One big or several smaller properties: One big or several smaller properties: which is best for the
Category Advice
One of the questions that he is most frequently asked says Rowan Alexander, Director of Alexander Swart Property, is whether it is wiser for buy-to-let investors to invest in a single upper price level property, or multiple smaller properties. This question came up again when he was interviewed recently in two Cape Talk radio sessions.
"The first point to make," says Alexander "is that anybody who simply advocates one or other of the investment channels without determining your needs is doing you a disservice. Neither asset class can be seen as superior in all circumstances. In some cases a single big investment will be the right answer. In others, a more diversified portfolio will better suit the investor's needs."
There will always be those in favour of 'putting all your eggs in one basket', believing that a single high value property will give better results from both a rental income and capital growth viewpoint - but those going this route must be very careful to select the right 'basket'.
On the other hand, says Alexander, it is undeniable that the investor who spreads his risk over several smaller properties will be less likely to suffer from non-payment of the rents. While one tenant may default, others will probably continue to meet their obligations. The mistake that such investors sometimes make is to buy many properties in one block or in the same price range or area, thereby reducing the benefits of real diversification. It has to be accepted too, that those who opt for multiple properties at lower sale prices, will have to deal with greatly increased management problems and costs.
"Wise investors looking for real diversification ensure that their properties are in different areas and different price ranges. However, every now and then a really good opportunity comes on the market - and in these cases it does pay to own several properties and forget about diversification."
The good investor, says Alexander, will sort out his priorities at the outset: is he looking mainly for capital growth or satisfactory rents? Properties with a mid to high value quite often also have a high capital appreciation rate, but this is not a golden rule. A property bought in Brackenfell in 2011 for R800 000 could today be worth R1, 5 million. Similarly, one bought today in Durbanville for R2 million will probably appreciate even faster over the next eight years.
Investors, adds Alexander, should study these possible markets and, with the help of reliable estate agents learn to identify the areas in which the most trade is taking place. Those doing so, would, for example learn that in Brackenfell the big demand is in the R1,5 million to R2 million bracket, while in Durbanville it is in the R2 million to R3 million category and in Kraaifontein in the R800,000 to R1,5 million bracket.
"Once you have established where the demand is," says Alexander, "that is where you should put your money. Researching the markets is not difficult; because on request Alexander Swart Property will share any information they have with investors."
For further information contact Rowan Alexander on cell phone number 082 581 3116 or email rowan@asproperty.co.za.
Author: Independent Author
