Issue 18 / October 2010
6 reasons not to invest in property
...and why none of them holds water
About two thirds of my clients are property investors and the rest are first-time buyers. There is something wonderful about helping people to take that leap of faith from tenant to homeowner, and it is particularly satisfying for me to see first-time buyers become confident property investors over the years. I've just done my ninth bond for a client who bought his first property, a 1-bedroomed flat in Green Point, in 1994.
There is certainly a time in everyone's life when renting is a feasible option, but there comes a point when it no longer makes sense to subsidise somebody else's bond when you could be paying off your own. First-time buyers can learn some valuable lessons from those who have been successful in building wealth-creating portfolios by investing in property.
Sometimes, we may believe that investors have a special skill or ability, that there is something they know which nobody else does. At other times, we think it was pure luck or coincidence that an investor succeeded, that circumstances have since changed or that it just can't be done. Our cynicism encourages us to do nothing, to avoid the risk.
Yet history proves that doing nothing could be the most risky of all. Apart from the missed wealth creating opportunities, doing nothing translates into a lack of self-development, a missed chance to learn and grow. If we delve deeper, it is clear that most of the reasons people use not to invest are actually based more on emotion than business savvy. We rationalise our fear using calculated arguments as to why it can't or won't work. But the truth is that none of these arguments really holds much water.
Lance Levitas is an experienced property investor, who lectures university students and presents property seminars. He graduated with a degree in finance and marketing and completed a post graduate course in Real Estate Property Management. In a recent article for Realestateweb, he lists the top six reasons why people decide not to invest in property. And lays them to rest - once and for all.
REASON # 1
"Investing in property is risky"
Fact: There is a certain level of risk in every investment - and property is no exception. But investing all your money in the bank (or even worse, under the mattress) may be the most risky of all as the returns barely keep up with inflation. Also, bricks and mortar is more tangible than stocks and you can take out insurance against fires or floods. You can also protect your asset against your death or disability. And yes, there is now even insurance available to cover landlords for non-paying tenants!
REASON # 2
"I don't have the time"
Fact: We all manage to find the time to do things we really want to do. Time management involves prioritising things that are more important. Anyway, you don't need to do it all yourself. Build a team of competent management agents, brokers and mortgage originators (yes, there are some out there!) and let their specialist skills work for you.
REASON # 3
"I don't have the money"
Fact: You DON'T need money to make money. Even in a market where 100% bonds are not widely offered, a good below market value deal will attract finance from investors. Network with people who share your passion for property and these investment opportunities will present themselves.
REASON # 4
"Below market-value properties don't exist"
Fact: No matter what the stage of the property life-cycle, there will always be value for money deals. The key is to identify initially whether the seller is motivated and only negotiate with motivated sellers. As long as there is divorce, relocation or excessive debt, motivated sellers will always be out there.
REASON # 5
"The property market will go down"
Fact: The property market has never gone down over the medium or long term. Does that mean that it won't in the future? Probably not, simply because property prices rise in relation to income levels, which increase over time. Even political factors, crime and other excuses people use not to invest, have not had a serious impact on our overseas markets. At times, these factors often have the reverse effect - lifting prices as investors choose the safer haven of bricks and mortar.
And if prices DO go down over the next few years? Who cares! Buying for the rental yield and at below market value still ensures the investor comes out trumps.
REASON # 6
"I don't know where to begin"
Fact: You only learn through action. Educate yourself and when you spot a good opportunity, take the plunge. It may not be the best deal you'll ever do but it will be the most important in terms of confidence. Luckily, over the long term, property is very forgiving of peoples` mistakes.
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