Thanks for dropping by Safe Investing South Africa. I am on a journey to build wealth my way. For any questions or comments, feel free to contact me.

28 Sep 2011

Buying Shares in an Unlisted Company

I have just started drawing my "well thought" strategy on buying stocks and bonds. All I have been doing was what I really cant explain. I do have some stocks, which earn me a few dollars in dividends. With the end of the month fast approaching and me being so nervous about implementing my strategy. Then boom! someone I respect so much sends me an email, presenting an opportunity for me to buy shares from her unlisted company. 

I was excited but that seemed like I am back to where I was before drawing my strategy. More research, more strategies, etc. Her company is also in real estate. I believe in her business concept, I like her model but I needed to do a lot of thinking and hubby chat. This is about $60,000 of my family savings we are talking about. Let me summarize her initial email.

"I was asked today by *company A* if I would consider selling shares in my company. My first instinct was YES, but immediately thought…. With WHOM? Please let me know if you are ever interested to take up shares in my company..." 
 I was so humbled that this experienced business person thought of me when approached by someone I imagined to be a bigger business person than myself. I then thought too fast, like I always do when overly excited. I called the hubby---- its great being married, it kind of cools you down a bit and gives the well needed time lag. And the fact that my hubby is not as impulsive and more on the averse side of risk helps. This time he too was excited. More excited for me to get some recognition and first option to buy. 
A few emails to and fro later, I got some details on what the business is doing. This was still exciting but the costs were changing per email. I think its just inaccuracies with calculating. I do trust this possible business partner, but I think I need to think some more. I told the possible partner that I am definitely interested. I later tried to calm myself so I can think netter. All the risks involved in a transaction of this nature came tumbling down. All I could think of was:
  • Its still bad economic times, how well can this company be doing? Aren't they trying to just raise cash because the company is in a tight financial corner?;
  • Are the shares really worth what is asked from me? Would I be able to get the same dollar's worth or more, should I want to sell?;
  • These shares are definitely illiquid. When I decided to get more stocks, I wanted more liquid assets and a more diversified portfolio. Am I not going backwards by tying my money on a business that I hope will do well, without an easy way out?;
  • How much power/ influence will these shares give to me? I would love to be more hands on and involved in the decision making. The possible partner loves my ideas in general, but that doesn't mean that I will automatically have a huge say in what goes. My shares are a tiny percentage.;
  • Is the information on performance of the company that I will get not biased?;
  • Am I not moving backwards and dumping my beautiful plan of acquiring listed shares in and outside the country?
Why is it so difficult to take a decision. The thought of investing in the company is exciting and the risk so overwhelming. Its only two days before the implementation of my new "before this incidence" strategy and I think I should continue with it. I should probably take some time to think about this.

Would you consider buying shares in an unlisted company?
 

22 Sep 2011

Tenants Making too much Noise

Another complaint about one of my tenants making too much noise came via email this morning. What to do when you are this far from the problem. My neighbor who owns the duplex next door emails me
...there has been a lot of noise from your duplex recently. Its male voices mostly. I also get the impression that there are a few extra people living there now.
My great neighbor had to specify that its male voices because my tenant is a single mom with 1 child. Its difficult for me to just take this at face value as there may be some neighbor conflicts that exist. I thanked her and promised to deal with it. A huge sigh later, I sent my tenant an email to say "I dont say you did this, but this is a complaint I received, I just want to get your side of the story, Sorting this out immediately is good for all of us..." and a lot of other yada-yada. I dont want to unnecessarily upset an otherwise good tenant. Do you notice I was being overly polite and lacked some confidence???

