“Although there are many ways to structure a property portfolio so that it achieves good returns, certain strategies have proved especially helpful”, says Bill Rawson, Chairman of the Rawson Property Group.
“The first of these”, he says, “is to create and build on a relationship with a truly reliable bond originator and/or bank who, having got to know you, will often be able to offer finance less expensively than the norm, ideally locking you into a fixed low rate for a long period.”
Obviously, says Rawson, the investor should continue to test alternative finance sources but in practice it has been found that certain originators or banks will consistently give lower rate finance to investors they know and have come to trust.
It is also, says Rawson, important to appreciate that ultra-cheap loans may come with conditions and catches which can be difficult to meet.
The second tip, says Rawson, is to “keep an open mind about alternative types and areas”.
“Many investors,” he says, “are reluctant to move away from comfort zones in which they have already been successful, e.g. multi-unit apartment blocks in high demand areas.”
“Knowing that this market has in recent years had very few failures and in general gives excellent returns, they stick to it and in the process possibly ignoring other types of property investment (e.g. in outlying suburban areas) which might give even better returns, especially if the investor can afford some form of renovation.”
The third tip, says Rawson, is that the investor should make allowance for eventual interest rate rises — rents in particular have to have an annual escalation clause.
“With every investment strategy,” he says, “it has to be borne in mind that although we are currently benefitting to a remarkable degree from low interest rates, these may not be in place for ever. If, as seems likely, the USA do raise rates either at mid-year or later this year, South Africa will almost certainly be forced to follow their lead so as to keep our government bonds attractive to international investors. Portfolios on which the profit margin is exceptionally lean may find themselves stressed by interest rate rises – we have certainly seen this happen in the past. It is therefore important that investment strategy does allow for some increase in the interest rates.”