PROPERTY INVESTING FOR BEGINNERS

Another interesting weekend chat with a blog reader and Facebook follower, Ms B about property investing for beginners. This reader has an impressive kind of discipline. I like having chats with young investors.

Hi Mbini,
I have been following your blog and Facebook posts about real estate on your timeline and on Facebook groups. I was hoping you could advise. I just sold one of my properties expecting a return of R80,000. The property was financed by the bank.
I do have another property, which I bought for cash for R650,000. I also have some cash loan and credit card debt which amounts to R90,000.
I drive an old small car with 260,000 km mileage. The car needs to be replaced but I'm not sure of the route I should take when buying a car. I know I will have to settle my debt first.
Is there a way that my paid up property can assist in acquiring more real estate investments?
Thank you.
Ms B

property investing for beginners

I get a lot of questions related to property investing for beginners. I hope that unpacking the reader's situation will empower more readers. I posed a few questions to Ms B to get more clarity on her current financial situation.

Mbini: Do you plan to acquire more investment property or different kinds of investments?
Ms B: Yes, I want to invest in more property. I will be settling R60,000 of the debt by the end of next month. You may also advise otherwise.

I'm very worried about Ms B's R90,000 personal loan and credit card debt. This is very expensive debt. I would prefer the property debt to credit card debt. The interest rate one is charged by banks on the credit card debt and personal loan is quite high. It is advisable to pay up the debt as Ms B already plans to.

Coming to the paid up property. If this paid up property worth R650,000 is a rental unit, I would have preferred to owe on it instead. Property debt is a much cheaper debt. Interest rates on property are much more competitive than on the credit card. 

The other important factor to consider is the debt's tax efficiency. Interest on the homeloan attracts the tax deduction. This is one of the biggest benefits of investment property. The main aim is to minimize tax liability. To keep the overall taxation low, an investment property with some debt on it is more desirable.

Finally, if I were in Ms B's shoes, I would work on accessing money from my existing property and settle my personal loan and credit card debt, if at all possible. Accessing cash from a property can be done by refinancing the paid up property. The cash would then be used settle the debt and towards investing in the second investment property. It is very important to make sure that the interest rate one is charged  on the new homeloan is competitive. Even better, one must make sure that the new mortgage is an access bond facility, to ensure that cash is easily accessible in future. 

Ms B: Let me think about it, do more research and get back to you with more questions. I like your thinking, thank you. My challenge is always trying to play it safe.
Mbini: I can see that. Playing safe in investing does not always work. All the best.

We will be posting more on property investing for beginners in future, especially given the current poor economic climate. 

Feel free to email your questions through our contact page. I trust that you have started with the savings challenge. We have four steps and groups. 1. Debt pay-up, 2. Emergency Fund, 3. Other Savings Accounts, and 4. Investments. Please do keep moving. Start slow but do not stop. For daily motivation like us on Facebook, Twitter and/ or Instagram.

Read More

Home Staging is Important

Before I start on why home staging is important for fellow landlords, let me go off topic a bit. I have been busy with business development and a lot of new ventures, but property investing remains my lifeline and main hustle. It has been a hectic period with short stints at part time employment. It is great to be back here.This is the space that keeps me focused. I share for my own benefit here too.

property cleaned up

 For about three months I have been revamping properties for new tenants and restructuring the rental types themselves. I turned a commune into a single-family property, installed prepaid meters in a multiple family property and worked quite hard at ensuring that the properties look amazing. You must have heard it before...I only let a property that is good enough for me and my family to occupy. I will provide details of the work I have been busy with in the next few blogs. Today is introductory to that with regards to why home staging is important.

Home staging is important

A number of people cant take the stress of fixing stuff and dealing with contractors. This is true with tenants too. A number of people who do not prefer home ownership prefer a simple stress free life without the pain of replacing broken tiles. I on the other hand am one of a few people who makes it a point that stuff is fixed each time it breaks. Sitting with a problem distracts me. If a cabinet drawer is broken, it should be fixed or replaced within a few days. Maintenance is one of the most important aspects of home ownership and being a landlord. The longer it takes to fix a problem, the higher the cost.

This also helps with upgrades on the property in between tenancies. Prospective tenants never see potential. Frankly, potential is not in their interest. All they want is a “ready-to-move-in” home. That is probably the reason they avoid the stress of building their own homes themselves. I shy away from showing a place before it is completely turnkey. You’d be lucky to show a house to a prospective tenant twice. They take the first impression and take their decision based on it. Avoid showing a property prematurely with statements such as: “the cabinet will be fixed; we will replace the cracked glass; the electrician is coming tomorrow;" etc. This is why home staging is important.

I have also viewed properties that are packed with stuff resembling some kind of a storage facility. Some with those thin and shallow cracks that take minutes to fix.  Properties that are sometimes fixed but not cleaned. Its worth taking a week extra to go through fixing those nuisances and hiring a cleaner for one day to remove the dust.

I always take a minute to imagine myself living in the place. Once again, if the place is not good enough for me and my family, it is not ready for my tenant. This has little to do with the value of the finishings but neatness and state of repair. I will go through ways of ensuring easier maintenance in the coming posts. This was just to welcome myself back to the space that has given so much back to my life.

Expect diversified investment posts and guest bloggers with real life wealth building posts.

Read More

BUYING PROPERTY FROM A SHERIFF'S AUCTION

The reader's email below is about buying property from a sheriff's auction to create wealth. All the best to you Mr S.

Student accommodation closet

Hi Mbini,

I'd like to start by thanking you for your informative blog. I have learnt so much from it.

The reason I am writing is that I would like to start investing in property and I'd appreciate getting your advice.

I have a house that I purchased 3 years ago and I am halfway through paying off the bond. I use this as my home and I would like to purchase a second house to rent out. What I would like to know is should I wait until I pay off my house (which can take up to 3 years from now) or should I borrow the money I have paid so far for my house and buy a very cheap property.

Because I don't have much money, I have been considering buying from the sheriff's auction but I have the following concerns:
1. Would I be likely to get a good property at a cheaper price
2. Do I need to purchase cash or will the sheriff's office wait for the bond approval to be processed by the bank
3. What would be the cons of buying from an auction?

Thank you for taking the time to even read this and please can I ask that you keep me anonymous should you put this on your blog.

Regards,
S

Thanks S for your email. Well done on planning to pay your homeloan so quick. I have responded to similar questions on raising funds for the investment property in my previous three posts. If you haven't already, do check those posts at:
Starting in property investing...
Paying cash for a house...
Raising capital for a property investment...
Early retirement and property investing...

