Profitable Ways to Invest in Real Estate in South Africa
Different types of real estate:
Land Real Estate – Land is the standard form for all real property, it is a vacant space that is underdeveloped. Developers attain land and combine it with other properties to increase the density and value of the property.
Residential Real Estate – This is the most common type of estate, it consists of housing for individuals, families, or groups of people. These are places where people live at. It consists of townhouses, free-standing homes, condominiums, apartments less than 4 units, and other types of living arrangements.
Commercial Real Estate – Land and buildings where the business happens. These are your shopping centres/complexes, offices space, and store including apartments that exceed four units.
Industrial Real Estate – These are properties used for industrial businesses purposes, such as warehouses, plants, factories, construction, and shipment facilities They are usually where most of the business productions happen, and it is not open to the customers for safety reasons.
Real Estate is the most valuable investment that one can commit to and there are different ways that one can invest in real estate without having to buy the actual property.
As much as it is the best, one might not know where to start or which real estate to go for in terms of investment. Here are a few guidelines that can help you get started.
Investing in buy-to-let properties has been proven to be profitable if managed well as it allows investors to generate a monthly income from the properties in their portfolio.
If you are a first-time investor, you should know that if the property is a bond, you won’t see much of a profit as the rental income from the get-go as it will be used to pay off the bond and other expenses such as maintenance. You will only start seeing your profit well when you have settled the bond and all the rental comes to you.
With that in mind, the potential rental yield will be your main concern when deciding whether to invest in property or not. The yield is the annual rent you are earning on the property divided by its value.
One bedroom and studio apartments make a good buy-to-let investment as compared to other property types.
Yes, there are risks but with strategic planning and management buy-to-let provides a reliable source of income in the long run. You will have a powerful cash flow if you hold on to your assets over time, and pay off your debts whilst growing your rents.
The rental yields are good in South Africa, especially in large cities. In Johannesburg, the rental return on a fully rented property ranges between 6.5% to 9.3% while in Cape Town it ranges from 5% - to 8.3%.
2. Property Fund / Real Estate Trusts
You may invest in Real Estate Investment Trusts - REITS if you want to venture into real estate but don’t want the stress of maintaining the property and dealing with dodgy tenants. It enables one to invest in commercial real estate property without actually buying and managing those properties.
Property fund investment is a mutual fund that invests in publicly listed real estate companies. This way it allows anyone who would like to invest to do so in a range of properties by buying stock.
Investment can be made in commercial properties such as offices, warehouses, and retail spaces. This can be done in two ways; directly in commercial property or indirectly, buying shares in property companies or other property funds.
Following are some of the reputable properties fund listed on the Johannesburg Stock Exchange (JSE) that you may want to look into:
This investment type will diversify your portfolio beyond publicly-traded company stocks or mutual funds and the reward will be high-yield dividends.
As a property fund investor, you will get your returns through rental collections. Property companies normally pay about 90% of their income to shareholders, so you wouldn’t have to worry as money will come through to you with no hassle.
3. Buy and Renovate
You can make money by buying a property and then renovating it to boost its value. There are old properties that are affordable and can be boosted by smart renovations. This can be both profitable and fulfilling as you will be able to apply your own creativity to the renovation project.
Once renovations are done and you are happy with the final product you may now look into listing your property in the market, selling it at a much higher price than what you paid when purchasing it.
The renovations will increase the value of the property and the ROI by 70%.
4. Investing with No Money
Yes, you got that right, one can invest in real estate with no money through various options. A lease option agreement is one of the options and it is an investing strategy that you can use with little to no money at all.
It allows an individual to buy property today and commit to paying for it in whatever period that will be agreed on with the seller. This strategy can buy you time to get the money to officially purchase the property. During that period, you may rent the property out to make a profit.
One would benefit from the cash flow on a monthly basis on a property they don’t actually own as yet and if you decide to purchase the property in a few years’ time, you will have the advantage of purchasing it below market value as you would have negotiated the buying price years ago when you went into this agreement.
Not every owner/seller will be willing to offer you this option but, if you look hard enough you will eventually find the perfect seller. Your best bet is tired landlords who are on the verge of selling their property.
Another option that you can invest in real estate with no money and will be profitable for you is to use your primary residence as a rental property.
As a real estate investor or an aspiring investor, it is good to stay informed about the current trends in the property market. This will help you to make informed decisions on what must happen with your investment and what to go for next.
Investing in a wide range of properties will not only grow your portfolio but, will also make your portfolio less susceptible to market fluctuations.
Remember, this is not a get-rich-fast scheme so, you will have to be patient to see your returns, after all, real estate investment is a long-term investment.
If you need clarity on anything regarding real estate investment, you can speak to an authorised investment advisor.