Property Development - Making money with property

[Velenoso]

Ok, so here we go. This is a thread for anyone who is interested in making money with property.

Edit: IzZzy's PM has had to be removed

Hope you guys don't mind, in the interest of time, I'm going to steal from some of my older posts on the forum.


My advice to someone starting out would be the following:

1. By any means possible, buy your first property as soon as possible.
2. If at all possible, do not move into your first property. (someone gave advice about buying with some friends - good advice)
3. Buy the most run down property in the best area that you can afford.
4. Invest a little money to renovate the house and sell it for a profit.

This way, with a little luck, you can kill half your bond for your next house with the profit from the first. Granted, not everybody wants to do this as a business, but it's a great way to cut your bond for your second property (the one you move into) in half.

Let me give you an example of one I did last year.

Bought a property in a newly built golf estate for R 1,400,000 at roughly R 15,000 a month. I invested R 200,000 to add two more bedrooms and a few other things. I sold the property for R 2,100,000 two months ago. About six months after I bought it.

Result: R 500,000 - R 90,000 paid for bond for six months. I made a profit of about R 400,000

So, if you're looking to buy a house for R 800,000 to a million, you can pay half in cash and take out a much smaller bond...

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That's right. Bought my first property in March 1999. I first came here in 1998 on holiday (was doing some work in Kinshasa). I loved it here and decided to come back. A good friend of mine also came over (he's from Australia) and we bought a property. (And started a few other businesses). We both still live and work here.

(Bear in mind though, I was earning US$ at the time which made it a lot easier to afford a property at the age of 18, but it's not impossible. It's actually quite feasible for a single guy earning over R 20,000 a month)

South African people seem to be afraid to buy property at a young age. This is understandable because they don't want debt but if you approach property as a business, it can be the most profitable thing you ever do.

Don't get me wrong, there are some risks with property, but it is VERY unlikely that you will lose money. The worst that can happen is that you wont make any.


__________________________________________________ __________________________________________________ ___________



for renovation / building purposes I would definitely suggest a house / cluster. Also there are huge profits in building from scratch. (probably not the best idea for first time buyers though)

It's difficult to rent out a place for the price of your monthly loan repayment, never mind for a profit. The only way that making an income from rent is feasible is if you own the property.

It may be a good idea to get a tenant in who would be willing to cut a deal with you. (i.e. pay half the bond on the condition that he doesn't mind staying in one half of the house while the other is under construction, etc.) This would save you quite a bit of money while you renovate the property.

This should be enough to get the conversation started. I recommend reading this thread http://mybroadband.co.za/vb/showthread.php?t=81357 . In addition to mine, there is some good info there.

Picard, to answer your question:

How does your support structure look. Legal staff, secretarial, partners ... in a venture such as land developement?
What does one need to engage in something like property developement. Becuase property developement in SA is only just someway along its route. It still has a long way to go and has many more oppertunities waiting.

__________________________________________________ __________________________________________________ ___________


I'm a very hands on sort of guy. I like dealing with people myself. I deal with several very competent companies for the various things you describe. I have an excellent property attorney, land surveyor, etc who handle a lot of the legal aspects of my business. I have a good contact at the council. I don't particularly like dealing with estate agents, but I quite often do. I work with a number of agencies, depending on which area I'm building/working in.

Ok, so I think that is a good start. :)

[LancelotSA]

Just a quick question...

You mention the profit on the one property of R400,000. My query is what about all the costs associated with purchasing that property? Transfer duty and fees, bond registration fees should probably be around R100,000 (or not as high, as I was only able to find the costs on a R2,000,000 property in the little time I had to "research" so reduced these :)).

Another risk you run in the current market of course is not being able to find a buyer. The risks you run in assuming you will immediately find a buyer can lead to difficulties with people who will battle to service the bond themselves.

Yet another problem of course is the NCA. If the banks do their job you may find it difficult to get the finance to buy the property and then still raise the R200,000 to do the renovations. First time homeowners may get 108% bonds but even this would not leave money to renovate.

