When investing in property you usually would need hundreds of thousands of rands to get started…not everyone has that kind of money lying around, especially beginners.
And, if you’re buying to let then dealing with tenants can also potentially be a huge pain if you select the wrong one. Imagine dealing with missed payments, domestic disputes, and even unblocking toilets.
It can be enough to turn you away from the property game completely.
So is there a way for a beginner to invest in property WITHOUT putting forward a ton of money and WITHOUT dealing with high maintenance tenants?
Fortunately, there is!
Here are some of the best ways beginner property investors can get started with investing in South Africa ranging from the lowest minimum investment and maintenance to the highest.
01. Buy Real Estate Investment Funds (REITs)
First off, what are REIT’S?
REIT’S is an acronym for Real Estate Investment Funds which are publicly traded companies that primarily focus on investing in real estate such as homes, shopping malls, and restaurants, etc.
A REIT stock provides the perfect opportunity to small investors that don’t have the money to invest in property themselves. Since your investment is simply a stock purchase of a company, you’ll be able to invest as much (or as little) as you would like.
Pros
- Completely hands-off. Don’t need to deal with tenants and general maintenance etc.
- No minimum purchase amount needed. You can get started with as little as a few hundred rands.
Cons
- No control. Once you purchase a REIT, your return on investment is out of your hands. Stock can get affected by the economy, bad CEO decisions, etc.
Vukile property fund is a typical REIT example.
The company heavily focuses on investing in shopping malls in South Africa and Europe, so if you buy their stock on the JSE. you will in a sense be investing in all of their investments.
I must warn you though, not all real estate investments are profitable and not all CEO’s make great investment decisions. When investing in a REIT you need to do your due diligence and research the company.
That said, if you would like an easy way to get your hands on some quick property investments then buying some REIT company stock could be the faster option.
(Learn how to buy shares online in South Africa with this guide!)
02. Rent Out a Room In Your Home Online
If you have an empty room in your home then this is by far the cheapest and quickest way to get involved in investing in property.
All you’ll need to do is invest a few hundred rands in fixing up an existing room in your own home and advertise it online on platforms such as Airbnb or VRBO to visitors that need a place to stay for a few nights.
Pros
- You can get started right now. Literally! If you have an open room in your home you can rent it out.
- Get paid before guest visits. Won’t need to chase down money.
- 3rd party platforms such as Airbnb manages the booking. If the guest breaks anything you’ll be able to claim with ease.
Cons
- You’ll have someone else sharing your home.
- Can be high maintenance. You’ll need to go above and beyond to keep the guest happy, even if that means they’re trying to get a hold of you at 1am!
With this method you have two options:
Rent out a room in your home part-time as holiday accommodation on platforms such as Airbnb and VRBO. This is highly recommended because potential visitors will pay when they make the booking, so you won’t be in a position to chase down the money. And, if guests damage the property it’s very easy to hold the client accountable since everything is managed through a 3rd party platform.
Rent out a room in your home as full-time accommodation. If you live close to a university or even a central business district then this could be a really great way to earn an income. The only downside is that technically you’ll have a tenant which can be tough to manage when compared to letting out to holiday goers.
What if you don’t own the home, can you still rent out a room?
Legally you would have to let the landlord know but be smart about it! I wouldn’t approach the landlord with the angle of “you’re trying to make extra money on the side.”
I would rather let the landlord know that I’m struggling to pay rent and I would like to rent out a room to make sure I make my rental payments.
I’m obviously not telling you to lie, but we’re all struggling financially one way or another aren’t we?! And if this could help you become a better tenant by being able to continue making payments in time then I don’t see the issue.
03. Online Real Estate Crowdfunding
Online real estate crowdfunding groups is pretty much a private REIT company that’s not publicly traded on the stock market.
The only difference is instead of buying into a company, with crowdfunding you’re directly buying into a property. So you’ll actually own a % of the property (or equity) based on how much you invest. This is known as equity funding.
Online property crowdfunding companies are usually in a form of an online website portal that lets willing investors get together and invest in showcased property investments that the company has discovered and deemed a great property investment for their investors.
Since online real estate investment groups are smaller when compared to publicly traded companies, you’ll need a much larger upfront investment to “get in.” To give you an idea, some companies could request upwards of R10,000 to join a crowdfunded property investment. Which is pretty affordable when compared to investing in property on your own.
Pros
- You can get started right now. There are property investment deals being offered all the time, so getting involved in one can be done without much hassle.
- Completely hands-off. Don’t need to deal with tenants and general maintenance etc.
- Get started with low investment. In South Africa, you can get started with a minimum of R10,000 with companies like “Real Estate Crowd Funding.” This is a lot less than outright buying a property.
Cons
- Hard to get money out. Once you’ve bought into a crowdfund investment it’s very difficult to get out.
- No control. Just like with a REIT company, your return on investment will be based on how well the company performs. It’s completely out of your hands.
So if you would like to invest medium amounts of money in property without the hassle of getting large amounts of money, dealing with admin and tenants, then consider buying into one of these real estate investment groups…
South Africa based real estate investment groups:
World-wide real estate investment groups:
04. Wholesale Property (Also known as back to back)
Wholesale property investing is when you secure the purchase contract of a home and sell it on at an increased price to an investor. This allows you to earn money from selling a property without ever actually owning the property.