My tenant didn't notice that. She was really pissed to say the least.
Yes we had some noise discussion with (neighbor). It only happened when I came in late with the car music. It stopped immediately she complained. There is no additional people, its me, partner (new fiance or hubby), daughter and person 4. And that is still in line with the agreement we have. If that is a problem I would ask for a month to look for somewhere else to live.
She went on to explain how other neighbors are making noise. How that is never addressed. Parties, etc. And at the end thanked me for letting her know. I do hope that she doesn't go confront and fight with the neighbor. I didn't mention the name of the neighbor but my tenant knew who she was. At the end, I am left with more problems to take care of. My tenant started listing the problems she has with other neighbors neatly. I am actually glad she did so that I try to have them sorted out. I only wish she complained earlier.
What it means is that I should add a clause about noise in my contracts going forward. I always have a separate sheet of the rules in the tenants' files. Ten years later, I learn how to work better. To think I have so much in my hands already with the one tenant moving out end of September and one moving in beginning of October. That means I have to prepare the duplex for tenants whilst it still has the outgoing tenants. The only positive thing is that, I didn't struggle to get a new tenant, and I didn't have to lower the rent.
I am now looking at buying a property I can convert into duplexes. I never did any property that needs structural changes like that. It will be a nice challenge shopping for a house with a good size land, changing it into nice duplexes with separate entrances. I cant wait.

Do you ever get complaints about tenants making too much noise? or its just my luck!

16 Sep 2011

Rocky Start at Stocks, Bonds and Funds

I am trying to get my claws deep in the alternative forms of investment. I know I actually waste a lot of time on the education part of everything, but it always pays off.  I think. For a long time, the words shares, stocks, funds, etc, scared me. That's the main reason I started to even consider them as an investment alternative, late in my life.

My very first glimpse at the stocks was when  was 28 or 29, just married and living in a 2 bedroom apartment with my new hubby. I remember how excited he was to start trading in the stock exchange when a guy who called and came for a visit to explain this to us. The guy was actually selling a software which made it "too easy" to be rich. The software does everything and actually indicates the perfect time for you to buy or sell shares. It was just a "miracle". Being gullible and naive, I never stopped and wondered why the guy is in my apartment in the early hours of the evening, teaching us how some software works, instead of using it in the comfort of his mansion, making money.

Hubby was sold and fascinated by this. I was too, but I was not about to play the "scary game", not unless I get some training. I know, I am stiff like that. I had my first apartment making me a comfortable rent check every month and a job that was taking me nowhere slowly financially. In all, this was a perfect solution for our young family to start on a journey to wealth. The software was not cheap, but it was worth it....so we thought at the time.

The Rocky Start
None of us understood the stocks well enough to actually be confident enough to let money go. We actually didnt have enough of money to be investing. I was pregnant and all I was thinking of, was having a house with the garden in the suburbs to be able to raise my child. And yes, it felt wrong to raise a child in that apartment, without a garden for my son to play. I look back and shake my head. We did buy the house with a huge garden, which was a pain to maintain. *side-note* But at the end we got good profits from the sale of the house when we moved to the smaller home.

The project failed but we still had to pay the software guys for 3 years, monthly. Can you imagine the pain. But we did learn a lesson. So bad learning from your mistake. By this time I knew that I have to give the playing in the stock exchange to experts.

My Tiny Stocks Portfolio
I then started buying into funds in 2005. Off course I wanted nothing to do with the day-to-day business of buying and selling shares. Actually it was so bad that, I have various accounts handled by various groups of financial gurus, but I never even bothered to check how the individual shares performed. I was not interested and it was not necessary because I was paying people to do it...so ignorant.

This blog is my personal finance conscience in black and white. The moment I started it, I woke up to my over-spending and relaxed investing attitude. I spent the whole decade focusing on my real estate investments. I am thrilled that it pays my bills, but I think I am ready for more.

My new "Stocks, Bonds and Funds"  Plan goes:
The plan for the emergency fund goes out the window... sort of. I reckon I have access to enough "cheap cash", which can serve as an emergency fund. I love liquidity but not that much. My access bond is great for that. **Access bond is a type of mortgage that permits borrowers to take out loans against extra capital paid into the account, home-loan interest rates being lower than interest rates on other forms of credit.** SO we have overpaid on our one mortgage so that we save on the interest, whilst the extra money is also available should we need it. That's perfect as a cushion for the property emergency fund. That's a lot more than I'll ever need at one time. So emergency fund, sorted.