Just some things that come to mind when I read this....

[feo]

Very very good opening post there. I'm also young having started my first job about a month and a half ago and I'm definitely looking into buying some property or making some off the property market.

Firstly, I'm a bit off the benchmark you stated of R20k a month salary but still, how on earth can the average joe afford properties nowadays? You can get a decent place to live for a mil but what do you pay on it monthly if you don't have anything to put down on the house upfront? I can't just give up my entire salary on a bond.

[LancelotSA]

Very very good opening post there. I'm also young having started my first job about a month and a half ago and I'm definitely looking into buying some property or making some off the property market.

Firstly, I'm a bit off the benchmark you stated of R20k a month salary but still, how on earth can the average joe afford properties nowadays? You can get a decent place to live for a mil but what do you pay on it monthly if you don't have anything to put down on the house upfront? I can't just give up my entire salary on a bond.

Just over R13,000 at a 15% interest rate over 20 years.... and then don't forget the good old rates!

[IzZzy]

Awesome thread!

I just read the thread you linked to, I had forgotten my involvement in that thread!

I understand the fundamentals to this business. My issue is -my- first step. As of next year I will be in JHB living by myself. As BobbyMac correctly pointed out - research is everything. In my case it is impossible since I have no clue about JHB.

I'm sitting here thinking just what is my first step? Last thing I want to do is sign a x long lease and be stuck with my development plans as I'm tied to a lease. My problem, highlighted by myself in the other thread :P, was not how does one afford to -buy- a property, but how does one buy a property and renovate it, whilst still living somewhere.

From what I see, my gameplan is rent for like 6months next year while looking for any property I can buy in my limited price range. If I can afford the run-down place - live in it/renovate it and try sell it at a profit. After it's sold I rent for a while, whilst looking for another property. Repeat process.

Velenoso - I wish you ran a "Spend the Day with me in the business" programme

Hey feo - wanna go halvies on development? :P

[Velenoso]

Lancelot, that example was a very rough idea of the possibilities to make large sums of money. There are transfer duties, etc. Keep this in mind always, banks are people too, they are people running a business, you can ALWAYS negotiate with them. These days I can pretty much get finance for a property over the phone, so go speak to them. Ask them for 150% bond and see what they say! Negotiate your interest rate, etc. Most people make the mistake of believing that banks won't budge. If they feel that they will lose you as a client, they will come to the table.

feo, R 20,000 was just a number I pulled out thin air. Whatever your income is, you can make some kind of plan to get a property. If you can not afford a R 500,000 place or similar, then consider going in with a friend(s) like I did. It can turn out into a fun project if you all work on it, it's easier on the budget and you all split the profits. Also you can get a much better (more expensive) property this way.

IzZzy, you're coming up to JNB in June right? When you're up here, buy the paper and start looking. You'll get a good feeling what what costs what in what area. Look, it's not the end of the world to live in the place while renovating. If you're a single guy, then no worries. It might not be as easy for someone with a wife/kids, etc to have them living in a construction site. Your game plan is a good one, I'm sure you'll find somewhere where you can rent on a six month or a month to month basis. Then take your time, go to show days, familiarize yourself with the market. Don't rush into a property, if it takes you six months to find the right one, so be it... Don't worry, you get faster with time. ;)

[BiteMe]

did someone forget that a house is a roof over your head, and not a piggy bank?

sorry, but i detest people who flip properties for a living.

[mercurial]

did someone forget that a house is a roof over your head, and not a piggy bank?

sorry, but i detest people who flip properties for a living.

It's business. If you don't like it, bite me.

