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Werner, What about property

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Not applicable
I've been playing around with figures. Lots of dynamics but there appear to be good opportunities out there again. As a long term investor you see this as a possibility? I'm refering to actual property as opposed to property shares. Skaaptjop I know it forms part of your portfolio. Tis not gonna be what it was, and I can trade now because of investments I made in property, but it looks good to me for future, especially if one chooses a growth suburb
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21 REPLIES 21
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My opinion is that in property you make your money when you buy. If you get a property at a low price then there is only upside. Even better if you can get another investment or non-time based activity to fund the purchase. Bearing in mind that property only costs you money & as such is a liability unless rentals or other cashflows can fund the running costs until the capital growth can kick in. Paying a letting agent to manage yr property is also a dead loss as that 5 - 10% you give away just delays the payback period. I agree that in certain areas there is still value to be had & forced sales are a good starting point. Property should form part of a balanced investment portfolio.
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Not applicable
Bruberi, I advocate listed property, not actually owning the stuff (although I do own my house). Listed property gives me the same returns - in fact even better returns, and I can get in and out as and when i want to, at a fraction of the cost.
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richardw
Super Contributor
Agreed skaaptjop. Less worry with tenants. Like owning a bit of many properties (less risk), and commercial tenants you can kick out.
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Werner_1
Super Contributor
I also own some shares in Emira, no physical property, but the listed property also proves to be quite usefull for an income generator. Good returns, well managed portfolio that is diversified and if one wants to exit the industry its very easy by just selling the shares. I guess if one can find good opportunities, buying something physical could be good, but i never did this, however now might be a good time for discounts in certain areas.
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louisg
Super Contributor
I'm sure I read an article last weekend that stated that RESIDENTIAL property in SA, ON AVERAGE, has shown an annual REAL CAPITAL return(after inflation)of 0.75% over the last 30 years. The article mentioned JSE LISTED shares (ALSI) at about 8% real return (this would include capital and dividend payments). Listed property was just below real 8%. One must keep in mind that these are BEFORE tax returns. Listed property pays taxable interest (which I believe make up about 85% of total listed property before tax returns), while non-property listed shares pay non-taxable dividends.
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Werner_1
Super Contributor
Louis, thats true... i think if one finds opportunities where standard dividends are equivilent to the after tax distributions from the listed property, one is better off. I think buying some of the bank shares in SA and offshore at very discounted levels will result in an excellent dividend yield in the years to come once they start moving these up again... Even PPC pays good yields... I know Louis likes this one...
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louisg
Super Contributor
As a dividend seeking long term investor, PPC forms PART of an initially high yielding, steadily growing dividend equity portfolio. Its the collective return over the long term that matters. As I treat my portfolio as a BUSINESS, I'm attempting to create an annuity type of business with growing income/dividend streams. Capital growth will follow, in the long term.
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Not applicable
I agree with all you guys have had to say. I just hold Redefine rather than Emira, no real difference. The point I was trying to make was that regarding physical property the returns are only made when you sell if you bought cheap enough & that the running costs are at times exhorbitant & can erode any retrurns. I am a firm believer though in physical property as part of a wealth protector. eg I bought a share in a cash generating business recently, now I use the cash from that investment to pay the mortgage & all running costs on my newly acquired holiday home in Onrus. So I leverage a R300k investment into a R1.2m home. The trick is that I only paid R700k for the house as it was a distressed sale. So my feeling is that had I taken the cash & bought shares I might over a 10 - 15yr period arrive at a equal real return, but I have had the enjoyment of living near the beach, sporadic holiday rentals & a 40% capital growth NOW - over that time period. Thatsw why I say that apart from one's primary residence, physical property should form part of a balanced portfolio. Hassels with tennants, easy exit etc are just small reasons NOT to do it. Owning fixed property teaches one a whole raft of new skills - leases, tennants, municipalities etc etc. LOL
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Not applicable
Werner, interesting enough our Grindrod holdings gives us property exposure in one of the fastest growing property funds on the market at the moment (off a low base, i know, but I will take it). And Louis, agreed that the taxable payments is a drag, but the yield is around 9%-10% on average, which equates to around 6% after tax - that is still better than most (if not all) dividends that I know? And listed properties tend to offer some risk protection, from a NAV perspective.
