Purchasing and renting out residential property is one of the biggest global wealth generators. Here are some sound reasons to consider property as part of your investment strategy.
1. Property has a high tangible asset value. With land, your investment will always be worth something.
2. It offers long-term wealth generation. Property tends to appreciate in value over time. Not only will the building or home itself likely grow in value, but the actual land that it’s built on will also usually be worth more over the years. Sometimes the land is worth more than the house that stands on it. In a good property investment, over a 10- to 20-year period returns typically can outperform many other investments.
3. You are able to maximise its value. You can improve a property if you want by adding a pool, solar heating or renovating big return areas such as the kitchen or bathrooms. As long as you don’t over capitalise, your improvements will increase its value. You can then either rent it out or sell it for more than you paid for it.
4. It’s a key way to diversify your portfolio. Carrick wealth specialists recommend diversifying your portfolio so that if the equity or bond market in which you’re invested dips, you will be cushioned by your property portfolio. Property is often seen as being more stable than many other investments.
5. It’s a good way to save for retirement. The funds from your offshore wealth accumulation can be used for your children’s education or as part of your own retirement planning. A 20-year fixed loan, for example. allows you to build equity over a long period of time. If you decide to downsize when you’ve paid off your loan, it’s likely you can get a smaller house and have some funds left for retirement. The fact that the money is ‘tied up’ in a house, means you have to work a little harder to access it, as opposed to an account that you can cash out.
6. You can predict your cash flow. Unlike other investments, you can determine your cash flow with property – as long as you charge the appropriate rental and ensure that you have a tenant, you’ll know what your cash flow will be. It’s also a natural inflation hedge as you can adjust rent to cover inflation.
7. It’s a proven passive income stream strategy. Investing in property in a country that operates in a hard currency is the perfect way to ensure a consistent and stable income. In the UK, for example, demand for housing far exceeds supply. Home loan approvals are at their highest levels in more than a decade and 2020 house prices enjoyed their biggest annual increase – 7.3% year-on-year – in six years. “Hard currency rental income is obviously a very attractive proposition for our clients in South Africa and across the Africa region where currencies are extremely volatile,” says Scott Irving, General Manager of Carrick Property. “Having a hard currency in British pounds or euros is very compelling.”
8. Property doesn’t always require huge amounts of cash. Financing is accessible in that you are able to leverage the property at very low-financing costs in terms of small, fixed-rate mortgages. “The affordability of offshore real estate opportunity is one of its most marketable components,” says Irving. “To be in a market where you can borrow money at the current low rates available is completely foreign to Africans, but once they consider it, they can see how well the cash flow can work in their favour.” In most instances, you can put down as little as 20-30% on a property, then essentially use the bank’s money to grow your investment.
As with any investment, research is key and the best place to start is at the beginning, which in this case means assessing your finances. Based on that, preferably in consultation with a financial advisor, you can determine what kind of property you are able to invest in and the location that will work within your budget and long-term financial plan.