[BiteMe]

It's business. If you don't like it, bite me.
yeah, i know, and we all gotta eat.
i'm going to stay well away from this thread from now on, because it'll just get me totally upset:-) i know it is easy to make money on this, but the long term effects of everyone doing it creates a heck of a lot more problems. i'm living in it right now, and so will my offspring.

imagine, in 20 years time, having to turn around to your kid and saying
"johnny, i know the best you can afford now is a 1 bed flat in diepsloot, and i know you need to inflate your salary on the mortgage forms to be able to afford it, even though you are a doctor, but it is all my fault...see buddy, when i was your age we all started to treat our houses like ATM's"

[mercurial]

yeah, i know, and we all gotta eat.
i'm going to stay well away from this thread from now on, because it'll just get me totally upset:-) i know it is easy to make money on this, but the long term effects of everyone doing it creates a heck of a lot more problems. i'm living in it right now, and so will my offspring.

imagine, in 20 years time, having to turn around to your kid and saying
"johnny, i know the best you can afford now is a 1 bed flat in diepsloot, and i know you need to inflate your salary on the mortgage forms to be able to afford it, even though you are a doctor, but it is all my fault...see buddy, when i was your age we all started to treat our houses like ATM's"

That's a rather drastic vision. The father would obviously make sure his offspring has houses, especially since he is making millions from this business.

[Geriatrix]

did someone forget that a house is a roof over your head, and not a piggy bank?

sorry, but i detest people who flip properties for a living.

Why? Do you hate people who flip burgers for a living too? 'cause food is made for eating you know...

[Sly21C]

feo, R 20,000 was just a number I pulled out thin air. Whatever your income is, you can make some kind of plan to get a property. If you can not afford a R 500,000 place or similar, then consider going in with a friend(s) like I did. It can turn out into a fun project if you all work on it, it's easier on the budget and you all split the profits. Also you can get a much better (more expensive) property this way.


I earn peanuts, I earn R8 K a month and I am seriously thinking of getting into the property market, but I think the only way for me to do that is to go into it with a friend, put our money together and split the profits after selling a property. I really wonder if it is possible for me to start with maybe a low cost house, you know start small, then I'll work myself up and maybe after 5 years or so I'l have enough cash saved to buy properties that run into the millions. Do you think it's possible for a guy like me earning R8 K can get into the property market? Have you seen someone or some people do it before?

P.S. In 2 or 3 years time, my salary will be double than what I am getting now.

[Velenoso]

did someone forget that a house is a roof over your head, and not a piggy bank?

sorry, but i detest people who flip properties for a living.

I detest a man who tries to tell another man how to make a living. It's close minded people such as yourself who will never gain financial independence and will forever rely on their paycheck to survive.

If you don't have something useful to contribute or a question that you need answered then don't day anything at all. ;)

[Syndyre]

did someone forget that a house is a roof over your head, and not a piggy bank?

sorry, but i detest people who flip properties for a living.

Why? Property is one of the best investments around. Yes a house is a roof over your head which is why there'll always be demand for property, and limited supply, especially in the good areas.

[Fuma]

I detest a man who tries to tell another man how to make a living. It's close minded people such as yourself who will never gain financial independence and will forever rely on their paycheck to survive.

If you don't have something useful to contribute or a question that you need answered then don't day anything at all. ;)

Unfortunately 90+% of the whole world's population has a mindset like that. That's why we have less than 10% wealthy people in this world.

[alf101]

I earn peanuts, I earn R8 K a month and I am seriously thinking of getting into the property market, but I think the only way for me to do that is to go into it with a friend, put our money together and split the profits after selling a property. I really wonder if it is possible for me to start with maybe a low cost house, you know start small, then I'll work myself up and maybe after 5 years or so I'l have enough cash saved to buy properties that run into the millions. Do you think it's possible for a guy like me earning R8 K can get into the property market? Have you seen someone or some people do it before?

P.S. In 2 or 3 years time, my salary will be double than what I am getting now.

Wait another 3 years or so, you got a few other bills to pay until then.

[BiteMe]

It's close minded people such as yourself
assumption #1


who will never gain financial independence
assumption #2


and will forever rely on their paycheck to survive.
assumption #3



If you don't have something useful to contribute or a question that you need answered then don't day anything at all. ;)
ok, how about this.
dear sir, can the value of an investment go up as well as down?

dear sir, once you and your crew have renovated all the houses in area x, (and no doubt made millions, of that i am sure), exactly WHO will you find to pay those vastly inflated prices? first-time buyers CAN and DO get priced out of the property LADDER (I capitalise LADDER because it consists of STEPS, and the FTB are on the bottom rung.)

