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Plus, property generates an income that should go up, so the purchasing power of your cash is maintained.
Also, property is less complicated than other asset classes. This means it is easier to invest in something we understand and, therefore, we have a greater chance of success because we can spot the risks.
Here are some ways you can invest in property:
1. Buy your home
Some people believe your home is not an asset in the true sense of the word because you live in it. And, you spend money on aspects of it that don’t necessarily add to its value.
These people argue it is better to rent and invest the difference between what you would pay on rent and a home loan on other investments – and leave a landlord to worry about the costs of running the property.
They say your home is not an investment if it is not producing an income. However, you need somewhere to live. In time, you will pay off your home and free up a significant sum each month that you can, in turn, invest elsewhere.
There are no guarantees you will always be able to find work when you want it or need it, not least of all as you get older. You do not want to run the risk of being homeless when you are vulnerable.
You can, if you need to, sell your home later to unlock spare cash. Or, you can access equity in your home to access cash later to put down a deposit on an investment property.
2. Invest in a second property
Buy a property you can rent out to someone else. Provided you choose wisely and make sure that the rental covers your home loan repayment, you will be getting someone else to pay for a significant asset.
You can buy a second home by putting down a cash deposit and getting a bank to fund the balance of the purchase price.
A holiday home is different. Unless you rent it out to cover the expenses of running it, a holiday property is a luxury treat for your family. There are many holiday properties on the market now and more sellers than buyers.
3. Invest in big buildings through property-owning entities
Some of the best returns from real estate come from properties with commercial tenants. This is because these tenants are stable, sign long leases and pay huge amounts of rent.
There are property syndicates that offer opportunities for you to invest in large buildings. Although these syndicates are run through companies, your best bet is to opt for property owning-entities that are listed on stock exchanges.
This is because these entities are subject to greater scrutiny by the authorities and have to comply with more rules and regulations – which protects you.
Some of the best returns from real estate come from properties with commercial tenants. This is because these tenants are stable, sign long leases and pay huge amounts of rent.
There are property syndicates that offer opportunities for you to invest in large buildings. Although these syndicates are run through companies, your best bet is to opt for property owning-entities that are listed on stock exchanges.
This is because these entities are subject to greater scrutiny by the authorities and have to comply with more rules and regulations – which protects you.
There is the risk you can lose all your money if a property-owning entity goes belly-up, but the risks are far greater where you are dealing with property operators that have set up opaque structures in low-tax jurisdictions. (For more, see Louis Group property syndicates: masterminds accused of ‘prolonged deception’.)
There are about 20 property-owning entities, called Real Estate Investment Trusts (Reits), listed on the Johannesburg stock exchange and many more on international exchanges. You buy them through stockbrokers or online stock trading platforms.
South African Reits have delivered great returns for investors in recent years (for more, see Six great reasons to invest in SA Reits).
4. Invest in big buildings through property index trackers
Reits are sometimes referred to as property funds. This is because they, in turn, invest in a portfolio of properties.
However, you also get collective investment schemes that invest in Reits. There are unit trust-type funds and Exchange Traded Funds, with the former generally bought through intermediaries or directly from unit trust providers and the latter bought and sold through stockbrokers or investment plans.
You get property funds run by managers that pick and choose the underlying Reits. Or you can opt for a fund that tracks an index of the property sector.
The index-tracking variety is probably your best bet in South Africa. This is because they cost less than actively managed funds.
What’s more: actively managed property funds are believed to be, in reality, closet index trackers. There is no point paying for the services of experts who claim to be aiming the index when they aren’t doing any more than tracking the index.
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