­al­is­ing max­i­mum gain in mar­ket value, but only to the ex­tent that the de­vel­op­ers and their pre­dic­tions can be trusted. If you buy in an early phase of a multi-phase de­vel­op­ment, you might find the value of your property kept low for as long as new prop­er­ties from the later phases come onto the mar­ket. Buy­ing a property to which you can add value is an­other strat­egy, but you run the risks of build­ing mis­takes and cost over­runs. Buy­ing dur­ing eco­nomic hard times might land you a bar­gain, but you run the risks of be­ing hit by a dou­ble blow of in­creased in­ter­est rates and va­can­cies. Buy­ing property in joint ven­tures al­lows you to ac­quire a share in more sub­stan­tial prop­er­ties, but dis­putes with joint ven­ture part­ners can turn nasty if the agree­ment is not well struc­tured. On the other hand, a joint ven­ture with a com­pany like BUSI­NESS/PART­NERS, which of­ten teams up with lo­cal en­trepreneurs in property deals, brings sub­stan­tial tech­ni­cal, le­gal and fi­nan­cial knowl­edge to the deal. An­other strat­egy is to buy with the aim to sell im­me­di­ately, a game usu­ally played only by ex­pe­ri­enced property en­trepreneurs who have built a strong net­work of agents who bring them good deals. While it may be a good idea for ex­pe­ri­enced property play­ers to spread their port­fo­lio by in­vest­ing in a range of re­gions, ci­ties and even con­ti­nents, it is pru­dent for be­gin­ners to buy in ar­eas that they know well, and close enough so that they can eas­ily visit their in­vest­ment prop­er­ties. What­ever your strat­egy, says Ntuli, it helps to have a strong net­work, not only of agents and spot­ters who could alert you when a property with po­ten­tial comes onto the mar­ket, but also among fi­nanciers, joint-ven­ture part­ners, lawyers, en­gi­neers and builders. These pro­fes­sional ser­vices are ex­pen­sive, and good re­la­tion­ships can help keep the costs down. The main prin­ci­ple is not to skimp on pro­fes­sional ex­per­tise. There are so many as­pects of a property deal to con­sider, and so much at stake, that you should never do it on a whim, or on your own.

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