Go read up what a PONZI scheme is.
If that is too much to ask, try think of a pyramid scheme, then apply it to property.

Now, for my 3 assumptions about you.

#1 : You havent made as much in property as you pretend.

#2 : You are hoping things carry on as they do, because with all that leveraging going on, and property prices slowing down to below the rate of inflation it'll only be a short while before the value of your "portfolio" (sorry, i gotta laugh) gets wiped out from under your butt, by the magic power of compund interest.

#3 : and because of point #2, you are really trying to encourage others to follow your shining example, because this scheme only works if everyone does it. But alas, the NCA has taken a shine off things hasnt it?

It is easy to buy a house a bit cheap, fix it up/reapir/renovate, and sell it for what it would have been worth originally. but that isnt what we are doing here is it?

[Velenoso]

assumption #1


assumption #2


assumption #3



ok, how about this.
dear sir, can the value of an investment go up as well as down?

dear sir, once you and your crew have renovated all the houses in area x, (and no doubt made millions, of that i am sure), exactly WHO will you find to
pay those vastly inflated prices? first-time buyers CAN and DO get priced out of the property LADDER (I capitalise LADDER because it consists of STEPS, and the FTB are on the bottom rung.)

Go read up what a PONZI scheme is.
If that is too much to ask, try think of a pyramid scheme, then apply it to property.

Now, for my 3 assumptions about you.

#1 : You havent made as much in property as you pretend.

#2 : You are hoping things carry on as they do, because with all that leveraging going on, and property prices slowing down to below the rate of inflation it'll only be a short while before the value of your "portfolio" (sorry, i gotta laugh) gets wiped out from under your butt, by the magic power of compund interest.

#3 : and because of point #2, you are really trying to encourage others to follow your shining example, because this scheme only works if everyone does it. But alas, the NCA has taken a shine off things hasnt it?

It is easy to buy a house a bit cheap, fix it up/reapir/renovate, and sell it for what it would have been worth originally. but that isnt what we are doing here is it?

You are a really sad and bitter person aren't you? I'm just trying to help some of the guys who have asked me for advice. I have not forced my profession upon anyone and I am certainly not attempting to run any sort of scheme as you so eloquently put it.

How much I've made or haven't made is not your business, but obviously you are bitter about those of us who have actually made money out of property and not just lived in them to save them for "little Johnny". Grow some balls.

Sure, what you're implying does happen. Prices are artificially inflated. Who cares? You can take a piece of land that wouldn't normally be worth anything and turn it into millions. People are prepared to buy whatever you are prepared to sell them.

Take it easy man. This is just a discussion on how to make it easier for first time buyers to actually purchase a decent property to actually live in by making a bit of extra cash off a few properties while they are still single and don't mind moving around a bit.

Don't worry, I'll save a few properties for your children BiteMe, they won't have to live in Diepsloot. :rolleyes:

Why are you attacking me personally? A little maturity in life goes a long way.

[Fern9do]

I have a question...how much of your bond must you pay off before being allowed to sell your house?
Im asking because i dont want to live with a friend/partner for 10Years!

[alf101]

I have a question...how much of your bond must you pay off before being allowed to sell your house?
Im asking because i dont want to live with a friend/partner for 10Years!

Doesn't matter, u can sell whenever.

[IzZzy]

I was just chatting to my friend about this.

If one only deals in property until one has enough money to purchase a property outright - what an amazing accomplishment. Not having to fork off a large portion of your salary each month!!! One could still work and enjoy 100% of your salary - awesome position to be in.

[HavocXphere]

Enough with the derails already.

Velenoso: How do you cope with a falling property market.

Last 5 years in SA have been one huge bull run....but will this scheme work when the property market is falling? e.g. When all the Aussie Visas that people are applying for are finally approved.