The $300+ that I was planning to use to build the emergency fund will then be redirected to the stocks, bonds, funds, and whatever clever people call them. Watch me fly now and growing that net worth from October 1. No regrets for taking this long.

14 Sep 2011

Why I Dont Pay off my Mortgage

I am a PF blog hopper and I read blogs of people who are fighting student loans, trying to pay off mortgage, conquered debt, investing, living in financial freedom, etc. I am right in the middle, working my way towards financial freedom. The only debt I have is mortgage on two properties. I have no credit card, or any other debt.


This is why I don't pay off my mortgage:
When I started investing in property back in 2001, everyone was preaching the "pay your mortgage early" sermon. It was at a point where I was a sponge, absorbing any personal finance information available. I was buying books and books on investing and finances in general. I am very glad I did. However, not everything written is right for everyone. The heck, not everything is correct period.

I remember Suze Orman and her passion on this subject. It made perfect sense. It still does for one's primary home in my opinion. So why  am I not paying off my one errrrrr two mortgage debts quick? There are several reasons why its not always advisable to pay off the mortgage instead of saving or investing elsewhere. Before  get to the small list of my reasons, know this....I paid my first apartment off in just under four years. I was over the moon. Now back to the reasons I wouldn't dare:
  • Leverage
I wouldn't even be investing in property if it were not for leverage. Why use my money when I can use someone else's (the bank's)? My sort of twisted thinking just doesn't allow me to prioritize paying off mortgage when I could be building my savings, strong emergency fund and investing elsewhere. There is a higher risk to me not having enough savings than paying more to my mortgage.

  • Illiquidity
Think about what would happen in the unlikely event that all five of my properties become vacant? My cash flow would be hammered, I would not have money to pay for the two mortgages, and eventually, I would probably lose them all. The money paid into the property is gone. Cash is really king. One needs cash reserves for whenever there is a need and an emergency.
  • Cost
It makes no sense paying the cheap debt when you have an expensive one. People who owe on high interest credit cards would be a bit foolish to pay on the mortgage with today's low interest rates. 

  • Tax
There are tax benefits that come with a mortgage. Think about how those will put more in your pocket at the end of the year.

  • Other Investment Options
With interest rates being this low, one can get a better rate by investing elsewhere. Shouldn't I be putting more money into my retirement plans instead of paying it into the property? Which is bringing in more interest. How about other investment options like stocks, bonds, etc?

I am not about to pay off my mortgages at the expense of my emergency fund. If anything, I will just invest elsewhere, or even get another unit. I do have cash flow to service property debt. This is also not a one size fits all. It depends on whether your property is your primary residence or an investment property, how much other debt you have and whether your portfolio is balanced or not. Think about your priorities. Should you lose your job/ main source of income, will you have enough insurance cover? How are you going to live, until you get your next job?

The bullet points above are reasons why I don't pay off my mortgage. I know most people, including my wonderful hubby, don't quite get it. He is uncomfortable with the debt. I say its a good debt.

13 Sep 2011

Multiple Tenants on the Lease Agreement

I hope I never deal with a sticky situation of multiple tenants on the lease agreement. When it comes to one of the tenants leaving, it can get very ugly. It reminded me of why I never had a roommate.

I was away from town when my new apartment was on the market. I hired my best friend to show it. This friend of mine is very much like me. If I wouldn't be the one who gets a perfect tenant for my newly remodeled duplex, she would. She showed a few prospective tenants and liked three young professional girls. They were going to share this three bedroom. She liked them a lot, and I did too. After doing the screening, that was it, my girls moved in. All three were having entry level office jobs. But I really didn't mind as they were sharing among themselves and together could afford the place.

Joint Tenant Lease
They signed a lease (one signed and two were just declared to be sharing the space) but I treated them as "a tenant" combined. I dealt with a deposit from one source and monthly rental from one source. One of them was the main contact but they all signed the contract as some "living with tenant" people. these tenants were a dream to work with until roommate X wanted out before the end of the term. I know better than keeping people because of the contract term. The question was more about the other two tenants. That was not my responsibility but I had to jump in to help out so that we get everyone happy.