If you still have specific questions on raising funds for your investment property, feel free to leave a comment below this post. Now on the sheriff's auction questions you asked:

1. Would I be likely to get a good property at a cheaper price?
Your first question is on whether you will be likely to get the good property at a cheaper price when buying property from a sheriff's auction. The short answer is that, you can get a good property at below market rate prices anywhere. Buying a bargain property is possible but because of where we are in the economic cycle, those deals are not easy to spot. Searching for bargains is not easy, especially at this time of the economic cycle. Recession is the time where opportunities to get bargains are unlimited. There is also existing players in the sheriff's auction property space. You have to go there and compete with guys who are experienced and even determined to intimidate and scare you off. Everything worth fighting for is usually a bit scary. In all, you may get the good property at a cheaper price in and outside the auction.

You will need a bit of preparation for the auction. Your local sheriff should be able to provide you with the list of what they have available. The trick with the auctions is to determine the amount of money you are willing to part with and not be easily swayed from your target. Critical decisions are not taken at the auction, but before it. You have to know how much returns on investment (ROI) you are willing to settle for. You then do the maths and know what you can offer to get those returns. Going to the auction is only to get your predetermined ROI. You may start by doing a trial exercise by going through the sheriff list, picking a property, doing the maths, attending the auction and asking the questions to have an understanding of the whole process.

A number of variables will determine your bottom line. The property you are eyeing may be having debt for water and electricity, rates and taxes, home owners association fees, and other fees you need to pay. The property may also be home to a tenant who refuses to vacate it. And getting rid of the tenant may be a costly legal battle. That is more reduction to your ROI. If the property is vacant, it may be in a bad shape or even vandalised and in need of costly repairs. Naturally, any distressed property is likely to need repairs, and that should be catered for. Renovations can be quite expensive.

2. Do I need to purchase cash or will the sheriff's office wait for the bond approval to be processed by the bank?
You need to have a deposit. But be sure you can get it back if you are unable to secure a homeloan. It is more difficult to secure a loan for a repossessed property than properties in the open market. If the property has been vacant, it is usually in a state of neglect. It may actually be in a similar state even when occupied. You stand better chances of getting the financing from the bank that repossessed that particular property if it is already in the hands of the bank. If you can, arrange for financing before hand.

3. What would be the cons of buying from an auction?
Please refer to number 1 above. Other disadvantages are related to how the property looks. You are buying it "voetstoots", meaning that you get it as is. Some of the problem areas are not easy to spot. You have no grounds to put a conditional offer. As mentioned above, you will have to pay for outstanding levies, rates and taxes and other related costs before your property is transferred to your name. I also secure the place by changing all locks before letting it to new tenants. So the security measures are not unique to distressed properties. However, it becomes even more important for properties that have been vacant for a while. Apart from those costs you have to also pay the auctioneer and sheriff's commission when buying property from a sheriff's auction. The Sheriff’s commission is about 6% on the first R30 000 of the proceeds of the sale, and 3.5% on the balance thereof. The maximum commission payable is R 10,777 plus VAT with the minimum being R542 plus VAT. The electrical compliance certificate may attract an extra cost especially if the wiring is faulty. The seller of my latest acquisition just parted with about R50,000 to fix the old wiring.

Buying property from a sheriff's auction is becoming a broad topic. I will have to follow it with a summarised version post of the sheriff's auction conditions. The bottom line is that, you may not be getting a bargain if you have not done a thorough job of investigations and calculations. The area where the property is located remains an important factor.

Note:
It is so important to never let your dream die. This evening I have been thinking about a number of doors that closed shut in my face "BANG!!!". Just as I thought, "if only I can get 1, 2, 3 opportunity, I'd be OK". Somethings blocks it. But each time I miss out on an opportunity, I somehow get amazing energy to create another one for myself. Even this blog is the direct result of writing opportunities I missed on. I always wanted to interview the South African middle class to stir a debate on how we can better our lives. I sent proposals to publications on this in vain. Until one day I decided, "Flip, I'll do it by myself". Then this blog was born. I love what I am doing here. Thanks for reading, sharing and continuing to send me emails. There are plans to grow this platform to something really big. Keep watching the space. Thanks again for being part of my happy space.

Thanks for the amazing emails. I respond to each and every email I receive. I keep all emails anonymous when I  respond to them through this platform. Feel free to make a follow up question or comment using the "Contact Us" button above.

AND If you find this post helpful, be so kind to share it on your Facebook wall or in other social networks using one of the buttons below. 

Read More

PAYING CASH FOR A HOUSE

The reader's email below on getting a homeloan and paying it up quicker or paying cash for a house made me think a bit. All I can do is give the pros and cons of each option. I have done all three when I was trying to find my spot in the real estate space.

Kitchenette plan for the new student accommodation

Here goes our question:

Hey Mbini

Hope your are well.

I just wanted to get your take on ways in which one should pay for a house. Would you advise a new home buyer to get a home loan or pay the house cash if they have the money? And if one opts for a home loan would you advise they pay it off as quick as possible?

Thank you
I love your BLOG!!

Thanks for your question Miss P. This blog is keeping me sane on so many levels. I am currently busy with my biggest renovation so far and have limited time to write. All my free time is spent shopping for building material and drawing layman plans. I will share details of acquiring and adding value to this property hopefully soon. I find your questions much more interesting and thought provoking than my soapy mortgage and dust sniffing stories. With my current schedule I only find quiet time to write just before bed. I am very glad that more than a few people benefit from my writing. This blog is my happy space.
Back to the question at hand: Getting a mortgage and paying it up quicker versus paying cash for a house.

Option 1: Paying Cash for a House
Taking a simplistic view to this option can lead to a conclusion that it is the cheapest way as one saves on the interest that would be paid on the homeloan. The major benefit of this option could be more mental than financial. Knowing that one owns the property fully can afford them peace of mind. Peace of mind cannot be taken lightly. Let's face it, it is a nice feeling not having to pay for any monthly installment. I have enjoyed not having a homeloan each time I had none. I may never ever enjoy that ever again but it sure is a nice feeling.  I especially prefer not having a homeloan on my primary residence as its debt attracts no tax benefits.

The other advantage of paying cash is the bargaining power it affords one. It is a fact that all sellers would prefer to sell to the cash buyer. You can easily make a ridiculously low offer as a cash buyer and have it accepted. Its true that "cash is king".
Just the other week my agent got a bargain piece of development land at R1.2M asking price. Within a few days the seller got a cash offer to purchase for R800k. He immediately told my agent that he is not looking at any new offer that is not cash and will be selling to the R800k guy if he does not get a better cash offer. Sellers  don't want the stress of the buyer not being able or taking too long to secure a mortgage, changing their mind, etc. cash buyers often get better deals. These benefits make paying cash for a house seem to be the most attractive option.