Also, I assume you pay CGT on each sale?

[IzZzy]

Enough with the derails already.



Also, I assume you pay CGT on each sale?

+1,

I believe such sales would fall within the definition of gross income, and therefore liable to income tax.

[Freshy-ZN]

I dont think you pay CGT if you sell a property and its your only one.

[IzZzy]

Then you would pay CGT as you are selling a capital asset.

If you do it consistently/frequently then it is not a capital asset, but a business/trade, liable to income tax.

[Freshy-ZN]

Liable to Income tax yes, not CGT. Two very different things.

[Freshy-ZN]

"it will not affect your primary residence, provided the property is smaller than two hectares and the profit is less than R1 million."

http://www.homeloans-southafrica.co.za/capital-gains-tax.htm

[HavocXphere]

It was 1,5 mil in 2007. I think its 2mil this tax year. Property > 2 hectares is apportioned.

[LancelotSA]

How much I've made or haven't made is not your business, but obviously you are bitter about those of us who have actually made money out of property and not just lived in them to save them for "little Johnny". Grow some balls.


Um, sorry to butt in, well actually not too sorry, but I'm afraid you made it all of our business when you happily provided us with you entire income statement and balance sheet in the "how much do you earn thread"!

I also feel your advice is ill advised for a lot of the guys you are preaching too. There is no easy money to be made and unfortunately, whether deliberately or not, this is the message you are sending out. Even Donald Trump often loses millions some of the new developments he enters into. He can afford to in most cases but for a lot of the guys you are chatting to, one bad deal could lead to them having credit problems for the rest of their lives.

Yes, getting rich quick sounds wonderful but I really think you need to balance the success stories out with the failures and caution the uninformed of the risks. You did not do this and even went so far as to say it is highly unlikely that you will ever lose money in property. Tell that to the people who own worthless beach front properties in Ballito after the high seas recently. tell that to the guys with the prime properties up the North Coast of Natal that are due to devalue due to the building of an airport which will result in them being in the flight path of boeing, and add the double whammy of the proposed low cost housing proposed for the area.....

If your cash flow is not healthy you could also be suffering in the environment we recently experienced with a number of interest rate hikes.
Share you advice but do not preach it as a get rich quick fairy tale like you are...

[LancelotSA]

Velenoso: How do you cope with a falling property market.

Last 5 years in SA have been one huge bull run....but will this scheme work when the property market is falling? e.g. When all the Aussie Visas that people are applying for are finally approved.

Also, I assume you pay CGT on each sale?

There is a lot that has not been stated... CGT, initial costs like bond registration, transfer duties etc. It has all been sugar coated and yes, in the last few years it was not difficult to make money out of property, but things have changed....

Guys listen to these wonderful stories but be careful!!

[IzZzy]

How does listing your expenses/income each month automatically entitle someone to know how much money they have accumulated? Two different things.

Regardless, this is a passionate plea to please keep the thread on topic. I have noted the substance of your warning. It is valid and must be considered. However the fact that there are all these fee's does not detract from the validity of the business.

Everything in life has ups and downs. I am prepared to accept the ramifications of my actions.

[Velenoso]

Um, sorry to butt in, well actually not too sorry, but I'm afraid you made it all of our business when you happily provided us with you entire income statement and balance sheet in the "how much do you earn thread"!

I also feel your advice is ill advised for a lot of the guys you are preaching too. There is no easy money to be made and unfortunately, whether deliberately or not, this is the message you are sending out. Even Donald Trump often loses millions some of the new developments he enters into. He can afford to in most cases but for a lot of the guys you are chatting to, one bad deal could lead to them having credit problems for the rest of their lives.

Yes, getting rich quick sounds wonderful but I really think you need to balance the success stories out with the failures and caution the uninformed of the risks. You did not do this and even went so far as to say it is highly unlikely that you will ever lose money in property. Tell that to the people who own worthless beach front properties in Ballito after the high seas recently. tell that to the guys with the prime properties up the North Coast of Natal that are due to devalue due to the building of an airport which will result in them being in the flight path of boeing, and add the double whammy of the proposed low cost housing proposed for the area.....