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am_1
Frequent Contributor
Werner as part of your research notice how many prospective tenants are looking for places to rent long term right now and how many hits any available property ad is getting. If you had an unfurnished rental property in the city bowl,CT right now you would be spoilt for choice regarding tenants and with a solid lease you could do the rental yourself. Most owners have furnished their places and are trying for a quick buck during World Cup so take the gap and you'd be surprised how many expenses you can claim.
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Werner_1
Super Contributor
True... I really love GND, just got the annual report in the post today, will study it tonight maybe - if i get time...
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Werner_1
Super Contributor
interesting, i never really looked into physical property much, we had the idea once to start something, but that didnt work out, since then i stopped researching much into properly... i only focus on long term equities nowdays...
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Not applicable
Hi Guys, most of the real bargains are already gone. End 2008, first half of 2009 one was able to buy properties at sheriff auctions or bank repos at 60% of the market value. This has slowly crept up to 80% over the the last 3 months. The real cap return on RESIDENTIAL vs JSE Listed that louisg mentioned earlier is excluding any rental that you may have collected during that period. I believe that if you add the rental received on residential property, it will by far beat Listed Property Stocks. Also bank are willing to lend up to 90% of purchase price when buying residential buy-to-let property(leverage)
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Not applicable
Does buying at auction not increase your risk? i.e. you are liable for any unpaid rates, elec etc on that property
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Not applicable
Yes you are liable for any unpaid rates, electricity and levies. Therefore you need to do your research beforehand. I try to buy only sectional title units, that way it is easy to get exact outstanding figures by calling the managing agent. Then you would decide the maximum price you would bid taking into account the outstandings. The one risk that is unknown is being able to get vacant occupation of the unit. This is normally more difficult if it ia an owner occupier, but if there's a tenant in the unit it is much easier to get occupation.
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Not applicable
Beware new consumer protection act towards yearend .Will make it virtually impossible to get rid of problem tenants-residential and commercial.
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louisg
Super Contributor
Sure Skaapkop, the initial after tax yield on property may be higher than most dividend paying shares. However, if one assumes that property shares will grow their earnings by 10% a year and dividend paying shares by say 15-20% then not only will the div yield catch up and surpass the prop yields, but one's capital appreciation of non property companies will outperform property stocks. Add the capital and div payments together, and I reckon I'm better off in the long term with non property shares. OMO. Of course one must hold the view that non property company earnings will increase more than property companies. In terms of "risk protection", I would be more comfortable owning a company with no or very little gearing than moderate to high gearing. Gearing is essentially how property returns are "justified". Borrow 90% on a property and double your return if the property value goes up 10%. BUT this works both ways. Let the property value go down 10% and your capital is 100% wiped out if you can not service the DEBT. Pretty much the same goes for any geared instrument.eg derivatives. If capital preservation is one's primary objective, then gearing makes little sense.
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louisg
Super Contributor
Hi Jorge. Erwin Rode recently stated that the AVERAGE initial yield on residential property is about 4%. How does one achieve a profit from this scenario saddled with a likely 10% bond interest rate, not to mention other running costs such as rates, maintenance, non payment provision, insurance, etc.? Where's the POSITVE CASHFLOW? How long before cashflow turns positive? LISTED property is offering a forward yield of about 9-10%. The banks won't give an individual a 90% loan for listed property, but may give you 50% at prime plus 2-3%. Anyone with first hand experience getting a loan for investment in listed property?
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partridge
Super Contributor
For goodness sake. If you were a Martian and you came to Earth to invest would you say that it was a sound decision to buy a house(To LET?) in a SINGLE suburb in a SINGLE town in a SINGLE small developing commodity based economy? You must love risk!! Cycles are reality - and I have bought property myself - but as an absolute investment choice? Naah. SO NO..BUT if you say property shares then....yes - good time to buy. But if you really want to know what is screaming " invest in me" then look at offshore and the RAND. - QED.
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