Option 2: Getting a Home Loan and Paying it Faster
Option 1 does look great, however financial life is more complex than that. There is never a simple YES or NO solution  to any investment decision. There are a lot of factors involved when taking wealth building decisions. The most important of those factors being the opportunity cost. The dictionary definition of the opportunity cost is "the loss of other alternatives when one alternative is chosen". One has to consider a number of alternatives that would have been explored with that amount of cash if it were not tied to the home investment.

I will make an example of a R1M (R1,000,000) house paid for in cash. And just to be realistic for current South African interest rates, I will look at the 10% homeloan interest. If your home is paid for in cash, it is paid for and that is it. You save about another R1M in interest that you would have paid over the homeloan period of 20 years at 10% and gain some more in capital growth of your home. You also save a bit in interest if you get a mortgage and fast track its payment.

Lets now look at the case where the same R1,000,000 (R1M) would have been saved in a bank account (investment) or bond that earns 10% in interest. Remember that those are more secured, which makes our calculation a bit more realistic compared to using a higher risk and higher return investment. Over the 20 years period your R1M would turn to just above R7,328,000 (R7.3M). You and I know that you can do better if you use a stocks related investment vehicle. (I am not going to complicate this equation by factoring in the alternative shelter variable, sorry.)

The only difference here is that with your home paid for in cash, your money is tied into one illiquid asset. Whilst saving or investing your R1M in one or more other more liquid asset classes may offer more risk combating benefits.

Option 3: Deposit a Few Properties
Ok, I had to throw in this third option. It is the approach that I would personally take based on my own focus strategy. Paying cash for a house is something I have done a few times in my early days by the way. Whilst it gives this priceless feeling, not taking advantage of the power of leverage does not sit well with most property investors. I would take the R1,000,000 and get into serious real estate debt. It would probably be my 20% equity to acquire R5,000,000 worth of investment property. Using it as a 10% equity to a R10,000,000 (R10M) worth of investment property sounds even better. Oh well, that is just me. This approach carries tons of risks. But those risks are shared with the lending institution.

I will revisit blogging on building wealth through "the power of LEVERAGE". My latest acquisition with no deposit or down payment is a great example of this.

One needs to do a lot of research before investing their hard earned cash. If one has no clear focus strategy, they should invest in education, a mentor or a coach. In the previous post  on Building Wealth I was looking at a simple three phase approach on creating and growing wealth.

 Note:
Thanks for the amazing emails. I respond to each and every email I receive. I keep all emails anonymous when I  respond to them through this platform. Feel free to make a follow up question or comment using the "Contact Us" button above.

If you find this post helpful, be so kind to share it on your Facebook wall or in other social networks using one of the buttons below. 

Read More

EARLY RETIREMENT AND PROPERTY INVESTING

The combination of early retirement and property investing is the reason this blog exists. I am a part time personal finance coach with passion for property investing. My plan has always been property investing for financial freedom and early retirement.  Any other investing that I do is meant to balance my portfolio out and manage the risk. This is why it thrilled me to receive the email from one reader below:

Hey Mbini
I just stumbled upon your blog while doing some research on emergency funds, and I must say I found a Gem. I am very interested in early retirement and property investing and this is the first South African blog I have found on both subjects, most blogs I follow are either from the USA or Europe and sometimes it’s difficult for me to follow some of their advice as it doesn’t pertain to South Africa. So thanks for the blog it will help immensely in my own early retirement and property investing journey.
Kind Regards

Early Retirement and Property Investing

Thanks reader for your email. Emails like this one are humbling. I have benefited from sharing what I know on wealth building here more than anyone can imagine. Having someone else gain value from the blog blesses me.

Like most, I am a product of a "go to school; get good grades; get a job; work hard; retire comfortably at 65" generation. In case you haven't noticed "Living" is not part of that equation. I did follow that common “wisdom” by going to school and getting good grades. I was quite a competitive learner. I was never fond of books but I had a way to make it. And so I found myself being a graduate and moving towards the next goal of getting a job so I can work hard and retire just before death.

This is where I had a problem. I needed life before retirement. I doubt if anyone wants to work hard just to retire and die. Yet, everyone seemed to expect a successful life to follow this "logical" sequence. I was desperate to add “live” before and after the job in my own life equation. I needed to live because having a business as a student meant less living. Working hard until retirement was never an option.  And so my own formula became:

[go to school; get good grades; live; get a job; live; retire; live]

50 percent of my life was to be more about living than anything else. Living requires some level of preparedness. It is about working towards doing what you want to do. Living is about searching for your passion and pursuing it wholeheartedly. Working until 65 sounded... very wrong to me. I am neither a careerist nor a specialist. Throughout my life I have invested in a lot of unrelated studies and businesses. I have to be constantly excited about something new.

And so in my 20s, just after investing in my first apartment, I stumbled upon a book “Rich Dad, Poor Dad”. And like the Buddhist Proverb states, “When the student is ready, the teacher will appear”; that was what I needed. At that point I had gone from selling candy in primary school to paying my way through university selling soft furnishings manufactured by myself and trying my luck at MLM after graduating to supplement my low income. I was more than determined to fit in the "live" variable in my life equation and do so in my own terms. That is how a property investor within me was born.

I immersed myself in investment related reading material until I understood the basics well enough to start implementing. After getting married to a like-minded guy, we joined forces to pursue the “early retirement and property investing” dream. This does not feel anything like work. I am enjoying every single minute of it, including sharing it here in this post right now. It has become part of me that I get irritable when I am not inhaling dust doing quality control in a construction site.

We initially bought tiny homes to let and slowly changed our investment strategy to bigger homes in high demand upmarket suburbs and are gradually getting into commercial property. Whats more exciting is that I get invites to talk to small groups of young professionals and couples on living debt free, savings, growing wealth, early retirement and property investing. And, yeah, I write here too. And guess what… I am living. This passion keeps me alive.

Just remember that this is a business. And like any other business one needs a proper strategy and a good plan to execute it. For a very long time I heavily relied on my property manager to keep everything together. Building systems helps any business to run itself. One will always need people who know and do just about anything that needs to be done. And that enables one to “live”.

I am glad that I chose to “live”.

Note:
Thanks for the amazing emails. I keep all emails anonymous when I do respond to them through this platform. Feel free to make a follow up question or comment using the "Contact Us" button above.

If you find this post helpful, be so kind to share it on your Facebook wall or in other social networks using one of the buttons below. 