If your cash flow is not healthy you could also be suffering in the environment we recently experienced with a number of interest rate hikes.
Share you advice but do not preach it as a get rich quick fairy tale like you are...

Alright look, I'm assuming that everyone on the forum, specifically those who can afford to buy property in any event, are intelligent enough to assume that there is obviously a risk in any business venture.

I don't in any way intend for my posts to imply that this is an easy or risk free business. There was a hell of a lot of money to be made with property in years past, and there still is a lot of money to be made. Look, as you point out, there is a chance of you losing money, whether by an act of god, government or falling property market, but it is unlikely, it's a fairly safe bet if you do your homework and choose wisely.

With regard to my posting my balance sheet in another thread, so what? Everyone else did so? BiteMe just chooses to attempt to discredit me. I don't have a hidden agenda, that thread was basically a poll of people salaries and expenses. This is specifically why I decided to create a new thread so that we can discuss property.

Anyway, I hope that is the end of that. Let's discuss the topic at hand, shall we?

[hyperian]

Its a great idea if you can make it work. Otherwise, just watch those poor buggers on sky news that have lost millions of pounds because the value of the propoerties that they bought have fallen below their purchase value.

[AutoX]

I detest a man who tries to tell another man how to make a living. It's close minded people such as yourself who will never gain financial independence and will forever rely on their paycheck to survive.

If you don't have something useful to contribute or a question that you need answered then don't day anything at all. ;)

Well said Velenoso:cool::cool::cool:

[gboy]

My family is in the Property Development business, It has been very good to us.

I did do my estate agents CEA course. Helps with the understanding.

Velenoso is talking the truth there is lots of money to be made. Another good way to make money is to buy a piece of land, and get is subdivided, EIA done ect, just before it it time to build you sell it to a developer. :) granted you dont make as much as building. but you can turn a property over much quicker.

It works out benifical to both sides, as the builder does not have to tie his money up during rezoning,

[Voicy]

Its a great idea if you can make it work. Otherwise, just watch those poor buggers on sky news that have lost millions of pounds because the value of the propoerties that they bought have fallen below their purchase value.

I know very little about property investment, but what I've noticed is you only really lose money if you sell. Even if the property becomes worthless ... you still have the walls and roof. A proper place to live in that you can use every day. It's not like buying shares where you own a bunch of worthless numbers on a bank statement when the stocks plummet.

Anyway, just my 5c worth.

[Voicy]

I earn peanuts, I earn R8 K a month and I am seriously thinking of getting into the property market, but I think the only way for me to do that is to go into it with a friend, put our money together and split the profits after selling a property. I really wonder if it is possible for me to start with maybe a low cost house, you know start small, then I'll work myself up and maybe after 5 years or so I'l have enough cash saved to buy properties that run into the millions. Do you think it's possible for a guy like me earning R8 K can get into the property market? Have you seen someone or some people do it before?

P.S. In 2 or 3 years time, my salary will be double than what I am getting now.

I'm sitting with the same problem where I don't earn enough to get a bond on anything that isnt on the wrong side of the train tracks ... and full of nigerians.

I know that the key to saving money isnt how much you earn, but what you decide to do with that savings. After my insurance/med aid/installments/etc. I bank about R5-6k a month, of which half gets thrown into a savings account that I never touch. It's slowly filling - but too slow for me to put down a lump sum on a property.

how do you chaps go about buying your first property and thereby getting into the game ?

[CharlesM]

how do you chaps go about buying your first property and thereby getting into the game ?[/QUOTE]

I bought my first property when I turned 21. Was a great investment. a few years ago prices were better, I got the flat for R120k, fixed it up a bit and sold it last year for R490k.

The best (and very often only) way to get into property if you don't have a wealthy family behind you is to partner up with a friend and buy your first property... You can have parents/friends buy in with you and your friend if you still don't qualify for a large enough bond. The right time to buy a property can't really be planned. Just do it!