This method involves buying a property with the express purpose of renting it out and eventually making a profit from the rental. It is usually quite a long-term investment as the intention is to have the property pay for itself (from the rentals collected) without requiring huge amounts of capital from your own pocket. When a property is bought it is also important to do as much research on the property and area as possible as this usually works best as a 10 year plus investment.
Very similar to buy-to-let this method involves renting a property cheaply in order to rent it out for a profit. It is usually a medium to short term investment as the intention is to make money from it right from the start. Research is extremely important as you cannot afford to rent a property only to find that you cannot in fact sublet it for the amount you had in mind. This only works if you can get the rental substantially below market. Keep in mind that you will be held accountable for damages left by your tenant and that should such a tenant abscond you will remain responsible for the monthly rental regardless. Certain leases also prohibit subletting. It is important to ensure that your lease allows for sub-letting before you consider a property for this method.
3. Property Development
This involves buying a piece of land in order to develop something on it that is either sold as a whole or alternatively sold piecemeal to a variety of new owners. A good example would be developing a block of flats or a townhouse complex. It is usually possible to start selling these properties off plan once the necessary plans have been approved in order to help subsidise the project. This method makes money in the medium term but usually requires substantial investment by the developer and an even larger amount of market research to ensure the success of his project.
4. Property Speculation
This is usually when an investor buys a property in order to sell at a profit in the short to medium term. This may involve getting a property for far below market but more often involve research in order to pre-empt the market. A good example would be the buying of farms in the Lanseria Airport area prior to development of the industrial node to re-sell it once the values have been driven up by the increased demand. This method is also frequently combined with property development to further increase the value and associated achievable profit. As with pure property development speculation is only successful if substantial market and area research has been done to ensure that the speculation is in fact a calculated risk and a certain return.
5. Renovation or Flipping
This method involves buying of property with the intention of selling it again in the short to medium term with an above average increase in value. This may involve rezoning property for a more appropriate purpose, subdividing a large lot into smaller lots that may be sold individually or even increasing the value by building new or renovating existing infrastructure in order to sell at a profit. Some investors focus on buying PIP’s (Properties in Possession) at far below market value only to quickly re-sell at a value still below market but netting them a substantial profit. Without appropriate research in terms of the reasons for the property being sold, resale values and financial direction of the area many investors have barely managed to break even or even made a loss utilising this method. Did you know that Andrew Walker has designed an online Flipping course which is presented through The Property Academy. This course is made up of a 30+ practical video series where Andrew Walker goes through each facet of property flips. In-depth learnings include consultations with an experienced builder, a fellow property investor and an attorney. Click here to find out more!
6. Investor Consortia
It is a fact of life that we are stronger together than we are apart and it did not take long for property investors to pick up on this. An investor consortium allows its members to combine their available funds in order to purchase investments that they would not be able to afford or qualify for independently. This allows for instance the purchase of an entire block of flats when the individual owners could barely afford buying a single unit each independently. It is however important for each investor to choose an investment consortium that suits their individual property strategy such as but-to-let, venture capital or property development etc. This method depending on the approach of the investors can deliver either short, medium or long term results. Whilst less research is necessary utilising this method it is still important to know who you’re getting in the proverbial bed with and if their strategy and appetite for risk is sufficiently similar to yours.
7. Venture Capital
Some investors have relatively deep pockets and this allows them to invest into high yield projects with minimal effort but slightly higher than average risk. This means that a developer can come to such a venture capital investor for investment into their property development project if they cannot obtain full funding from a commercial bank. In turn a venture capitalist can expect returns from 15% up to 35% pa or higher in the South African marketspace for short to medium term cash investments. It is important though to recognise the need once again for proper due diligence and research on each investment opportunity.
8. Property Stocks
By buying shares in listed property related/construction companies or companies providing funding for property projects investors have a means to invest into property and property related profits without buying physical property. Just like buying shares in any other company unfortunately the banks will not lend you a substantial amount of money specifically to invest in this way and as such it usually require cash investment from the investor. This is a method to have a foot in the property market though without getting your hands dirty as this probably involves the least amount of physical effort of all the methods of making money from property. It produces results over the short, medium or long term depending on the shares invested into. To make higher than average returns from property shares, stocks and bonds research is still required to make educated choices.
9. Estate Agency, Conveyancing and Bond Origination.
As far as Estate Agencies are concerned this method relies on selling property on behalf of others taking a commission for marketing and selling the property and then facilitating the sale. It is not an easy business to be in with awkward hours required in order to be successful. In South Africa legislation also prevents just anyone without the necessary certification and accreditation to start selling property on behalf of others. Bond originators make their money from the banks paying a commission for facilitating the buyer to obtain a loan facility from them and conveyancers are obviously involved in legally transferring the property from one owner to the next. Some estate agencies have seen the possibility of making some extra money from the same property deal by employing their own bond originators or setting up relationships with bond origination houses OR conveyancing attorneys from which they also receive some kickbacks.
10. Letting Agency
Letting Agents typically rent out property on behalf of the owner taking a commission for marketing the property and facilitating the rental. It is usually built on an annuity income model that produces an income monthly for the length of the lease but could also be done as a once off commission being collected at the start of the lease. In South Africa legislation also prevents just anyone without the necessary certification and accreditation to start renting property on behalf of others although anyone is allowed to rent their own property or assist friends and family in doing so.
11. Managing Agency
Managing agents usually manage multi-unit residential complexes or shopping centres on behalf of the owner(s). This involves doing the billing, collecting the levies and utilities charges and managing the maintenance and upkeep of such a building for which they then collect a monthly service charge.
As you can see there are no shortage of methods to make money from property and property related investments. You need to identify which method suits you best in terms of ROI (Return on Investment), investment value (cash invested), risk, physical effort, mental effort, ongoing involvement (how regularly it requires attention and the level of attention requires) etc. Property is not for everyone but anyone can make money from property regardless.
In our opinion property in the medium to long term is the highest yield investment class available whilst simultaneously being one of the most forgiving of mistakes being made.