Read More

RAISING CAPITAL FOR AN INVESTMENT

Today only, I have discussed the subject of raising capital for an investment or business with four or five different individuals and groups. Because of the nature of my passion, I meet a lot of "I don't know where to start" kind of people, and the "I know what I want but have no means" sorts. I now realise that my well packaged "start where you are" response falls short, as an overwhelming majority of us doesn't really know where they actually are. Sources of capital will be broken down shortly.

Firstly, I have to briefly let you know where I had hibernated to. I missed this blog, the lessons it gives to me and the amount of sanity it affords. If you think you are learning anything from this space, you most likely have no idea how much more I learn from you. Thanks for your support.

Townhouse Renovation/ Refurbishment

Whilst I was away, I renovated an existing unit to raise the rental to an amount higher than an average asking rental in the complex and it worked. Most of my April was spent on that. Then on getting great education on managing own investment property and putting structures in place. An exciting book on retirement and real estate was sent to me for a review. And I also worked on raising capital to finance my latest acquisition which will also be sort of a commercial property. I have more than ten articles in my head on all that. The first of which is raising capital for an investment.

Landscaping a Garden of a Rental Unit

Own Savings
I know this sounds impossible, but I do have a close friend who is a debt free investor. She owes no one nothing. She has a beautiful story from nothing to being a multimillionaire (dollar multimillionaire) and that from her own small cash. With enough patience and good investment education, one can build up a sizable amount of cash and start small with flipping. Small profits build up into bigger and eventually mega profits. A few very special investors get this one right. Part of which I am not.

Taking from what you already have
An access bond facility is an amazing asset to have. If you can, request this facility on your new or existing home loan from your financial service provider. This facility acts as a separate investment or savings account and allows you to access the additional amounts paid into your mortgage. The excess amount that you pay into your homeloan over and above your monthly installment is made available to you. I know people who actually save money in their home loan by paying extra lump sum amounts or monthly additional deposits to raise money to further invest or buy a car, etc. Before you make any extra payment on your bond, make sure that you have the access bond facility in place.

A similar way of raising funds is from refinancing an existing asset. This is what I had to do with two properties for a new acquisition. I applied for what is known as a re-advance. The readvance is in most cases the difference between your current mortgage debt and the initial home loan amount. If you owe R300,000 from an initially registered amount of R1M, you may be approved for a readvance of R700,000. In my case, the advantage was the interest rates. the original homeloans were very cheap. The new homeloans from the readvance automatically get the same interest rates as the original bonds.

Of the two options, I would choose the access bond facility as a tool for raising capital for an investment or business. A readvance approval is never guaranteed as it follows the process of a new home loan application. It all depends on your credit rating.

Issuing of Private Shares
Another form of raising capital for an investment is through forming partnerships. When you have a solid investment project idea and not enough funds, it is worth approaching a few private lenders to go into partnership with you. You need to keep the control of the company in mind whilst valuing your shares fairly. Since control is important to you, you may want to get more than 50 percent shareholding to be able to take important decisions in the business independently. You may then sell the remaining 49 percent or less to raise the capital needed to finance the investment.

Issuing shares is not only beneficial in raising the capital, but also as a form of risk sharing. If you keep 51 percent of the shares, you are only facing the same amount of risk from the project. Similarly, your investor(s) are standing to lose 49 percent should things go south. For that same reason it takes a good proposal to get an investor to buy into your idea. You need to prepare a detailed proposal with a clear section on returns on investment. Investors buy returns and nothing else.

If all goes well, you may, at a later stage buy your partners out and go solo. This off course is usually easy as seasoned investors want in and out of the deal as soon as possible. When the returns are great, they will sell to you and move on to the next deal.

Traditional Form of raising Funds
This is how most of us are raising capital for an investment or business. We go to the bank. Well, if it works, there's absolutely nothing wrong with a good old bank home-loan application.

Let me just alert you to the mistakes I have made in this area of my investment life.

• I got a bond originator and trusted them to know absolutely everything. Even stuff I never told them about myself. The truth is that, you need to strip your wealth life naked for your bank to finance your investment.

• I filled as few the papers as possible. I am grateful for the technology of scanning and emailing. My application takes the shape of a thousand paged bible. Even the tiny income I make from writing is added in my income folder. All rental contracts and every piece of evidence that I can and do get income from wherever is filed, and added to the nice income spreadsheet and sent to the bank. That and evidence that I own some assets.

• I took whatever interest rate I was offered as long as it was below prime rate. The interest rate you are quoted initially is negotiable. I now believe that they start with an interest rate much higher than what you deserve to allow some space for negotiations. Adopt a principle of negotiating a rate until you get that satisfying feeling that says you have reached the absolute minimum. With my latest acquisition I got quotes from two banks; I took the lowest rate quote to the higher rate bank; and then that bank's reduced rate to the first bank until I knew I reached the bare minimum.

• I panicked about the time the transaction is taking. Doing a thorough job securing appropriately priced funding is way better than having the transaction wrapped in a short time.

• I played myself down like I am not a big or important enough investor. When you recognise your value as an investor, you get respect back from lenders. You are a valuable enough investor to the bank or any lender. Down playing yourself is not going to take you far enough. You are all that. Go get them!

Thanks for hanging around. I will take time to respond to your emails. If you find this article valuable, CLICK below to share on Facebook and other networking platforms.

Read More

PREPARING A PROPERTY FOR RENTAL

I will never exhaust the topic of preparing a property for rental but I can always share a project of my own. This is my latest property renovation which is now tenanted, thanks God. This is a 4 bedroom, now 3 bathroom family home with servants quarters that house their new full bath.
Apologies in advance for the possible slower loading of this post due to the number images.

Rental Property Kitchen

I never took the picture of this kitchen in a good light day. The wall tile is the nice shiny glass mosaic one. A good tile can make or break the kitchen. Rather use the tile minimally and buy a great looking one. Most people's choice to rent of buy a property is influenced by how the kitchen looks.
Below is how our kitchen looked when we bought the place. We followed the layout of the original kitchen to save costs on plumbing and electric wiring. Besides, a kitchen this narrow is not easily maneuverable.

Preparing a Property for Rental

Nothing was good enough to be reused in the old kitchen. This is a typical galley kitchen; quite narrow but long enough to give a lot of storage space. There is a separate laundry area on the other side too. It is so worth it cleaning up the kitchen and bathrooms. You don't only get a tenant quicker, but increase the probability of getting a higher quality one too. The more the applicants, the better the chance, right!

Bathroom of a Rental Property - before

I could not add more photos of this room than necessary, but this was a guest toilet without a hand basin. We added a corner basin as space in this bathroom is an issue. That took it to an ideal 3 full bathroom house. And South Africans do love their bathrooms in numbers. Two bathrooms are viewed as minimum but throwing in a half makes your property more marketable. Modern houses usually have the equal number of or more bathrooms than bedrooms. OBSESSION!