Her original email goes:
Hi me
This is to inform you that i will be moving out 30 April

This is to hand in my 30 day notice as I have to unfortunately  move back home due to unforeseen circumstances
There is a person interested in taking over the room but I am not sure how serious they are

I will have to ask that we also eliminate my name from the contract as I will no longer be living at the apartment

Another reason for handing  the notice in is in case the person interested in the room does not come to the table; how would we work the deposit money situation

I have enjoyed having you as our landlord and is with total sadness that I have to unfortunately leave.

The other 2 girls will still be staying in the apartment.
Not only was I losing great tenants, I was also struggling to get a way to really handle this. I never wanted to do the joint rental, but tenant X was under the impression that, they were in joint lease. I had to point her at the contract and suggested that they all serve the notice and the two tenants Y and Z re-apply with the new tenant A. I hate tempering with the contract.

She off course naively decided to give her rights to the new tenant A, and stay in the contract. At this point I wanted to rather lose these girls than take on a new one. At the end we took the new tenant A, amended the contract to remove tenant X and added tenant A. All I was thinking about, was setting a bad precedence. What to do if this happens again. And indeed, only four months later, the other tenant, tenant Y wants out. I was not going to entertain anymore drama, I decided to deal with a vacancy instead. 



What I've learned from this is:
  • I am not interested to know who stays with whom, I only deal with my one tenant and I know the number of occupants, and I monitor that,
  • I stick to the terms of the lease agreement, no bending of rules to accommodate the tenant, unless absolutely necessary and legal,
  • Never to entertain multiple tenants for one place.

Its always sad losing the best tenants but I suspect my one applicant will be my new favorite tenant. I am curious to know if other small landlords do sign on multiple tenants on the lease agreement. There has to be an easy way to handle it. I choose to stay out of it for now.

Complaints Against Tenants

Yesterday, I got an email with the subject "complaints against tenants" from the homeowner association's administration. I knew that I am in big trouble.
Dear owner
 We have received complaints against your tenants

Their children have been playing in the estate and throwing rocks at the other units. 
They cracked a window at unit 5 , we have already notified the other children’s parents who were involved.

Please let me know who you wish to resolve this. We can either obtain a quotation from a contractor to fix the window and split the costs between you and the other unit’s owner or you can speak to your tenants and let them fix the window at their own cost.

Please get back to me regarding this on or before the 19th of September 2011.
I've never had problems with this unit. Its in a very up market area. I could imagine how furious the owner is. What made me feel better, as I'm out of town/ country, was that this is one of the units that have the property manager. I responded to both the admin lady and copied the property manager.
I am very sorry to hear this xxx. I am copying *property manager*, my letting agent in this email. I never experienced problems in the estate before. I apologize. *property manager* will work it out with the tenant (his client).
These are the times that make me happy to have a property manager. At this point I thought I have transferred all the responsibility. The admin girl will just deal with the property manager to sort this out. The next email will definitely be to say "its sorted, at the tenant's cost". Oh well, the next email did come:
Thank you
The tenant of unit 5 did speak to the parents and they did apologize and agree to pay half of the expenses
This is the first incidence and clearly these tenants are not bad. Then I went on with my business. And then another email:
Thanks *admin girl*. I appreciate the great job *admin company* is doing in taking care of my investment. Let me know if we (*property manager* and I) need to intervene at any point.
I have to say things like this because I'm too nice you know! Well now I assumed that's over until the *admin girl* sent the last email:

Hi
 Could  you please arrange with your letting agent to speak with the tenant again, the contractor is their today for the quotation, will forward it to you as soon as I receive it
 Why am I in this business. If this were shares, I wouldn't even know there are problems with a property the fund has invested in. But I cant help it, this is my first love. I am still learning the share trading and for now, happy to have a broker taking care of my interests. Maybe next year.
 
