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Expel Fear Of Property Portfolio Debt
Property24
11 January 2007
Property has a proven track record for being a solid investment, but potential moguls should not fear raising debt to acquire their portfolio, Property letting and rentals expert Neville Schaefer explains the attitude investors should have towards debt.
His comments come as South Africans adjust to a rising interest rate cycle following a four-year period when bond rates dipped to their lowest point in a quarter-century. The upswing opens opportunities for investors to acquire sound investments in developing neighbourhoods.
Schaefer says attitudes to debt should take cognisance of age with anyone under 30 years being prepared to service 100% bonds on their new investments.
"People in that bracket are still young enough to begin again if the venture does not succeed. Their financial responsibilities are not as onerous as their older counterparts."
He believed investors up to 40 years old could sustain bonds between 80 -100% on their properties, as the chances were they had families and other financial responsibilities to consider.
Those in the next age bracket should limit their bonds to 60-80% and once investors reached 50 years old, they should aspire to put down a 50% deposit on new properties in their portfolio. Anyone acquiring property after 65 years old could not expect to raise a bond on their new investments.
Schaefer said property yields have consistently outweighed cash or bonds, meaning there was scope for investors to secure a solid annuity income from their properties and benefiting from appreciation and market growth when the asset was sold.
He warned potential investors against buying and selling properties too rapidly due to the high costs associated with entering and exiting the market.
"Rather improve the properties in your portfolio to boost yields and only sell a property for strategic reasons. Maintain a long-term view on your investment, recognising that property is a long-term asset that will appreciate over time," he said.
Schaefer added that investors should leverage their property portfolio to buy further properties. Banks recognise the value of the assets and allow investors to borrow against them to grow the portfolio.
Original article published at www.property24.com.
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