Bathroom Remodel Project

This is definitely not a fancy job. I sniffed loads of dust in this process. Remember I am hardly ever on site when this happens but I still feel it. Replacing tiles, basins and toilets with better looking and modern ones increases the marketability of your property.

Cleaning the Bathroom up for Rental

Always remember to go towards neutral colours. Can you spot a white dado rail disguising an uneven wall but also serving as a nice trim? It is far cheaper than re-plastering the wall. You need not break the bank when preparing a property for rental. A can of paint will always up the value of your property.

Recycle when Remodelling

 I personally spray painted my old wooden curtain rails to reuse in this project. I would have used a nicer looking rust-oleum if the dark stain one was in stock. These had to be left to dry outdoors overnight. Did I mention how much I saved by reusing these old rods? I also used existing metal rails. I still wish I painted those in black.
Now to the really scruffy part of the project.

Fitting a Shower in a Small bathroom -before

Yes, this is the "before" of an outdoor toilet in the Servant's Quarters. The tenants in this area insist on a fully usable SQ bathroom. And as we all know, what the tenant wants, the tenant gets. I had a number of hand drawn ways to fit a shower in this tiny one metre wide toilet. At the end, I had to have the basin inside the shower.

Preparing a Property for Rental - shower fitting

 Exciting to see that everything is fitting nicely. I bought the smallest of everything. That basin is the tiniest. We couldn't even get a mixer that fits in the middle. Did you notice that the mixer is on one side of the basin?

Adding a Shower in a Tiny Bathroom

Space this small is better off tilled from floor to ceiling and on all walls. This addition was made a little expensive by the fact that water drainage pipes did not exist anywhere close to the space. We had to drill and add pipes inside and outside the room.
I never took the "AFTER" photos as this room was completed the day the tenant moved in. In my defense, they moved in a few days earlier.  And finally...

Securing a Rental Property

 Sadly, the cost of security is what we cannot escape. This house is made of glass doors. All bedrooms and living areas facing the swimming pool open up to it. I loved these vintage doors but they cried "restore me". Trellis are also not a bad option as they completely slide open during the day. That's how I go about preparing a property for rental. Now to the business side of things.

Why We Bought this Property

1. This property is in a street that is fast becoming a business street. Across the street are mainly offices, doctors' rooms, a garage, and the like. It is also in close proximity to restaurants and a shopping complex. What is even more awesome is that it is a walking distance from my home. We have plans to turn it into a commercial property in a year or two.  
2. I know I am a location freak but this was an additional strength. There is a reasonable demand for property of this nature in this suburb. Most of the house viewers were corporate clients for their expatriate families.
3. Family homes like this one have to be very close to schools and most recently in Gauteng, Gautrain stations. A number of people commute between Pretoria and Johannesburg daily. This house gets a tick on each of those.
4. I am sort of transitioning to this kind of market specialisation. The plan is to limit the scope to semi or fully furnished corporate homes. This will further limit the quantity of properties I manage (when I start self managing) but hopefully increase the quality and returns. 
5. The price was right. When I first saw the listing which only showed the back of the property, I called my agent to investigate who the owner was and get the property for me. This was done in a day. It was quite cool to get interest from buyers after the clean up, but we are not property flippers.

I enjoyed this project but it took longer than planned to complete. I am already craving something new to work on. I tend to feel idle in between projects. The life of a serial renovator can be exhausting but definitely exciting. What do you think of my minor renovation?

NOTE:
If you find this post helpful, be so kind to share it on your Facebook wall or other social networking platforms using one of the buttons below.

Read More

BUYING A PROPERTY IN A TRUST OR INDIVIDUAL'S NAME

Today's email came at a time the Mr and myself were looking at our options regarding our small portfolio. We have been busy researching whether buying a property in a trust or individual's name or even a company would be more beneficial for us. At the end we were at the "it depends" position. There is never a one size fits all. My understanding is that, when we have a bigger development, we will definitely buy and sell the land/ properties using a company. But for now, our individual names and a trust will do. Our reader has interesting question in this regard:

Thank you so much for this blog. My passion has been restored. And after what I have gone through in my life, I now know what I will be working for. I am currently unemployed because I am using a spousal permit which does not allow me to work.
I have a few questions for you.
Are all the properties you have under your name or how do you do it?
Is there a limit as to the number of properties you can register in your name in South Africa?
Regards,
SG

Pleasure SG. I am glad that this little blog is helping people to dream and work on their passions. I have never heard of a limit in the number of properties one can buy in their own name in South Africa. I cannot imagine a reason why there would be such a restriction.

Buying a Property in a Company's Name
I actually do not know of any advantages in buying a property in a company's name when one is a long term investor or lives in that particular property. The company pays all the taxes and costs that an individual property owner is liable to pay. This is usually at different times but everyone does pay. In some instances, companies may pay more in capital gains taxes. Buying through one's company or trading trust would make perfect sense for property developers who sell large stocks at a time and property flippers who are constantly having properties on the market.

Buying a Property in a Trust
When it comes to making a choice between buying a property in a trust or individual's name, most property investors choose to buy their investment properties through family trusts. There are a lot more  arguments for trusts compared to those against them. The biggest issue is it being less complex to deal with by beneficiaries in the case of the founder's death. That is unlike the case where one is dealing with an individual's estate which attracts extra costs like estate duties and other fees and taxes. Trusts, not being individuals and being independent of their founders are not liable for the estate duty taxes. The trust does seem to offer a smoother transition in cases of death. I have heard a lot of South Africans arguing about the trust protecting one's personal assets from creditors in the cases of the investments turning sour and therefore offering protection against insolvency.

Having said all that, one has to bear in mind that trusts generally pay high taxes. the last time I checked, income tax for trusts was at a rate of 40 percent. The organisation of the trust is another factor as the trust has to be in the administration of all trustees and not just an individual investor. When one registers a trust, they give control and decision making over to the trustees. A founder cannot just take investment decisions alone. Another factor would be that, a trust may in some instances pay more than what an individual is required to in capital gains tax.

My advise to anyone who does not know what option to go with is that... Do your homework. A trust that is not properly administered and run can lead to a disaster. One's beneficiary may end up losing at the end. If one chooses a trust, it has to be run as a trust and never a company. Trustees have to be properly involved in decision making. 

A trust with some cash should do better than the one that still needs to borrow from the mortgage lenders to acquire assets. Banks can be skeptical to lend to a trust or require a larger equity/ deposit compared to what they would require from the natural person. Legal and maybe financial advise could help. 

