By Pierre Heistein

Pierre HeisteinBefore deciding to invest money in property you need to ask the most basic of questions: why are you doing it? Is it to make money, or to store money? Property, unlike other investment mediums, has the ability to do both, but each one requires a very different approach when it comes to making wise investment decisions.

The investor who wants to make money must seek out growth. Risks must be taken and he or she must look for places where high returns can be made in a short space of time. It is also not enough simply to sit back and feel successful if a positive return has been made. The successful investor must always approach their victories with the attitude of, “Yes I made money, but was it the most I could have made?” To do this well they must constantly be aware of other options at their disposal, whether in terms of property or elsewhere. Property must remain a faceless and impersonal option and all mediums must be judged equally according to only one principle: what investment will give me the highest return for the lowest risk with the easiest transaction process?

In this regard the property market is currently flat. Gone are the raging 90s when investors could ride on the expectations of others and use property as their launching vessel to wealth. In the sense of investing to make money, property is just an empty medium through which investors can play the game of buy low and sell high. It joins the ranks of options such as gold, shares and derivatives. 

However, property has a unique characteristic. It is almost impossible for it to lose all of its value, and this makes it an excellent place to store money. To store money, or wealth, means to wholly or partly maintain the value of your cash, as even buried six feet deep in a lead chest, the value of your money is constantly being degraded by inflation, exchange rates and a host of other effects that we have no control over. Many investments are not undertaken to make money, but to simply not lose it.

The last five years of world economics have thrown many age-old assumptions out of the window and have left us with one resounding lesson: nowhere is safe. Even the most successful companies can plummet from record-level share values to near zero in just a matter of days (think Enron). Government bonds were considered the most secure of deposits but the European crisis has shown just how quickly some governments can go bankrupt if not carefully managed. Even gold, investment’s superhero of security, has little intrinsic value and its price is based purely on the excess of its demand over its supply. One day its price will also plummet. 

Property, however, no matter what unimaginable twists the world throws at us, will always have value. It is the place we live and the source of our food. Unless expropriated, it is impossible to lose all your wealth by investing it in property. In times of market booms and misread bubbles it is common to lose a lot of money through property investment, but in times of uncertainty it remains the only place where we can be certain that we won’t lose all of it. 

The world is full of interesting investment opportunities to make money, but the wise investor will always keep a patch of property in their portfolio to make sure that the bottom can never fall out of their wealth.

Article reference:
Paddocks Press: Volume 8, Issue 1, Page 3

Pierre Heistein is a regular contributor for the business report section of the Cape Times.
This article is published under the Creative Commons Attribution license.