For example, you find a seller that’s selling their home for R800,000, then you find a willing buyer that would like to purchase the property for let’s say R900,000. You connect the two and take the difference of R100,000.
Pros
- You can get started with NO money.
- You don’t need to own any property so there’s minimal risk. All you’re doing is making the connections.
- No dealing with tenants. Once the transaction has been completed you’re completely free to work on your next project.
Cons
- Not very passive. Unless you have a team, you need to be out there putting in the hours and connecting potential buyers and sellers.
- Some people may see this as unethical. But as explained, it’s only unethical if you aren’t transparent.
The best part about this strategy is you don’t even ever need to see the property to sell it, even though I highly recommend you do.
Some people might see this strategy as unethical because there are a lot of wholesalers in the industry who aren’t exactly transparent during the process.
That said, as long as you’re transparent with the buyer and seller then there is nothing unethical about this strategy. Connecting willing buyers and willing sellers takes both time and money so taking the difference is simply a payment for your services. It’s as simple as that!
If this sounds like something that you want to get started with then start by watching the video below. It will provide in-depth training on how you can wholesale property right here in South Africa from start to scratch.
05. Timeshare or Fractional Title
Another way you can get into the property game is by buying into timeshare or fractional title opportunities.
Timeshare simply means you purchase the time of a property which will be monetized through holiday letting in most cases.
Here’s a typical real-world example. Ballito, a coastal town on the coast of KZN is always jam-packed during the month of December. So some an investor would spot the opportunity to purchase timesharing property for the month of December, which will then be used to lease out to holiday goers during this peak season when there’s a high demand for holiday accommodation.
Pros
- You can ‘loan’ property for a lot less money when compared to buying. So if you don’t have enough for a mortgage, but you want to get involved in holiday letting, then this could be a good place to start.
Cons
- Can be high maintenance dealing with holiday guests.
- You’ll be liable for any property damage that your guests cause.
- You’ll be a “middle man.” On the one hand, you’ll have to worry about not upsetting the property owner, while on the other hand, you’ll also need to keep guests happy.
So you don’t actually own the property, but instead, you own a property for a specific time of the year for a specific number of years based on your contract. In a nutshell, you make money by letting out holiday accommodation on the property you’ve “booked out.”
Usually, timeshare properties are priced based on how much revenue these properties could produce for the period you’re interested in purchasing.
So the busier your location of interest, the more you’ll end up paying for a timeshare property.
06. Buy Property to Flip
If you would like to buy property without dealing with all the work that comes with having tenants then flipping houses or commercial property could be a great option.
Flipping property involves buying an old property that you believe to be undervalued, clean it up, and put it back on the market. Once you sell the property, your profit will come from the difference between renovation costs, added to the purchase amount subtracted by the sale amount.
For example. You buy a broken down home in a decent location for R800,000. You fix it up and sell it for around R1.2million rand. And you use the difference of R400,000 to cover contraction costs and future projects.
Pros
- You won’t have to deal with any tenants.
- Retun on investment can be big.
Cons
- Very risky. You’ll need to have the cash to buy and renovate the property, and hope the market is still doing well to sell the property at a higher price. Definitely not for amateurs.
- Need a lot of capital to get started.
- Need to understand market trends.
I obviously oversimplified the process but if you’re interested in this strategy then make sure you check out the video below and see how a local South Africa property flipper does it.
07. Buy Property to Rent
One of the biggest benefits of buying a property in South Africa is that we’re one of the few countries where in most cases you can rent your home out for more money than you’ll pay in monthly mortgage payments.
This makes South Africa a prime location to purchase property to rent out.
To give you an idea of just how prime South Africa is:
- South Africa has a national price-to-rent ratio average of 4.8 according to numbeo.com, which is extremely low (this is a good thing!)
- The United States has a whopping price-to-rent ratio of between 16-20 according to smartasset.com. That means when purchasing a property in the U.S it will take you on average over 16 years to earn your money back through rental income.
What does price-to-rent ratio mean?
The price-to-rent ratio give’s you the number of years it will take you to fully pay back your mortgage using your rental income alone. So it’s calculated by dividing your home price by the annual rent you can receive.
Here’s an example. If you buy your home for R1,000,000 and you can receive R200,000 in annual rental income, your price to rent ratio will be 5. Here’s the math: R1000,000/R200,000 = 5.
So it will take 5 years for you to make your money back through rental income. The higher the number, the less attractive the property investment looks!
Pros
- With a price-to-rent ratio of 4.9, South Africa is a prime location for this strategy.
- You’ll own the property which gives you flexibility. For example, if prices rise in the area you can flip the house instead.
Cons
- Need a large amount of capital to get started.
- You’ll need to deal with tenants. Dealing with people is always high maintenance unless you select your tenants wisely.
So is it all positives in South Africa?
Unfortunately NO! The major drawback we face in South Africa is it’s a lot more difficult to find good tenants in our country. So if you go with this strategy then make sure you select your tenants wisely!
Some property owners screen tenants like they would screen an employee, and I would highly recommend you do the same.