Note:
Feel free to leave a comment below to help the fellow investor out. And if you find this post helpful, be so kind to share it on your Facebook wall or other social networks using one of the buttons below.

Read More

RAISING PROPERTY DEVELOPMENT FUNDS

Isn't land ownership absolutely amazing? Does it give meaning without finances needed for development? Our reader owns a plot of land and needs funds to develop it. Can we put our heads together to come up with non-traditional ways of raising property development funds in South Africa? We may just bring a solution to the email I received from the land owner below:

Raising Property Development Funds - Photo taken by me in Beacon bay, EL.

Hey Mbini
Thank you for creating this page for some of us to learn.

I bought a plot of land that I would like to develop. However, I would like to develop under my Pty (Ltd). Could you please advise on any developers that I could approach for funding.

Kind regards,

Well done on your acquisition sir. It is always complex giving an opinion on someone's situation, when you do not have a full picture of their personal and financial background. What I know is that raising property development funds is not easy for any new property investor. The requirements are getting steeper and steeper with time. Banks also charge exorbitant interest rates to new players in the real estate sector. Your idea of approaching accomplished developers makes a lot of sense. Since I don't know your location and developers in your area, I am not well positioned to give a meaningful opinion. From experience, I find smaller developers more approachable as they themselves are likely to be searching for partners. Bigger investors are mostly looking for and working on mega deals.

Traditional Banks and other Financial InstitutionsFor those who are also interested to get into obtaining funding for their own property development projects, work hard at making that dream happen. There is a traditional route of raising funds for a real estate development, which works better when you have your own equity or assets as collateral. Borrowing from the banks and other financial institutions would be great. Being able to secure the funds from these financial institutions is a sign that the project is economically viable.

Property Developers and Construction Companies
In this reader's case however, he/she wants to take a different route of partnering with the established developers. For an experienced developer to have an interest in one's project, it has to be a project that that particular developer cannot easily get. There are always developers that are also into partnerships because of their size or to share the risks. Those can be potential investors in one's first project. Looking at the construction companies for partnerships should never be ruled out. A lot of construction companies have resources but do not have land.

Private Investors
Another way of raising property development funds is through private investors. The concept of private lending and investors is unfortunately not a popularised one in South Africa. If a project promises high returns, investors that never even thought of on investing in property before may show interest. A land owner's homework includes working out the rate of returns before they approach prospective investors. The investors may partner on the project through profit sharing or grant a loan with an interest that is slightly higher than the traditional banks' interest rates.

In the case where one gives shares to the private investor, the land and work that has been done, has to be valued and contributed as the land owner's equity. The investor may then contribute the funds to develop the land. This is where it becomes tricky. Land owners usually expect to get a bigger share than land value. And in most cases, they expect their land to be worth more than it actually is. An entrepreneur has to work on looking at transactions objectively. Another tricky part of this approach is that, as a share investor, one has a responsibility to monitor the progress of the project. Unlike a private lender, a share investor will be an active part of the workings of the development to look after their investment.

These kinds of private investor partnerships have a potential to be complex, especially when roles are not clearly set. One needs to have well drawn legal contracts to protect themselves and their companies.  The same goes if the investor is a friend or a family member. A gentlemen's agreement will not cut is as it is legally non-binding.

Note:
 Feel free to leave a comment below to help the fellow investor out. And if you find this post helpful, be so kind to share it on your Facebook wall or other social networks using one of the buttons below.

Read More

STARTING IN PROPERTY INVESTING

A question related to starting in property investing is probably the most common type of question that gets mailed to me here at Safe Investing South Africa. A lot of aspiring investors are fascinated by real estate. Which does not come as a surprise to me. What drew me to this type of investment is the power of leverage. I find that to be quite enabling for investors with jobs and stable sources of income. Today we look at a property investing reader's question:

"Property Investment
I would like to enter the property investment market. I only have R70,000 which I would like to use as start up capital. I am not sure how flipping for profit works but would like to learn. Secondly I am interested in blogging and not sure how to start. Your assistance will be highly appreciated."

Photos of New Developments that I take: Starting in Property Investing

 Let us start by unpacking "Leverage" or "Gearing":
This simply refers to the ratio of one's debt to their equity.  One invests their own equity (say R70,000 in our case) to borrows some more cash (debt) with the hope of making profits that are higher than the price of that debt (interest). To simplify it further with an optimistic property flipping example:

• You get an all inclusive homeloan of R450,000 (debt) and invest R50,000 as the deposit (equity),
• You use the R20,000 to renovate the place in a short space of time,
•  You then put the property back on the market at R700,000 (I said optimistic OK),

What happened here is that you invested R50,000 to make R200,000 (total profit). This is 300% profit on your investment. R200,000 is a profit from what you spent, not from the cost of the project. You may now pay back the R450,000 holemoan and go for a bigger project or multiple projects. This is how investors use lenders' money to make money for themselves. If you maintain a good credit record, you stand chances of getting very cheap debt (low interest rates).

Important to Remember:

1. One needs to be having income or financial support because a property can take a little while to sell;
2. The right time to make returns is when one buys. Buying a property which is undervalued due to non-structural challenges like broken tiles and cracked plaster or chipped paint is always wise;
3. Nothing beats the location of the property. It has to be in an active market.

Let us now be more realistic as we look at your R70,000. This is how I would approach it:
1. I would start in a Low Cost Area
It is tempting to want to look at the Metropolitan cities but the small towns and townships are offering huge opportunities at the moment. One should always look at the fast growing areas for opportunities. Not to forget to look at the rental demand before one even starts. One mistake we usually make is to look at the rental prices in one area and compare them with rental prices at a different area and draw uninformed conclusions. We should be basing our real estate investment decision on rental yields or returns.

In Gauteng suburbs for instance you will likely invest R500,000 or more to collect R5,000 gross monthly rental and a negative net income. In a tiny town similar to where I will be developing a few flats, you buy a smaller house within a larger erf (land), re-develop the land and get a few tenants. You are most likely to collect way more net income for a similar amount invested.

Low cost areas are definitely not for flipping because of the low property prices. They are for rental income sort of investors. Also important to note is that one develops at a slower pace in smaller South African towns. It is a painfully slow process to get things done. You will need to exercise your patience especially when the municipality is involved. Getting plans for existing structures, and information on restrictions and servitudes on the land is my biggest challenge. When you have gone past those humps, these kinds of investments seem lucrative and cost-effective.

2. Leverage
One could also use the R70,000 as a deposit in a high growth and high rental demand area. You would be better off with a property way below R600,000 as they are exempted from transfer duties.  This option requires one to have monthly income to repay the loan. If you have bought right, you would be in the position to get a positive cashflow when you rent the property out. Or to resell the property at a profit if you are flipping (see the Leverage/ Gearing passage above).
Flipping with a mortgage and on a tight budget is not easy.

