Bill Rawson, Chairman of Rawson Properties, says that he is these days regularly asked by the many new property investors questions which revolve around the basic theme of diversification.
'The questions,' he says, 'are usually along these lines: 'Is it time I diversified? Am I too exposed to property? What other investment avenues should I be investigating?''
Rawson says that he usually replies by pointing to the reliability of the property market as an investment avenue, offering steady returns and security to investors.
'The stock market can also offer great returns, if an investor has the knowledge to invest in it wisely. The average person might find that there are just too many unknowns and too little control to make it an attractive proposition.
'In property, by contrast, an investor can see exactly what he is getting, calculate accurately what his/her monthly returns would be and, over any extended period, is bound to see a steady capital growth. Furthermore, investors are able to work with bank money and this is not possible with share purchases'
Rawson disregards the advice about keeping a balanced portfolio and investing in annuities, government bonds and the like.
'However, property investors must always make sure that, even if the interest rates fluctuate, they would be able to cover any rental shortfalls on the monthly repayments'
In addition, he says, open credit facilities should be kept on limited numbers of bonds after paying them off so that this money can be used for upgrades, improvements and further property buys. It is also essential to have cash invested that is immediately accessible in the case of an emergency.
Rawson says that he had also learned early on that it paid to employ a professional manager to collect the rents and keep a check on the property. The small minority of devious tenants, he says, are adept at finding ways of avoiding rent payment and it needs a no-nonsense strict administrator to keep them in control.
In the past, says Rawson, the Rent Control Act had stifled rent rises and discouraged investment in sectional tile and apartment properties. Since the advent of the Rental Housing Act the returns possible had become more satisfactory and returns here are likely to continue at a rate of 5% per annum between now and 2010, while capital growth will continue at the current rate of 10% to 12%.
'This is not a spectacular figure, but the growth in property investments has been steady and property owners have never suffered from the huge drop off in values which have hit stock exchange investors.
'I can therefore testify that for the individual who doubts his ability to become a share analyst (even a unit trust analyst) or to understand macro-economic trends and how they impact on property, it is not unwise to invest fully in property - with this one proviso: in your early years make absolutely certain that you earn enough to pay the 30% to 60% shortfalls on rentals - it is highly unlikely that within the first five years you will ever fully cover your bond repayments through the rent. Later, when certain of your properties have been paid off, their rentals will help subsidise the others, enabling you to increase your portfolio to a really significant size, the income from which you can then enjoy in your retirement'
