Business & Economy

Thursday, 16 April 2009 15:32

Priceless Investment Advice

{pp}Imagine a truly successful property investor sharing their secrets with you, talking about the lessons learnt and knowledge gained over 30 years. What wouldn’t you do to pick such a brain? I recently had the privilege of attending a presentation by an astute investor, Ian Fife, who is probably better known as the property editor of the Financial Mail.

Without any reservations, Ian shared his success formula with his audience. He believes that, like any investment, property has its risks. However, it is in what you invest and how you manage those risks that will make the difference between being enslaved to money or genuinely creating wealth.

Don’t Avoid Risk – Learn to Manage it

When investing in property, most people go into it in trepidation, wanting to avoid making the wrong decisions. Avoiding risks will tempt you into buying whatever is being sold to you. As with most investments, the higher the risk, the higher the return. With property your risk is easier to manage, as you have more control over this asset class. You decide where to buy, how to qualify your tenants, what will add value to your investment and what realistic return you are aiming for.

It is important for you to gain knowledge about your market, area and solid investment strategies. There are many books on the subject and courses you can take to develop this skill, but nothing beats knowledge gained through experience.

As Ian stated, “The best part of investing in property is that in the long term property will forgive you almost any mistake you have made.”

Chase Income – Capital Growth Looks After Itself

It always amazes me how many investors are concerned with the capital growth prospects of an area, often ignoring great income potential. Yet lower end properties produce the best returns. Ian is of the opinion that you should aim to be cash flow positive from the outset or as soon as possible thereafter. The area in which you decide to invest forms part of your risk management strategy.

Ian owns numerous properties in the Johannesburg CBD, mainly Hillbrow and Berea. These properties were immediate “cash cows” and he manages his risk by being actively involved in the development of these areas and the management of these sectional title units.

Stick to your Territory

According to Ian, diversification to spread your risk requires too much capital. Not only are you subjected to what the market is doing in those particular areas, as you don’t have a majority stake, but it also becomes an expensive exercise trying to manage a diverse investment portfolio.

When planning your investment strategy, select an area that shows potential for reconstruction and development. Get to know the area well, “as intimate knowledge of your territory mitigates risk. Be prepared to tramp the streets,” says Ian. Know your territory better than anybody else. It is pointless buying property in an area you don’t visit, where you don’t know the inhabitants or anything about the council’s plans. If you live too far away to be involved in its development, avoid risking investing in the area.

Buy When There’s Blood on the streets

Ian goes one step further from the good old “buy when everyone is selling”. He recommends investing in areas that are notorious, “because sooner or later everybody will come to their senses and the tide will change”.

He also advocates getting involved in upgrading such areas by holding government responsible to its commitment to repair infrastructure, supply sanitation and abolish crime. Not only will you contribute to society as a whole, but your investment will increase considerably in value.

Learn to Say No

Stick to your investment strategy, area of choice or maximum capital outlay. Don’t get caught in the hype of “fabulous investment opportunity”. If it doesn’t conform to your investment strategy, it is not an opportunity for you. Decline the offer and move on with your strategy.

Learn to Manage your Tenants

You may decide to buy in an area that is not quite up to scratch yet, but there is no reason for you to become a slumlord. Treat your tenants with respect and dignity and they will reward you accordingly.

Even though Ian’s favourite investment areas are Hillbrow and Berea, he ensures that all his properties are clean, have electricity, running water and good kitchen and bathroom facilities. “The poor pay better than the rich if you treat them well,” he says. In the process he has become a landlord of choice and never has a problem with his tenants, as they also know that his properties are in high demand. By spending R30 000 to upgrade a flat, he is assured of immediate capital growth, tenancy preference and the reputation of being a man of integrity.

Have Patience

Investing in property is not a get-rich-quick scheme. It is a process that takes time, patience and dedication. An astute property investor will often attribute their personal success to being in the game for the long haul. Ian believes that you do not sell your investments during tough times, but rather release equity to manage these downturn cycles, as they will inevitably change again.

Some people may have heard all this before, while for others this is a new take on property investment. The secret doesn’t lie in having all the knowledge, but in applying such knowledge. Which territory are you taking ownership of?

Contact information:
Property Factor CC
0861 106 306
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