3. Form Partnerships
 I would try and get a partner to boost my capital as I am starting in property investing. Choosing this option means that partners should set clear roles and responsibilities.

4. Real Estate Investment Trusts (REITs)

"A real estate investment trust (REIT) is a company that owns, and in most cases, operates income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands." Investopedia

One can invest in property through buying REIT shares in the open market. These may also be in the form of real estate Exchange Traded Funds (ETFs). This way you are investing in huge commercial property without the hard work.

When it comes to blogging, it is not as difficult as people think. Most people use wordpress and some, like myself use blogger. Both are free blogging platforms. I will have to do a separate blog post on this one.

Welcome to new readers. I started this journey alone and am encouraged to see interaction through emails that you guys send through the contact me form.

If this you find this article helpful, please share it on your social network of choice by clicking on a button below.

Read More

2015 PROJECT PLAN 2

Remember my decision to document the projects I plan on undertaking this year to build onto my 2015 goals. The first project being a furnished rental, with the hope of doubling the income. That was my first of maybe five projects I will work on this year. I don't know about you, but setting and documenting goals pushes me to act on them. I just try to avoid failing to achieve what I promised myself to do. I fail or change my mind sometimes, because this is real life. That will never stop me. Well, the second planned project is a small development in a small town.

2015 Project Plan 2 - Small Town Property Development

I have a few posts about the deceased estate acquisition. The main reason I actually wanted us to buy this property was to develop it further. The land is not so small, at above 800m². I changed my mind several times about this development project. The small town figures are very low given the low rental amounts. You need huge quantities to see what you are doing. And I am definitely not a quantities kind of a girl. I try to reduce the management demand of an asset to the bare minimum. Now, with the high returns (low cost) from these kinds of developments, I decided to just throw myself at this project again. The other interesting part of this project is that I can develop it in phases. It may take a full year or longer. This is how things are done in the town of choice. And like the locals I won't take a loan for this project.

Unlike in my small town, we are quite strict in Gauteng on project time frames. Even building plans expire if one does not construct on set time after submission at the local municipality. Well, my small town gives more time because, I guess we don't really have that kind of money lying around. The idea of starting on this project is getting more exciting by the day. I have a hand drawn sketch of the development with six or eight bachelor flats. The target market is young professionals like teachers, nurses, policemen, young doctors, bank employees, etc.

The Development Project Plan
I am trying very hard to not over capitalise by trying to match the standards of the existing properties in the area. However, I will definitely pay attention to the quality and maintenance of the development. The rental will be based on the local market range. Screening the tenants will have to be done with caution to lower the cost of maintenance, vacancies and ensure the longer term occupancy. I generally like a lady with a school going child. They tend to occupy the place for a longer term. Seeing that these are bachelors, I will have to see how I get tenants that are promising to stay for long. I already have a manager who lives in the area to look after development, the tenants and the units.

Those who have followed this blog for a while will know that I like to keep my rental income as passive as possible. This means getting a property manager among other things. With the location of this property, it is even more important to have a manager that is easily accessible. My manager and myself have assessed the town and saw gaps in the current rental income properties. We are looking at low cost ways to make ours more attractive. One of said ways is having all units fitted with a shower which saves space and water. We also plan to have tiny L-shaped kitchenettes in each unit.

Some of the strengths of this development include: 

• The location of the property in question is within a walking distance of a very popular school and close to a big hospital. My manager has already done the market research and has a few tenants awaiting the project. Yeah I know; my manager is pretty amazing.

• Whilst the rental prices are low, the cost of the project is even lower in comparison to metro project costs. This ensures higher development yields.

• The prospective development meets my rental property acquisition rule. Even if it were to be financed by the bank, it would generate positive passive income from the first day of occupation.

If this works out as well as I hope it will, I will repeat the process in this same town or another town of similar size. I am planning to start with the project before March and complete the first two units in a couple of months (I think two). We will have to target completion of the first two bachelors by the end of June. I think this is the target implementation time for the first project too. This will be the busiest six months for me then. But busy is always a great thing.

There goes one of my projects for 2015. Do you have plans for the coming year? 
To share this article on Facebook and other social network platforms, click on the button below.

Read More

TO BUY OR BUILD A HOME

We drove back home from East London on Sunday. Whilst there, one of my new friends insisted on me driving around Gonubie Beach to see where she lives. I saw East London in a new light. It is such a beautiful town. I am now back home to give my two cents worth on why I would choose to buy or build a home of my own.

Gonubie, East London, South Africa

Most readers of this blog lead or strive to lead debt free lives. It makes me smile just thinking about it. As we all know, a home is the biggest debt for most of us. Most readers believe in building their own homes without borrowing from the bank. That is the reason I love associating myself with you guys. I know this to be a fact because of the debate we had with a number of people who read this blog. (PS. if you are from outside SA, it is a norm to build one's customised home with a mortgage here in SA).

Summarised, this is what transpired from the debate:

• Even those of us who have never built their homes before seem to plan to do so in future without taking on any debt;
• Those who have built their homes with little or no debt before would take the same route again;
• Most were fond of the fact that building one's own home enables one to get a more custom structure;
• Everyone who has built their home stated that they saved a lot of money doing so compared to buying an existing home using a homeloan;
• We all aknowledged the higher stress levels that come with building compared to buying an existing home;
• Most agreed that the building project requires intense management as most builders prove to be unreliable. A lot of facts accompanied this notion. Sticking to payment interval agreements by the home owner and the builder was the major problematic area in the building project;
• This was followed by the time lags from paying for building material and it being delivered at the building site;
• One person raised the building quality concern emanating from the fact that the bank is not involved to ensure good workmanship and high standards of material used;
• Even though those who built before did not fully enjoy the process, they found the end product to be fulfilling;
• The obvious one was that, moving into a fully paid house means that you owe no one for it. It is very rare to have a house you are not paying for.

I am undoubtedly inspired by hard work and focus on being debt free by these amazing friends. I know this debate will go on forever. In the meantime, let me give my personal preference on whether to buy or build a home.

I will most likely have a commercial property development project in 2016. However, I don't anticipate ever having a construction project for my own home. I have to state though that I don't feel as strong about this as I did before this eye opening debate. My reasons for being pro-buying vary from those of psychological to those of financial nature.

