You don’t have to buy the house to in­vest in prop­erty

Sowetan - - Your Money - Owen S Nkomo

Most in­vestors look­ing for re­turns through prop­erty, think that buy­ing an­other house is the best op­tion. Noth­ing could be fur­ther from the truth. There are other in­vest­ment op­tions which can achieve even bet­ter out­comes. For ex­am­ple, you can get in­vested in a whole range of prop­erty that will al­low you ac­cess to in­ter­na­tional re­turns through lo­cal and off­shore unit trusts. You can also get ac­cess to prop­erty in­vest­ment by buy­ing shares listed on an ex­change. We have dis­cussed be­fore, the na­ture of unit trusts and how they work. We also dis­cussed shares, and how they can be an al­ter­na­tive source of in­come.

Shares are the most ba­sic form of en­try into the in­vest­ment mar­kets. In­vestors can ben­e­fit from ex­po­sure to prop­erty stocks listed on the Jo­han­nes­burg Stock Ex­change such as Dip­ula In­come Fund, Growth Point, Vuk­ile Prop­erty Fund, and Sto-rage. These com­pa­nies have been listed for a long time, and po­ten­tially could be used as en­tries into the prop­erty sec­tor.

Through unit trusts you can have ac­cess to a di­ver­si­fied bas­ket of shares in the prop­erty sec­tor, and so re­duce the risk of be­ing in­vested in one share only. More im­por­tantly, through these unit trusts, tech­ni­cally re­ferred to as Real Es­tate In­vest­ment Trusts, you can in­vest off­shore as well. By buy­ing shares in a REIT, you own shares in a com­pany that owns and op­er­ates a real es­tate port­fo­lio. This is im­por­tant in terms of gain­ing ac­cess to world-class real es­tate which has global busi­nesses as ten­ants. For ex­am­ple, some of the best ten­ants to have in a build­ing in­clude Toy­ota, BMW, John­son and John­son, Coca Cola, Bar­clays Bank, and many other “blue chip” clients.

You can also be­come the land­lord to these com­pa­nies through own­ing a fund that owns por­tions or com­plete build­ings and col­lects rents from such ten­ants. All you have to do is make the ac­tual in­vest­ment and then wait for the fund to pay you in­come an­nu­ally. Re­mem­ber that the fund can also grow in value, in­creas­ing your wealth.

How­ever, you need to be aware that where ever there is a chance of mak­ing re­turns through in­vest­ing in stock mar­ket re­lated so­lu­tions, there is an equal down­side risk of los­ing money. The South African mar­ket this year has seen the worst prop­erty sec­tor per­for­mance in a long time, if not the worst. As of to­day, the sec­tor is down 22% since the be­gin­ning of the year. How­ever, over a 15 to 20-year pe­riod, the sec­tor is up close to 450%. Clearly show­ing that in the long run, in­come and value growth has ma­te­ri­alised for the sec­tor in­vestors.

An­other op­tion that could be con­sid­ered is an in­dex track­ing in­vest­ment strat­egy. In­vestors could sim­ply buy an in­dex like the Sa­trix Prop­erty In­dex Fund, a spe­cial­ist in­dex fund which tracks the per­for­mance of the FTSE/JSE SA Listed Prop­erty In­dex.

An in­dex track­ing fund tracks the com­pa­nies through long cy­cles, and you, the in­vestor, can ben­e­fit from the prop­erty sec­tor through small monthly in­vest­ments if you use Sa­trixNow. As stated ear­lier, buy­ing into these in­stru­ments is a great al­ter­na­tive to in­vest­ing in phys­i­cal prop­er­ties, such as rental homes.

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