Housing investments

[Pitbull]

Hi Guys,

I have my hands on R 100k. I was thinking of buying a new car but that idea flew out the window fast. I have an idea and wanted your take on it. If I get 10 people Family mostly to invest R 100k each as well we can buy a R 1m house cash. Rest it out for lets say R 6k a month and everyone gets a return of 7.2% per year. Up and above that the price on the house increases year or year. So you get a return of around 7.2% and your initial investment grows year on year.

Anyway, my question is this:

What would be the best way to do it. Register a company with the 10 investors as directors and have the company as the deed holder for the house? This would be my first inclination.

 

[ToxicBunny]

Maybe look at a Trust rather than a company...

Also, make sure whatever contracts exist are water tight to the extreme...

 

[Pitbull]

Maybe look at a Trust rather than a company...

Also, make sure whatever contracts exist are water tight to the extreme...

Yea, only an idea for now. I honestly think this is a better investment though than doing it through a long term investment through a broker not so?

Thanks for the trust idea

 

[ElementZero]

Yea, only an idea for now. I honestly think this is a better investment though than doing it through a long term investment through a broker not so?

Thanks for the trust idea

Golden rule , never mix family and friends in business , something always goes wrong an relationships go sour. Take the money and invest in Allan Grey / Coronation Fund. I;ve been getting about 17% p/a year on year for the past 4 years.

 

[kdub]

Rent it out for R6K a month... yes that does give you 7.2% return. Then there is maintenance... Then there is tax (as because you have bought the house cash there is nothing much to deduct against the income)... Then there is the possibilty of it standing empty for a certain time without a tenant or a tenant refusing to pay or move out (which is worse). Lots to consider.

 

[Beachless]

In my opinion you dont want to pay for it cash you want to write off the interest against the income and possibly refinance it to get cash out of the property.

 

[BrokenLink]

Rather use the 100k as deposit and borrow the rest. 10 people in one investment is going to be a nightmare....what if 1 person wants to sell out to get his money for something else? How do you calculate the price of the house then to buy his share? If other investors dont have cash to buy his share then you have to sell the house or can he not get his money.....?

We have a bunch of rental properties and they work well, however I dont think you will make any decent returns now with a single property purchase, property tax + levies + water if your in a complex will eat up all the profits along with maintenance. If you do go for the option to buy I would recommend student housing, but you must buy close to a campus in correct area to minimize risk of emptyness.

 

[Chevauxza]

Rather use the 100k as deposit and borrow the rest. 10 people in one investment is going to be a nightmare....what if 1 person wants to sell out to get his money for something else? How do you calculate the price of the house then to buy his share? If other investors dont have cash to buy his share then you have to sell the house or can he not get his money.....?

+1

 

[IzZzy]

Maybe look at a Trust rather than a company...

Also, make sure whatever contracts exist are water tight to the extreme...

If you do anything, don't use a trust. CGT rates for disposals by Trusts (which is your exit plan) are insane at the moment.

Best bet would be a company (or even a CC if you can find one).

 

[Pitbull]

Rather use the 100k as deposit and borrow the rest. 10 people in one investment is going to be a nightmare....what if 1 person wants to sell out to get his money for something else? How do you calculate the price of the house then to buy his share? If other investors dont have cash to buy his share then you have to sell the house or can he not get his money.....?

We have a bunch of rental properties and they work well, however I dont think you will make any decent returns now with a single property purchase, property tax + levies + water if your in a complex will eat up all the profits along with maintenance. If you do go for the option to buy I would recommend student housing, but you must buy close to a campus in correct area to minimize risk of emptyness.

Very sound advise. Appreciate it. Will look into it a bit more.

 

[Pitbull]

Golden rule , never mix family and friends in business , something always goes wrong an relationships go sour. Take the money and invest in Allan Grey / Coronation Fund. I;ve been getting about 17% p/a year on year for the past 4 years.

Wait, that is almost double your investment in 5 years? Seriously?

 

[ToxicBunny]

If you do anything, don't use a trust. CGT rates for disposals by Trusts (which is your exit plan) are insane at the moment.

Best bet would be a company (or even a CC if you can find one).

Fair enough..

I'm not aware of all the cost intricacies..

Also, for me property is not a "exit" plan.. it would be for "passive" income over the long term.

 

[IzZzy]

Also, for me property is not a "exit" plan.. it would be for "passive" income over the long term.

Not unless you keep rolling it until you have enough capital to acquire an investment property such as commercial property or a bigger residential property (e.g. house) for corporate rentals.

 

[Sideshow Bob]

Wait, that is almost double your investment in 5 years? Seriously?

yip, take a look here although remember that past performance is not indicator of future one. And this has risk to the capital although one can say that property also has risk if it depreciates because of changing circumstances.

http://www.allangray.co.za/factsheets/

equity fund 17.6 last 5 years
balanced fund 14.8 last 5 years

 

[Pitbull]

yip, take a look here although remember that past performance is not indicator of future one. And this has risk to the capital although one can say that property also has risk if it depreciates because of changing circumstances.

http://www.allangray.co.za/factsheets/

equity fund 17.6 last 5 years
balanced fund 14.8 last 5 years

Wow, will definitely do that. Thank you for the tip

 

[TJ99]

7.2 is a low percentage.

Rather

a) Invest in a unit trust as others have suggested.

b) Use your own money as deposit and borrow the rest. It's called gearing and it's an awesome thing.

*Disclaimer: This post does not constitute financial advice. Terms and conditions apply. May contain traces of peanuts. Side effects may include headache, vomiting, diarrhoea, meningitus, sinusitis, laryngitis, halitosis, scoliosis, tuberculosis, rectal bleeding and fetal alcohol syndrome. Not for sale to persons under the age of 18.

 

[Sideshow Bob]

If I get 10 people Family mostly to invest R 100k each as well we can buy a R 1m house cash. Rest it out for lets say R 6k a month and everyone gets a return of 7.2% per year.

In my opinion, not a good idea. 10 people seems too many. Also, if you include levy/charges, rental guarantee fees (if any), other incidental expenses and tax, you are likely to end up with 3.5% net return if you get rental for R6K per month. Having one property as rental as part of portfolio is good idea in the long term though.

 

[saturnz]

LOL @ 100k

you are mickey mouse dude, even with your 2m house and cars that are nearly paid up

 

[TJ99]

LOL @ 100k

you are mickey mouse dude, even with your 2m house and cars that are nearly paid up

You're right, maybe he should follow in your glorious footsteps. Maybe he should buy some ****ty car from the early 90's and try and sell it as a classic for about 4 times its real value? Sounds like a good business plan to me.

 

[Sideshow Bob]

LOL @ 100k
you are mickey mouse dude, even with your 2m house and cars that are nearly paid up

nasty comment and totally unwarranted.