There are several ways to making the pension fund grow, one can invests in the stock market and use your dividends to improve your cashflow, or you can purchase some bonds and thirdly you can consider investment property. Investment Property is most probably the most tangible one of the three, it is for this reason that I like the idea of investment properties to grow my own pension fund.
But as with all pros there are cons, today we will focus on the 6 pros of investment properties , however read here if you are interested in the 6 Cons to Investment Properties
1. Cash Flow from investment properties
I will say that this is one of the biggest pros of investment properties, the simple fact that you have a steady stream of cash flow from the monthly rental income. This doesn’t however mean that you can simply take the entire amount of rental income and go on a shopping trip, you as a landlord will still have to be responsible with your monthly rental income, it does however help to have a bit extra cash when needed.
Landlords will have to consider the expenses to their investment property, before taking profits. This will include expenses such as:
- The mortgage payment that you may still have on the property
- The Insurance you will need on your investment property
- Property tax and other taxes you may have
- Maintenance Savings
- Management cost, if you have any on the investment property
Other than these 5 main expenses, you as a landlord should be able to take the remainder rental income as profit for yourself, it is now that you can start saving for that family holiday.
2. Rental Income should keep up with Inflation
Your monthly rental income should keep up with inflation throughout your investment property’s life span, meaning that in economical downfall times, your rental orieorty should (in theory) still be able to yield health results compare to the rate of inflation or the rate of the general stock market growth.
This is a massive benefit, the fact that you are earning the physical monthly cash that not only keeps up with inflation, but that might even be a bit more if you bought your investment properties in the correct location, time and amount.
3. Property Increases in Value Due to Appreciation
Historically it is shown that property generally tends to increase in value, especially if the neighbourhood improved ever so slightly in its past years.
There are examples where this wasn’t the case, where properties devalued to an extend where landlords would nearly want to give the properties away, this can be seen in our own inner city, Johannesburg. However the property market in the inner city has and are turning around, the properties are rising at a super fast rate. But these examples are not the typical case of property development and growth. These scenarios were typically brought forward by external factors, such as political change. As a property investor you will have to have the loose capital to be able to wait these pitfalls out if you were to buy into or become part of such an unfortunate scenario.
The general trend is said that you should at the very least be able to double your capital every 10 years. Meaning if you paid 1 million for a property today you should be able to sell it for 2 million in 2025.
4. Improve your Investment Property
By improving the quality of your investment property you will be improving the final capital growth you will receive once you decide to liquidate your investment. There are several ways in which you can improve your investment property, being from keeping up with maintenance, to building extensions and adding fixtures to the interiors.
You will have to consider what your current tenants will need, want and what will your potential buyer like to see, all of this depends on the property type of course.
5. Finding that “Steal” Investment Property
As an investor you will have to decide what and how you want to make money of property, do you want to deal with tenants and gain the monthly rentsl income (apartments are great for this) or do you want to buy a fixer up and sell it straight after (residential homes).
But the gist of the matter is that whatever route you decide you should be able to find those “steal” investment properties, the once where some work is needed, but a massive capital gain can be made. The secret to these types of fixer ups are that you should know your cost, you should know how much it will cost to fix the roof, put in a new geyser…..
I do recommend to not tumb suck these figures, but to get actual tangible quotes, even if you need to pay for some of these quotes. Having a professional look at the roof and geyser will give you the actual figures, after which you can go run the math and realistically consider the purchase of a fixer up investment property.
6. Investment Property Types
As with any investment you can make good and bad investments, this is the same with property. Some investment properties are better suited for a quick turn around and others are better suited for the monthly rental income. Different properties will give different results, the same with different types of stocks.
If you are looking at a quick turn around then something like a fixer up wouldn’t be a bad idea, but if you are looking for the rental return then you have to consider the type of property, like an apartment in the inner city or an industrial holding.
I personally like the idea of monthly rental income, but one has to be careful with this approach to not be drowned in the maintenance cost and the tenant landlord issues, especially in residential homes. I love apartments, simply because you do have the monthly expense of levies, but after that you have very little maintenance or other expenses. It is a relatively easy product to sell. Residential homes however have tons of other issues, like the maintenance, the garden, the pool, the garage doors…..
Other investment property types to consider would be Industrial Holdings, like warehouses and factories. Or one can consider the retail/commercial property types such as shop fronts and offices.
The gist is you have to decide how involved you want to be and how much work are you willing to put in. Monthly rental returns tend to cause far more work, but that is also why we have companies like Mafadi to manage these investments for us on a day to day basis. If you like to fix up properties and sell them for the quick cash, well then I hope you are handy or can trust your contractor.
Investment properties are great, you just have to know what you are doing as well as have the loose capital. I do suggest if you are interested in growing your pension fund with property that you consider a property management company to handle the days to days. These companies are worth their small commission, there are no question about that.
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