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.

23 Nov 2012


There are lots of methods real estate investors use to determine the profitability of a deal. The small investors like myself however like the popular one percent rule for rental property. Its not accurate at all and should never be used alone in my opinion. But if one needs a quick way to start looking at a residential property deal, I think it helps. I always calculate the rate of returns using the annual net income and total expenses but I sure look at the one percent rule first.
one percent rule for rental property
How the One Percent Rule For Rental Property Works
Monthly rental should be 1% of the property’s selling price. Meaning that for every R100 000 you pay for a property, you should get R1000 in rent per month. A property going for R500 000 should give you R5000 per month. Easy as that. But can you see how misleading this could be? You may look at two properties and find one giving you the 1% or more of selling price in monthly rentals and the other less with the same returns on the capital invested. A number of factors like interest rate, maintenance/age of the property, vacancy rates and other expenses are even more important than the selling price and rental rates. Having said all that, I still look at the 1% rule before even thinking of buying any rental property. Using the rule gets even more complex and almost impossible for us in South Africa.

Why SA Rental Property is Overpriced
House prices were reported to be at least 25 percent overvalued by the economist Erwin Rode in January (the Rode’s Report Q4 2011). Meaning that, (looking at what prices are expected to be according to real estate trends) we pay at least 25% more on a home. But he expects the prices to revert back to expected lower levels in real terms (not nominal).

In the meantime, this translates to low rent yields. One percent of the selling price seems to be just a dream in most SA areas. You must always remember though, that, great deals do exist. They are just far apart. You will typically get more than 1% in bad locations, where tenants are also bad and don’t have good track records. The property prices are quite low in those areas, giving the rate or returns an artificial boost. However, the vacancies, damaged properly and missed rental payments tend to lower the returns anyway. Its high risk and high returns. This is a “no-go” zone for me.

I typically love investing in middle class areas. Bargains are hard to find. Tenants are usually high quality, pay on time and take care of their homes. You get high maintenance tenants too in those areas. The last complaint I had was about the stove that was not cooking cookies evenly. I had to change the whole oven. I was really happy to do so. A happy tenant translates to a happy landlord. I then went ahead to spend on the neatest and most expensive security bars. The tenant was happy to pay premium for that expenditure. I love that. You may collect rentals of about R4500 per month for a R520 000 townhouse for instance. This is not the worst case scenario.

I started in what I can call the lower middle class neighbourhood. A lot of students and young professional tenants. You just have to be strict with screening your tenants. I never broke the one percent rule for rental property in that area. I was always above 1% but hiring a property manager was just mandatory. High returns and a slightly higher risk is the name of the game. I since decided I want easy. I am willing to pay a little extra in down payment in a good neighbourhood with expected high capital growth. A higher deposit or negative cash flow for a year or two is not that bad of a deal for me. Especially when a property is well maintained, the area is up market, the property is relatively new and needs no up front repairs.

I need guts to make ridiculously low offers though. Its as if I would be committing crime. I am not as good with negotiations.

Capitalization rate is another great tool in when buying through the bank or any other lender. I will explain how the cap rate is determined in another post. As for today, its 1% rule. Just remember to team up any method with another one for better results.

How do you decide on an investment property? Do you also look at the one percent rule for rental property or use more sophisticated tools.

15 Nov 2012


Things are slowly happening and I hope to be sharing on my experience with the dividend growth investing I am experimenting with soon. As for today, I am looking at my mortgage pay up and how I went from being against paying up my mortgage to being excited about paying it up in 2 years a year ago. You may see the figures here. Lets see what a year of good focus can do.

mortgage pay up update - November 2012
As you may see, the debt graph is heading south. Its almost a year since the first pay up drive. It looks like we may just win this battle in less than 2 years. Something tells me we will be 100% debt free in 18 months. It will be exciting to drop the line "we are debt free except for our home loan". Or the one that goes, "we only owe a little on the house". Next year this time, I might be saying, "we owe no one, no one at all". We already own far more equity than we owe at 66% equity. And it feels great.

I know there is someone who wants to know how we are doing this:
  1. Our home is modest. Every room is used optimally. We even switch main bedroom with the guest bedroom every few months, depending on the season and our mood. 
  2. We are driving old cars. Mine is 5 years old and will probably push for another few years. This means that we have no car payments. That should be some R10,000 to R15,000 savings which would probably be installment for two cars. That's judging by the installments for the middle class kind of lower cost cars.
  3. This is our only debt. Almost all our excess funds are paid into this bond account, including the R15,000 I mentioned in the previous point.
  4. We took part of our savings/ investments to pay into the home loan. It was so painful doing so but I can now see that sacrifice paying off. The home loan costs us 6.9% per annum whilst the savings earned us a mere 4.65%. We should have done this way earlier.
  5. We pushed our rental property mortgages and managed to pay them up, freeing more cash to pay to the house. 
  6. We dont allow ourselves to create any kind of debt. It doesnt matter how much bonus points we are promised. Debt is just that...DEBT.
  7. We are not frugal, but we don't overspend on unnecessary stuff either.
  8. One most important point is that...we are way too excited. This whole adrenaline drive keeps us way too excited. The thought of not having a bond account as a monthly expense keeps us stuck on the goal.
 We are already planning on what we will do after the last payment. I can recommend this to anyone, really. Try paying up debt to feel how I'm feeling right now. Its an amazing feeling. I think we will have to go on a week long Africa Safari holiday or by the beach after killing this debt. 
I would love to hear from you. What financial goal have you set for yourself lately?

