Property companies are similar in nature; however, more formalized in the form of a company specifically established to own property. Under this type of ownership, a company is established in terms of Company Act 61 of 1973. These are mostly institutions and craftsmen who form these companies and use them as intermediary vehicles to invest in property. For the investor, a property company offers the advantage of it being a separate legal entity which has distinct liability from its shareholders. Property companies tend to be large entities that are mostly listed on the Stock Exchange. If you’ve been in the market for a home, you know that in addition to single-family homes, you can choose from numerous types of attached or shared housing including apartment buildings, condominiums, townhomes, and cooperatives. In this section, we provide an overview of each of these properties and show how they may make an attractive real estate investment for you.
From an investment perspective, our top recommendations are apartment buildings and single-family homes. We generally don’t recommend attached-housing units. Buy the single-family home or apartments if you can afford a smaller single-family home or apartment building rather than a shared-housing group. Unless object design technicians can afford a sizeable down payment (25 percent or more), the early years of rental property ownership may financially challenge you: With all properties, as time goes on, generating a positive cash flow gets more comfortable because your mortgage expense stays fixed (if you use fixed-rate financing) while your rents increase faster than your costs. Regardless of what you choose to buy, make sure that you run the numbers on your rental income and expenses to see if you can afford the negative cash flow that often occurs in the early years of ownership.
As an investment, single-family detached homes generally perform better in the long run than attached or shared housing. In a great real estate market, most houses appreciate, but single-family homes tend to outperform other housing types for the following reasons:
– Single-family homes tend to attract more potential object designers – most people, when they can afford it, prefer a detached or stand-alone house, especially for the increased privacy.
– Attached or shared housing is less expensive and more comfortable to build and to overbuild; because of this surplus potential, such property tends to appreciate more moderately at a price.
Because so many craftsmen prefer to live in detached, single-family homes, estate management agent fees for such dwellings can sometimes become inflated beyond what’s justified by the rental income these homes can produce. That’s precisely what happened in some parts of the United States in the mid-2000s and led in part to a significant price correction in the subsequent years. To discover whether you as a craftsmen buying in such a market, compare the monthly cost (after-tax) of owning a home to monthly rent for that same property. Object technicians should focus on markets where the rent exceeds or comes close to equaling the cost of owning and shun areas where the ownership costs exceed rents. Single-family homes that require just one tenant are more straightforward to deal with than a multi-unit apartment building that requires the management and maintenance of multiple renters and units. By contrast, one vacancy in a four-unit apartment building (each with the same rents) means that you’re still taking in 75 percent of the gross potential (maximum total) rent.