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13 Mar 2013

Monthly Spending and Budget Report-February 2013

To those new in this blog, This is my personal finance journal where I track my monthly spending. My goal for 2013 is to spend 60% and invest 40% of our income in order for me (and hubby) to retire comfortably in our early 40s.

Do you remember how we lived on 38% of our income in January and thought it cant possibly get any better? It did. Its an artificial jump due to the income I received for my tiny online business.

Our February 2013 monthly spending and budget report:

Real Estate 13%
This is nicely toned down. I love it. 25% wouldn't be bad.
Personal Income 72% 82% This is a new category.
Interest/ Dividends 1% 1% Our emergency fund has been reduced. Interest will be low. But we expect dividends to fill the gap..
Online Income 14% 0.3% I will get three months worth this month. I received a fat cheque and deposited it in January.It takes about 6 weeks to be cleared, I was told.
Other 0% 0%
One thing that makes me unhappy is that the interest on my Emergency Fund is 4.65%, which is below the inflation rate. I took some money to the stocks in January.

Real Estate 7% 13% Wish this would stay his low a contribution to total income.
Transportation 1% 1% We live closer to Mr's work and I hardly ever drive.
Online 1% 0% Laptop was fixed
Internet/ Phones 1% 0.4%
Consumer 3% 10% Mainly food and clothing
Credit Card, Cash & Fees 4% 6% We used the Mr's credit card and paid it off over 50 days spread.
Giving 2% 10% This should be at around 10-12%. It will even out during the scholarship payment months.
Life Insurance 1% 1% Fixed
Net Income (Left to Invest) 80% 62% We paid most of it to our homeloan and some to top my stocks. Our debt-free days are fast approaching. I no longer top my Just Invest (Nedbank) interest up.
We lived on 20% of our income in February (comparing to 38% in January). Our Net Worth grew so so well again. This growth is from various sources. The unit trusts did quite well and so did the general JSE. I wish we would do this well throughout the year to be sure to hit our goal of R1M net worth growth by year end.

  1. MAIN GOAL: net worth growth by at least 25%.-- 7% so far.
  2. BUDGETING: invest at least 40% of income.-- 71% so far.  
  3. EMERGENCY FUND: 3 months worth of living expenses.-- DONE.
  4. GIVING: give of more than 10% of income.--6% so far.
  5. REAL ESTATE: Construct at least 4 flats/ increase the rental income by 30% .-- not yet.
  6. MORTGAGE: Pay up our home .-- not yet.
  7. STOCKS AND DIVIDENDS: Get at least R12,000 in dividends.-- not yet.
  8. EXTRA INCOME: Online income to R8000 per month by December 2013.-- +/-R3500 January.

8 Mar 2013


My personal preference on investing in full title versus sectional title schemes. Don't worry, this is not a long lecture on the Sectional Titles Act. Its just more and more rant by myself on how investing in a sectional title scheme can be a bummer. And the few property investments we have are townhouses and flats. Meaning, I have been in a slight irritation for a while. From other occupants blocking the garage of my tenants, to penalties for my tenant's barking dogs, to levies that are sometimes out of hand... you name it. But benefits are undoubtedly there. The huge one being pooled resources for odds and ends like security.

What irritates me the most is home owners not taking care of their investments. Some tend to just collect rental income and never participate in any of the decision making, nor monitor the dealings of their tenants. This obviously leads to various problems for other owners. Overcrowding of units is but one. In one block of flats the water usage is just beyond acceptable levels. And the trustees started panicking and throwing the decision making at us as suggested by the law.

Section 39(1) of the Sectional Titles Act, 1986:
“The functions and powers of the body corporate shall, subject to the provisions of this Act, the rules and any restriction imposed or direction given at a general meeting of the owners of sections, be performed and exercised by the trustees of the body corporate holding office in terms of the rules.” 

This Section gives the members of the Body Corporate some powers to put some restrictions on the Trustees. This is especially handy on budgetary matters. So the admin company issues an email for us to vote for or against water being a responsibility of an individual owner, instead of the HOA. I must add that I'm one of a few owners with a garden and therefore my tenants could be using a tad bit more water than the rest of the people. Here is their suggestion:
The following has reference to the above mentioned and also to the instruction in terms of Section 39(1) placed on the Trustees at the Annual General Meeting held on the 21st of February 2013. Instruction was placed on the Trustees that they must implement the payments of water usages by each unit to be paid by the owner of the unit. The owners can then keep their tenants liable for this usage of water. The main reason for this instruction placed on the Trustees was to save money on the monthly Council Water Account, combat overcrowding of units and also to have a possible decrease in monthly levies. Water meters are already installed at the units, but some meters need maintenance... With reference to the above mentioned we need to have a majority vote from the owners to proceed."
The questions I'm beginning to ask myself are:
Is this whole real estate investing business worth it?
My response is always YES because I wouldn’t have managed the little I managed without property and the power of leverage. I started with NOTHING, zilch and “nothing” wouldn’t have helped me grow any other form of investment. If I were a trust baby with some small fortune stashed away by my parents and grandparents elsewhere, I may not have started with property. But at the moment, even with all the risks and hassles, I still choose to have a bit of real estate exposure in my portfolio. I think this started as a survival technique but is now some sort of passion. With the small growth I achieved over a decade plus, I feel I can enjoy looking at shaking my property portfolio by looking at options like commercial vs residential vs industrial or full title versus sectional title properties.

