Real Estate Investment

Volume 2: Reasons for property investments ! (continue)

Make use of a variety of financial structures

I do this for security and financial planning reasons. People do everything in their own names instead of in an entity. At retirement age you could make an error of judgement and everything you possess could be lost. Rather spend the money now and pay the legal fees to get the structure right - create a trust or register a business and protect your real estate property. You cannot do this with a policy.

It is a secure investment

It is called real estate. Banks say that fixed deposits are safe. Nothing that resides merely on paper is actually 'safe'. It is nothing more than a pledge (subject to many conditions), it is not tangible. Real estate property is tangible. For the same reasons people revert to gold in uncertain times.

You can be in control

You can't control politics, inflation, interest rates, or corporations' behaviour. These things drastically affect any policy or investment. You have much more control over real estate property, you can sell property when you want. If the interest rates drop you still have the capital value in the real estate property to fall back on even if other investments start failing.

You can manage the risk

By plotting the results of a variety of variable conditions (such as interest rate hikes) you can minimise the risk. In this way you can predict outcomes of several 'what-if’ scenarios. With other investments you have other people deciding what to do and you don't know what the end result will be. With real estate property you can withdraw whenever the risk exceeds the limits you set for yourself and know immediately what the outcome will be (if you have the real estate property sale software program and know how to use it).

You can analyse the property deal

Look at all the variables and identify what will happen if each of them increases or decreases. They are all visible and identifiable, so one can manage and measure them. There is not much that is unpredictable and one can factor in every variable right upfront (if you have the real estate property sale software program and know how to use it).

You can improve the investment with little or no cost

Fixed deposits cannot be touched or improved - the interest rates are quoted in advance and you are locked into the deal for the duration of the term (with heavy penalties for withdrawing early). By changing the nature of the real estate property - e.g. from a block of flats to sectional titles; if done properly it can cost you nothing but your income and the value of the real estate property could rocket. Rezoning the real estate property is another example.

There are amazing real estate bargains

If you differentiate between the price of a real estate property and its value you can pick up huge bargains by offering cash, or other terms which will influence the person to sell at a bargain property price. On the stock market this is only possible through futures and warrants and even then the discount in real estate property sale out-performs these speculative investments. Learn to look at the deal behind the property deal - the best bargains are hidden behind the face value - you need to teach yourself to look beyond the obvious.

You can negotiate

Fixed deposits are not negotiable, the interest rate and term is quoted upfront. With real estate property one can negotiate almost every participant: with the property owner (price), the estate agent (commission), the lawyer (fees), the bank (term, percentage, overdraft facility). You can even negotiate the amount you pay back - e.g. an interest-only loan or alternatively you can pay only 50% of the repayment for the first two years and capitalise the rest.

You can predict economic cycles

Buy when everyone else is selling property. A fixed deposit is fixed on a level, it is not matched to a cycle. You can act against a cycle when it suits you, or with a cycle when it is on the up. You cannot predict what effect a down-cycle is going to have on another investment.

Free market

There is no inherent price attached to a real estate property sale, it is a perceived price, a price by consensus. And because there is no price control, one can say that real estate property is one of the most ‘free’ investments you can make. It is a great example of the free market system where a combination of the forces of supply and demand ultimately determine the price. It is true that sometimes prices are inflated because of the demand. But the skill lies in spotting the real estate property for sale that is priced lower than the market would normally pay for it – and we will soon discuss the reasons for such low-priced properties.

Passion for real estate property

I believe that real estate property investment requires passion, it requires learning the skills and putting the principles into practice. The more you practice, the better your skills will become and the more you’ll be able to start working on certain hunches – the gut feel will become stronger and this will indicate competence. But you have to carry on searching! The real estate property ‘deal of a lifetime’ is all over the place. These real estate property deals exist all over, every day! The challenge is to spot them.

Author: Realtors Houses for Sale | Sponsor: South Africa Real Estate