Is Property Still A Good Investment?

Landlords grow rich in their sleep – or do they? What have the returns been; what are the risk factors? Vacancies are up to nearly 10% in some cities – it’s a tenant’s market. Here’s what this means from an investment perspective.

- Sylvia Walker

Ever dreamt of being a property mogul – wheeling and dealing as you build up a formidable portfolio? Many fortunes have been made (and lost) this way, as it seems quite easy: buy a property, fund it with money from the bank, then rent it out. The rental income pays your expenses, and you have an asset that you can sell in the future for a handsome profit. Repeat, and grow rich!

But is it really that simple? It’s said that fools rush in, so best you understand what you’re in for before you get started.

Timing

Investing in property means being in it for the long haul, as the market operates in distinct cycles. ‘There are periods of steady growth, stagnation and sometimes even crashes,’ says Erwin Rode, MD of Rode & Associates, a company that specialises in property research, economics and valuations. ‘Depending on when you buy, you could benefit from an upswing, or seriously regret your decision. For example, if someone bought a property around 2000 and sold it seven years later, they would have made a killing.’

So if timing the market is crucial, and no one has yet found that crystal ball to predict the highs and lows, an investor would simply stay in the market and ride out the cycles. Is it worthwhile?

Returns relative to inflation

To make financial sense, any investment must at least match, and ideally beat, the inflation rate. With property, several factors need to be considered: the growth in the actual value of the property, the income that is generated and the level of debt on the property.