The interesting part is that, my property manager didn't respond to any of the emails. Yes he paid attention to the problem but he never responded to any of the emails. My last email was that I hope he was following the conversation with *admin girl* about complaints against tenants. I then added that, its quite urgent. I still got no email back.
I think people need more communication skills. More so when they are in a services business. Everything is all about communication. I needed that for peace of mind. Everything was sorted, so I must get over it.

12 Sep 2011

Evicting my Tenant

the most popular of my rental properties
When I started investing in real estate, I hired a property manager. The whole rent and property management was too overwhelming. I had a full time job and thought its impossible to juggle my job, a small family and a real estate business. Besides, my property manager did get me my first rental apartment, then got me the one I was then renting out. He was and still is pretty easy to work with.

But what made me think he was the best manager I could get? I have no idea. It could be the instant client-service provider chemistry. Or the fact that I was young and naive and my apartment is low maintenance. I later learned that I have to do a bit of managing him, which I never found strange. I followed the trends in the market and informed him when there needed to be changes in my property. Even when the tenant sublet the property, I knew first and he didn't. I came with the solution to it, worked it with the new tenant and informed him to draw contracts. But still, I didn't feel like he is not doing a proper job. We flipped the second property we got and I bought my first 3 bedroom duplex.

Naturally, I gave my property manager a call. He worked on it, got tenants, etc. I got to know the tenants because they came in whilst we were doing finishing touches. They were two local, young professionals and an international student, sharing. These youngsters were great, and they kept in touch. Their relationship went sour and they left the duplex in great shape and my property manager got a new tenant. This tenant never complained at all, not about the place, breaking stuff, parking problems, nothing. It was such a breeze having her. I thought "having a property manager is the best investment of all", because obviously, he was handling everything with the tenant.

Evicting my Tenant
Whilst doing a routine property view for maintenance purposes, I visited the property by an appointment with the manager. The message never reached the tenant, and I was there with the maintenance company. The living area looked great I was so impressed. We then moved to the kitchen, which was in a bad state, the sink area was totally unhygienic, the bedroom carpets were worn out and so was the TV room, the bathrooms were a health hazard, the staircase was full of DIY awkward nails, the study room was turned fourth bedroom and I saw seven of them. The main tenant was still at work. We walked into the garden, it was so bad, never maintained, overgrown, the front porch looked bad. I couldn't wait to call the property manager. I wrote him to immediately evict his tenants as the place is "not suitable for occupancy". I gave them 1 month to be out of the place. That was it.

Remodeling the Property
Seeing that the property was vandalized by tenants, I had to remodel it immediately. I got a company to work on it and that was my worst nightmare. My contractors were worse than my tenants and I had to fire them with some of my money. I soon forgot about the tenant nightmare. Its now a year later, the place is looking better, and we kept it vacant as a holiday home for our family and our siblings. We do spoil our siblings. But we won't keep it vacant forever. But it suits us having it open for our personal use at the moment.

I learned a lot about property managers, contractors and myself in this process. And NO, I didn't fire my property manager because I left the city and didn't want to work with a new person. He manages 2 of my properties. Could this be separation anxiety? I really take better care of my units now whether I have a property manager or not. 

Did you ever have to evict your tenant? How did you do it? How easy was it?

Enforcing Lease Terms

Let me the first to admit that I'm not always good with enforcing lease terms in the lease agreements with the tenants. I tend to be lenient, more so with the tenants I know. And yes, I rent properties to people I know, and other than the fact that they do negotiate sometimes, they are proving to be better that my average tenant. Anyways, I try to do a better job at screening to get the tenants that are unlikely to default on the contract terms. I still get late rental payments, but it can be worse, I count my blessings.

The Terms I never tolerate include:
  • High Number of Occupants
A maximum of four people in a two bedroom (double bedrooms) is a general rule. That would be a couple with two kids. I hardly ever get maximum though. My new single mom applicant for a three bedroom duplex has four kids. But two are in college already. I had an overcrowded unit, which was sadly let by my property manager. I guess they didn't declare their room mates. I managed to evict them, nicely.
  • General Neighborhood Rules
A tenant is your responsibility, not the neighbors'. I find the tenants in multifamily dwellings to be an even higher responsibility. There are always long lists of rules to ensure a harmonized life. Every time I get a new list of rules, I replace the old one in the tenant files, and email it to the tenant. These are simple rules like the keeping of pets, speed limit in the community, allocated parking spaces, or taking care of the gardens and porches. 


