Real Estate Investing - 8 Rules for Success

Thinking of going into the lucrative market of property investment?

Here are 8 rules for success when investing in property.

1. Educate yourself - Knowledge is the new currency. Without it you are doomed to follow other people's advice without knowing if it's good or bad. Knowledge will also help take you from being a "good" investor to becoming a great investor, and that knowledge will help provide a passive stream of income for you or your family.

2. Set Investment Goals - A goal is different from a wish; you may wish to be rich, but that doesn't mean you've ever taken steps to make your wish come true. Setting clear and specific investment goals becomes your road map and action plan to becoming financially independent. You are statistically far more likely to achieve financial independence by writing down specific and detailed goals than not doing anything at all. Your goals can include the number of properties you need to acquire each year, the annual cash-flow they generate, the type of property, and the location of each. You may also want to set parameters on the rates of return required.

3. Never Speculate - Always invest with a long-term perspective in mind. Never speculate on quick short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never know when a market will peak and it's usually 6 to 9 months after the fact when you find out. Don't chase after appreciation. Only invest in prudent value plays where the numbers make sense from the beginning.

4. Invest for Cash-Flow - Cash-flow is the "glue" that keeps your investment together. Your equity will grow over time while the cash-flow covers the operating expenses and debt service on your property.

5. Be a Market Sceptic - South Africa is a very large country made up of multiple local real estate markets. Each market moves up and down independently of one another due to many local factors. As such, you should recognize that there are times when it makes sense to invest in a particular market, and times when it does not. Only invest in markets when it makes sense to do so, not because you live there or you bought property there before. It's always an element of timing.

6. Take a Top-Down Approach - Always start by selecting the best markets that align with your investment goals. Most investors start by analyzing properties with little to no regard of its location. This can be a big mistake if you don't consider the investment in light of the market and neighbourhood it's in. The best approach is to first choose your city or town based on the health of its housing market and local economy (unemployment, job growth, population growth, etc.). From there you would narrow things down to the best neighbourhoods (amenities, schools, crime, rental demand, etc.). Finally, you would look for the best deals within those neighbourhoods.

7. Use Professional Property Management - Never manage your own properties unless you run your own management company. Property management is a thankless job that requires a solid understanding of the Rental Act, good marketing skills, and strong people skills to deal with tenant complaints and excuses. Your time is valuable and should be spent on your family, your career, and looking for more property.

Get in touch with Seeff Richards Bay to assist with investment property management.