How real estate can return 10 times your investment
Some of the wealthiest people in the world made their money in property – including more than 130 of the people on the Forbes Billionaires List – and collectively, those people known as ultra-high net worth individuals (UHNWI), own at least US$3tn worth of residential real estate. This is according to Rawson Property Group MD, Tony Clarke, explaining that real estate should form an integral part of an investment strategy.
“In fact, the latest statistics show that on average the 200,000 UHNWIs now spread around the world have about 20% of their wealth invested in real estate, and each own three or four luxury residences in addition to their primary home,” he says. “However, the really great thing about property is that you don’t need to be a millionaire to start investing. You can get started with just one small apartment in an area where there is good demand for rental accommodation.
“What is more, if your credit record is good and you have a deposit, you can usually borrow the rest of the price of your first purchase from a bank, which is something you cannot do if you want to start investing in the stock market, or gold coins, or other collectables such as art or wine or super cars.”
Real estate is similar to most other types of investment and that the longer you hold onto it, the more valuable it is likely to become.
“The latest figures from FNB show that if you bought an investment property at the start of the last boom – about 15 years ago – and have been able to hold onto it until now, it would currently be worth around 65% more than you paid for it, in real or after-inflation terms,” says Clark, noting that rental income would hopefully have covered most, or even all, of your monthly home loan instalments. “And on top of that, with the bond soon to be paid off, you would be able to look forward to the monthly rental becoming an additional source of income – and to owning an asset that will continue to appreciate, which you could leave to your heirs, use as collateral to acquire other investments or sell to raise cash and trade up to a bigger real estate investment.”
The tax advantages are also sweet when you own rental properties, says Clark, noting that a geared purchase means that if you do decide to sell an investment property that has increased in value, you get to keep this whole profit, not just the proportionate increase on your deposit.
“As a simple example, if you bought a R500,000 property with a 10% deposit (R50,000) some years ago and the property is now worth R1m, you will be left with a profit of around R500,000 once you’ve sold it and paid off the remainder of the home loan and any Capital Gains Tax,” he says. “Thus, your initial R50,000 ‘investment’ would be multiplied about 10 times – and there are few other investment avenues that can realistically offer the individual without a lot of capital that kind of return within a few years.”