12 Nov 2012


I am such a fan of keeping track of expenditure that I preach it everywhere I go. Its either that or drawing a budget. And I choose tracking my expenses. I shared this with my sister. Poor girl has had a headache since she started. She cant get over how she spent close to R10,000 in one day. She wouldn't have noticed if she was not tracking her expenses after each day though.
keeping track of expenditure

This started with my sis telling me that she has decided to have a better life. That meant reducing her monthly expenses and eliminating the stress that comes from her "hand-to-mouth" kind of lifestyle. I agreed so much that I let her in on my secret which keeps that stress at bay. I've been keeping track of my expenditure for a few years now. I am not a budget type of a person, but I've learned to master and enjoy my end of the month bank reconciliation. Its not always been like that. I changed my ways and I love it.

To make this task easy, I hardly ever carry cash. I charge most of my shopping from my debit card. That way my bank records all my expenditure in my bank statement as I go along. When I spend cash, I just record the expense under my withdrawals, so that I never keep track of every little expense. Cash items would be cheap buys like deli spending, a can of juice, one packet of nuts from the garage, etc. I typically make one withdrawal every few months to cover all the small cash bills. And that will simply be recorded as "withdrawals" in my spreadsheet. As you may see below, I don't really have a good way of grouping the expenses. I just write stuff where it makes sense for me. The extra on my home loan is not under real estate, but under investments and savings for example.

Salary 1
Salary 2
Rental Income
Interest and Dividends
Other Income
Rates and Taxes
Water and Lights
Home Improvements
Life Insurance
Unit Trusts
Online Business Expenses
Pay TV
Personal Care and Beauty
Books/ CDs/ DVDs/ Games
ATM Withdrawals
Bank Charges
Emergency Fund
Car Fund and Extra on Mortgage

I try to be very detailed in my expenditure. I even add a comment on some items. Especially when I get to have a once off huge expense. I do this with a goal to spend less than 50% of my income on average. Its not always possible to make it, but it happens on months where we have no traveling expenses. November should be a great month, whilst September and October were really bad. I never let a bad month keep me down. 

My 2012 annual average expenditure will likely be above 50% of my income. But that is definitely far better than what it would be if I was not keeping track of expenditure. I would recommend this to everyone. Either this or budgeting. it works for me.
I would love to know if you keep a budget or track your expenditure.

2 Nov 2012

Monthly Spending and Budget Report-October 2012

To those new in this blog, I track my spending every month. My goal is to spend 50% of my income in order (for me and hubby) to retire comfortably in our early 40s. October 2012 monthly spending and budget report in one sentence... "Ridiculously high spending month". Last month was as bad with me going through 80% of my income for the month.

October was another travel month for my family. Add my breaking geyser (water heater) in the mix, plus a lost online income cheque in the post. See my spending report below .

My October 2012 monthly spending and budget report:

Real Estate 45%

One unit had geyser repairs.
Hubby Allowance 52% 49% Another bail out month for me.
Once Off 0% 1%
Online Income 0% 0% I will get two months worth this month. I didn't. My money is somewhere in space.
Extra 4% 4% Interest on my Emergency Fund. Dividends were ZERO again.Plus dividends, AGAIN.
One thing that makes me unhappy is that the interest on my Emergency Fund is 4.65%, which is below the inflation rate. I will be reducing that money this month, for better financial gain.

Real Estate 24% 13.6% 3 months worth of home owners association fees and taxes/rates.
RA & Unit Trusts 6% 8% Fixed for my life insurance and the rest of small investments.
Online 7% 9%
Internet/ Phones 2% 2%
Consumer 16% 19% High due to travel.
Withdrawals&Fees 4% 1% Also due to the trip.
Giving 16% 21% I also paid the last installment of the scholarship for my learner.
To Invest 26% 20% 26% is not bad. I paid nothing to  my homeloan, but the Mr did. Like every month I topped up my Just Invest (Nedbank) interest. Whatever interest I get, I top up to make it a round R5000 figure. 
I lived on 74% of my income in October (comparing to 80% in September). Our Net Worth grew by R126K in September (part of it was bits and pieces of forgotten investments.) This is the growth in various investment vehicles and home equity. Keeping track of every cent is quite a lot.

I haven't heard anything from the agent nor from the lawyers regarding the rental property I am buying in a small SA town. It doesn't bother me at all.