Most investors looking for returns through property, think that buying another house is the best option. Nothing could be further from the truth.
There are other investment options which can achieve even better outcomes. For example, you can get invested in a whole range of property that will allow you access to international returns through local and offshore unit trusts. You can also get access to property investment by buying shares listed on an exchange.
We have discussed before, the nature of unit trusts and how they work. We also discussed shares, and how they can be an alternative source of income. Shares are the most basic form of entry into the investment markets. Investors can benefit from exposure to property stocks listed on the Johannesburg Stock Exchange such as Dipula Income Fund, Growth Point, Vukile Property Fund, and Sto-rage.
These companies have been listed for a long time, and potentially could be used as entries into the property sector. Through unit trusts you can have access to a diversified basket of shares in the property sector, and so reduce the risk of being invested in one share only.
More importantly, through these unit trusts, technically referred to as Real Estate Investment Trusts (Reit), you can invest offshore as well. By buying shares in a Reit, you own shares in a company that owns and operates a real estate portfolio.
This is important in terms of gaining access to world-class real estate which has global businesses as tenants. For example, some of the best tenants to have in a building include Toyota, BMW, Johnson and Johnson, Coca Cola, Barclays Bank, and many other “blue chip” clients.
You can also become the landlord to these companies through owning a fund that owns portions or complete buildings and collects rents from such tenants. All you have to do is make the actual investment and then wait for the fund to pay you income annually.
Remember that the fund can also grow in value, increasing your wealth. However, you need to be aware that where ever there is a chance of making returns through investing in stock market related solutions, there is an equal downside risk of losing money. The South African market this year has seen the worst property sector performance in a long time, if not the worst.
As of today, the sector is down 22% since the beginning of the year. However, over a 15 to 20-year period, the sector is up close to 450%. Clearly showing that in the long run, income and value growth has materialised for the sector investors.
Another option that could be considered is an index tracking investment strategy. Investors could simply buy an index like the Satrix Property Index Fund, a specialist index fund which tracks the performance of the FTSE/JSE SA Listed Property Index.
An index tracking fund tracks the companies through long cycles, and you, the investor, can benefit from the property sector through small monthly investments of as little as R300 a month if you use SatrixNow. As stated earlier, buying into these instruments is a great alternative to investing in physical properties, such as rental homes.
Nkomo is an executive director at Inkunzi Wealth Group.