Should I invest in Sectional Title Schemes or just slide towards Full Title more?
My response depends on a number of variables. For starters, buying in a sectional title scheme can be money saving. That is if everyone in the Home Owners Association is responsible and the tragedy of the commons doesn't exist. Which is impossible. People like free-riding. In a perfect world, a sectional title would mean some risk diversification as one shares the risk with fellow home owners. But it also means increased risk from the decisions taken by other investors. And I have seen over the years, investors caring less and less about their property investments. Sectional title schemes that are well run and looked after seem to be the ones with the majority of occupants being the owners themselves. When the majority is tenants, owners tend to keep their distance from taking responsibility and taking decisions.

On the  other hand a multifamily investment within a full title property can be costly to buy or develop. I am a small investor in the mercies of the banks for the most part. But I am so fed up by the way landlords in some sectional title schemes behave. Failure to attend general meetings is the biggest problem. And that leads to them not filtering the decisions taken through to their tenants and failing to follow up on critical issues. This is the reason we decided to start looking at the multiple family properties that we can afford. We are looking at the student accommodation or accommodation for young professionals as investments of choice. I have identified a few possibilities already. We will also consider selling a couple of problematic townhouses/ flats soon.

That way we'll carry the full risk and deal with stuff as it happens. Its not going to be easy but life is never easy. Even with a property manager, I imagine that I will still stress. Theres security, dealing with the municipality, setting and implementing tenant rules, etc.

 Full title versus sectional title - Where would you rather invest?


Before I dwell on my increasing levies and property cost inflation, let me be a bit personal. My decision to keep track of both my and Mr’s financial comings and goings is proving to be a pain. That’s the reason my reports are almost always late. We have a very different way of handling administrative stuff. We never do the joint accounts and things like that that other couples do. But we know exactly where each other’s income goes, and it works like a dream. Except for when I have to track his transactions, like I do mine. In time I will get an easier way to do all this.

I’ve also been a bit scarce because of the plans I am working on for the medium term. An expansion of my tiny online business is in the cards. So is student or young professional accommodation. I just don’t have much to say about the latter, as it’s still early days. I will draft a separate blog post later today on these.

Today is a small rant day. Prices of everything are just climbing up high all of a sudden. I am in shock at how property costs are climbing up. And, especially because I can’t inflate the rental at the same pace percentage-wise. I take pride in charging slightly below going rates in rentals to retain my great tenants. So these hikes in property costs are pinching a bit deeper than the surface for me. But I’m not complaining, I have it far easier than most people. And I am grateful and try to pay it forward in many ways by making someone’s life easier through setting my tiny scholarship programme and charity work.

February seemed to be the month full of such bad news. This is one of the letters I received:
The Directors discussed the budget of the HOA in detail and presented it to the Annual General Meeting on 14 November 2012. The budget was approved by the meeting.
The levies as from 1 March 2013 will increase from R650.00 per month to R765.00 per month”
Did you notice that the levies increased by 18%. I just stopped myself from making a big fool of myself by complaining because in July last year we had the most exciting letter that:
“During the recent meeting of the Trustees, the budget of the HOA was discussed in detail. It gives great pleasure to announce that the Trustees resolved to decrease the levies from 1 July 2012 as follows… “ 

I went ahead and wrote about my shock here... Its true that what goes down will eventually go up. In real terms we had a reduction in levies as the current increase is a mere R115 in comparison to the R136 drop we enjoyed in the large part of the past financial year. Sometimes I feel these decisions are taken by people looking at their personal pockets…JOKING.

My point with all this yada-yada is that, when your property costs go down, don’t be short sighted about rental rates. Continue to evaluate the market to see the reasonable rental rates and increase (reduce) rentals accordingly. Don’t be like me and be merry, and think you will just look at it the following year. Then you get slapped by 18% increase in costs, which you can’t share with your tenant. In my defense though, my tenant agreed to pay a little more with the costly security measures I put in place last year. I wouldn’t increase again, even though my neighbours’ tenants pay a lot more. I like to retain a happy tenant and avoid a costly high tenant turnover.

Hope your passive income from investments is going great, or your debts are dying a fast death.