Design and Architecture
As a "designer", I find my design preferences change by the hour. Even if I were to design my dream home, I would most likely wish to change it before it is even ready for occupation. Some people take two years to complete their home building projects. By that time I would have changed my mind about the plan already. That does not make it easier to buy an existing house but it cancels the "custom house" argument for me. I also think I put more thought in other aspects of the home like location and prepare my mind to adjust to whatever I get. Which some would view as more stressful than building.

In reality, though very similar to each other,  most modern homes do look nice. Going completely different is costly in financially, on time, design fees, etc. A lot of people I know choose existing house plans from their architects and developers which, once more, discounts the uniqueness and custom part of the structure. It is important to mention that the features of newer homes are much nicer and pleasant to the eye.

Cost
I used to dispute the fact that building a new property can cost significantly lower than buying an existing one. Research states otherwise. However, most people who build without the bank assistance seem to manage to keep the costs very low. The challenge would be omission of other costs that we usually leave out when quantifying the details of the project. Some of those are the cost of alternative accommodation, daily travel to and from the site, the stress, the family conflicts that are a direct or indirect result of the project, getting something different to what you have imagined, underestimating the project duration and costs, the value of one's time, etc. Even with these factored, I am now convinced that it does cost less for most people to build in this way than to buy homes.

If I were to choose a single factor that makes it difficult for me to choose building, it would be the time cost. I am too impatient to wait for a year or two for the home project. When one builds cash, they most likely run out of cash at some point during the project life cycle and add to the waiting time. This can result in months or even years of delay in the project. One may have achieved some growth in the value of the existing home in those months or years if they bought an existing house. Two years of inflation plus a splash of paint can yield amazing grown in the property value. If you bought right, you would be in a position to sell it at a good profit. Existing homes can offer huge discounts when one is patient enough to search for the right property with a right price tag.

Quality
Very low construction costs usually result in inferior workmanship. Most often than not we get what we paid for. Less experienced builders tend to charge lower fees than the highly recommended ones. Whatever you estimate to be your costs, allow some fifteen or higher percentage for contingencies.

Other Benefits
Buying is definitely less stressful. Chances of getting a deviation from what you ordered are very slim. Most older homes are closer to established communities with benefits like great schools and other amenities. One can easily predict or research the challenges that older communities present. Building in well established communities would be very expensive because of the higher land cost.

Finally, if I were to build, I would probably use a homeloan. I would want to be cushioned by the bank rules to be able to manage the project effectively. I would also prefer to carry whatever risk that comes with the project with the financial service provider. The bank has an agreement with the constructor and owns the project. And YES, I am also a believer in the power of leverage. But I also prefer to have my primary residence to be a fully paid property.

Having stated my preference though, the debate did change my thinking around the "to buy or to build a home" debate. I can now consider the cash building idea. What are your views on this?

Read More

PROPERTY INVESTING GONE WRONG

Everyone who knows me knows that I am crazy about property investing. Since we started in our 20s, we bought ten properties in total and only ever sold one. We used all the acquisitions as some sort of exciting experiments. It was necessary to get diverse experiences from the industry to feed my inquisitive nature. To achieve that, we bought a property in town, properties in three different provinces, a bank owned property from an auction, property from a deceased estate, a townhouse, a property within a gated residential estate, a property in the boomed off community, a house we plan to rent out furnished and a house in a business street which we rezoned into a commercial property. That sounds like a lot of real estate investing but its actually not as huge as I make it out to be. The beauty with this approach is that, I can sit here on my bed and tell a story about all of that. I believe all my mistakes in property investing were meant to be shared, to save another South African from committing the same mistake.

Property Investing Gone Wrong:  Took this image in Brighton, UK

Whilst, I am clearly a fan of property investments, I believe in a diversified portfolio. I went crazy listening to the radio programme on property investing. An editor of one of the biggest property magazines in South Africa blurted out "you will never go wrong with property in the long run". The reason I almost took this personally is that, this is an influential person in the industry and a whole lot of us are listening with interest. In his defense though, he did add the last part... "the long run". Which waters the statement down but leaves it as inaccurate. With poor or no research you may go very wrong with property investing. Most of the mistakes I and others were ignorant to are easy to avoid like:

1. Poor Location
A bad location will always be a bad idea when it comes to property investing. Set your target market where the area is developing nicely. I now have a clear target market and clearly set areas or suburbs. I will not buy a bargain located outside my target area. If the property is residential, it has to be in a good proximity of good schools, shopping centre, medical facilities and exciting community amenities. I will not be desperate to give a property to the first prospective tenant that shows up. I have turned down four tenants in the past two months. Most new investors target young professionals like themselves, which I find to be a good strategy.

2. Bad Price
A great piece of real estate in a good location with a high price tag is a bad investment. An investor does a thorough homework way before investing (unless she occupies a space in those rapidly changing industries). Know the returns you want before you even start shopping for the property. Exercise your patience when searching for a property that meets that yield. The wrong price is a huge loss before you even start.

3. Initial Investment and Liquidity
Well, we know that you will require a deposit to acquire a new asset. That deposit amount, your deeds registration, transfer and bond registration fees will cost you more than most estimate. That should be OK because you are investing. In the long run, you are likely to get a lot of money from that initial investment. However, you are most likely to lose some money if you change your mind and sell that property immaturely. Even worse, you may have a lag between that decision to sell and getting a buyer. During the marketing period, your property may be vacant, sucking your reserves dry. This is the reason point number 1 and 2 above are the most important for an investor. Your investment is not liquid, you have to be in this for a long haul to recover your costs and get your returns.

4. Maintenance, Renovations and Repairs
As we all know, most tenants break stuff. Even if they are great tenants, wear and tear takes its toll on possessions. You will be fixing a whole lot of stuff in the long run. You need good planning, a budget, even handy skills and an emergency fund to take care of repairs. It is definitely not as bad as it sounds; I have done this for more than a decade without any fixing skill and interest to learn. Your rental yield calculation has to factor that.

5. Management, Rates, Taxes and Levies
You should take this into account when you are shopping for your property. If you collect R10,000 in rental, deduct all the costs like homeloan repayments (R8,000), levies, rates and taxes (R2000) and know that you are only breaking even. This is actually a good scenario. You may need to top up from your pocket like most of us do in the first few years of investing. There are property management costs which I forgot to add too.

6. Vacancies
Then you may have a period where your property is vacant and no rental comes your way. Refer to point number 1 to avoid this. Your location has to have a good rental demand. You can do this so well that you never get any vacancies in years. And that is not an exaggeration. But you may be in a bad market that your place exchanges too many hands, gets damaged in the process and costs you too much money. Point number 1 and 2 cant be missed in this process.

7. Bad Tenants
Even a vacancy is cheaper than bad tenants. Another reason to thoroughly screen your applicants.

Read More