I find that playing my own part helps ease enforcing the lease terms in the agreement with the tenant. This is not a one sided process. One of the best ways to retain the best tenant is having a landlord take care of the property. The reliable and well paying tenants demand the best space. It is fair that way. I strive to keep the place well maintained. I am yet to find a reliable handyman though. I haven't been lucky in that department. 


I also keep the lines of communication wide open. My tenants email/ call/ text me anytime. They know they can. Their advantage is that I only have five units, unlike the property manager looking after tens of units. A friend of a friend was managing 40 units. That's a lot of properties to manage without an assistant, I think. I find that, if I communicate more with my tenants, they take better care of my properties. And this is not the case with properties that are managed by a third party. 


Continuous improvements on the place also add to the satisfaction of the tenant. I usually make a small improvement with every rent increase. When the rent went up in one duplex, I asked the tenant to give a list of things she would love to have changed. Its usually small things like the change we make in our own homes. It doesn't have to be costly. Sometimes we spend a lot more on repairing an oven than it would cost to replace it with a new one. 
Yesterday I shared my move-in and move-out tenant/ landlord check list. Feel free to edit and use it. From enforcing lease terms to the latest post.

11 Sep 2011

Move-in and Move-out Tenant/ Landlord Check List

Move-in and Move-out Tenant/ Landlord Check List for Property Condition
Property Name/ Adress ______________________________________________
A new tenant should complete the rental property checklist with the landlord within three days of moving in. That’s how I do it. If there are any defects and faulty appliances, that will be stated in the form in writing. This checklist is what helps both me (landlord) and my tenant when he/she is moving out. You will notice that it’s not complete; there are some of the appliances that are not included in some units. Feel free to copy it and paste in MS word and edit to your satisfaction.
 

Living Room Condition on Arrival      Condition on Departure
Floor & Floor Covering

Walls & Ceiling

Light Fixtures

Windows, Doors & Rails

Other




Kitchen

Floor & Floor Covering

Walls & Ceiling

Light Fixtures

Windows, Doors & Rails

Stove & Oven

Counters

Cupboards

Other




Dining Room

Floor & Floor Covering

Walls & Ceiling

Light Fixtures

Windows, Doors & Rails

Other




Bathroom 1

Floor

Sink and Counter   

Shower

Walls & Ceiling 

Light Fixtures

 Windows, Doors & Rails

Other




Bathroom 2

Floor

Sink and Counter   

Shower

Walls & Ceiling 

Light Fixtures

Windows, Doors & Rails

Other




Bedroom 1

Floor & Floor Covering

Walls & Ceiling

Light Fixtures

Windows, Doors & Rails

Other




Bedroom 2

Floor & Floor Covering

Walls & Ceiling

Light Fixtures

Windows, Doors & Rails

Other




Bedroom 3

Floor & Floor Covering

Walls & Ceiling

Light Fixtures

Windows, Doors & Rails

Other




Other Areas & Fixtures

Floor & Floor Covering   

Windows, Doors & Rails

Wall & Ceiling    

Heater

Air Conditioning (if any)

Lawn/Ground Covering     

Patio, Balcony, Deck

Other






Completed and signed at the beginning of the tenancy

Date_____________________ by

________________________ Landlord and ____________________ Tenant.

Completed at the end of the tenancy

Date_____________________ by

________________________ Landlord and ____________________ Tenant.

Like I said, feel free to copy and paste it in MS Word and edit it if you like. Its basic and has a lot of gaps. Its meant for specific tenants in my portfolio. I also edit it with every tenant/ property. I also use this checklist when I am preparing the property for rental. It helps me as I check defects that need fixing before my tenant moves in.