Investing in Property

[Other Pineapple Smurf]

Thanks - could you elaborate further regarding the current market. There are still properties being repossessed etc? tx

I looked into repossessed properties and I found it was not worth it. Too many people bought entry level houses at a premium and their outstanding capital is more than the value of the property, the banks won't settle for less and really don't care about the real market value.

MyRoof is the a good start to look for repossessed properties but do your homework.

 

[henry1103]

What you want to do is a different type of investment in property. It's a risky type. And its not what the guys at Treoc recommends either. With good reason.

You want to do house flipping. That's dangerous. You really need to know the market, and predict the market. Its risky business. You will also struggle with buying auctioned property that is currently inhabited.

The other type of property investment, the one that makes you rich with least effort, is of course buy-to-let property. In this case you buy properties without the intention to ever sell them. You make money by having your tenants pay your bond and then some; as well as having your property grow in value (which you can borrow against in the future).
So you buy a property with say 10% deposit, and get a tenant in to pay the other 90% and more.
That's safer and with less hassle.

^this is what I'm currently doing, and doing quite well, although its not just about the bond, you still need to calculate some other stuff like rates and levies.

 

[Other Pineapple Smurf]

^this is what I'm currently doing, and doing quite well, although its not just about the bond, you still need to calculate some other stuff like rates and levies.

+1

My neighbor rents out her garage turned into granny flat and her tenant is now paying her bond each month.

 

[ToxicBunny]

+1

My neighbor rents out her garage turned into granny flat and her tenant is now paying her bond each month.

Thats my aim as well..

When the rental from my granny flat is near enough to my Bond... another property will be bought to let out as well.

 

[supersunbird]

Happy 2014

I need advice/way forward as to how to invest in property. Basically, I’ll be teaming up with a friend to buy the property cash. We have a budget of around R300K as a start, which can only buy us a one bed house or so.

Intention: To buy run down or repossessed property with the aim to fix and sell.

Questions and points;
- Where can we buy a market intelligence report that shows sales activity, average time for successful sales in a given area etc
- Is it better to buy cash or use the bank for a bond?
- What risks must we be aware of
- Where do we get intelligence to good value deals, given that we are not the only ones looking for such
- Are there recommended property workshops we can attend?
- Are there recommended books we can read?
- If we buy occupied property and reach an event where we have to evict the tenant, can we budget on a worse case scenario of say R20K in legal costs and say 6 months for the whole eviction to take place?
- If you are or you know of a property investment Guru I am willing to pay for a consultation session. Kindly advice

Thanks

What do you expect the return out of the R300 000 investment to be?

 

[SauRoNZA]

What do you expect the return out of the R300 000 investment to be?

Was my question as well, considering the amount of effort required to fix stuff up and the associated costs of transfer etc (although I think those don't apply at such a low cost) not to mention that kind of price is going to land you a pretty dodgy place...unless you do score a really good auction deal which also isn't exactly the listed price you might expect after all costs have been added.

Instead I would rather invest the money into a more conventional investment for say 5 years.

300k could almost become 500k in 5 years if you manage to get only 10% interest on it.


If you are going to pool money together I would rather do that than all the potential risks of properties and their dramas, not to mention insurance costs etc, just doesn't seem worth it.

Now if you had a million rand to play with, different story...maybe.

 

[KaMoS]

Buying to flip is not lucrative. You should be looking at long term investment, like buy to rent. The segment that your budget allows you to buy into is not very good right now. Most of the repossessed places in that segment are VERY run down. Besides that, they aren’t in good neighbourhoods. So the risk factor is high.

I would recommend you wait, save a bit more and increase your budget to the R500k – R600k segment of the market, one bedroom and even 2 bedroom places are in abundance in loads of good areas in this segment. People can’t afford to buy so the rental market is thriving at the moment. A friend of mine bought a 1 bedroom place last year for R450k, he is paying R3500 for the bond and R500 for levies (incl. rates), he is charging R4700 rent and will be increasing the rent at the end of the rental agreement to R5200 (that’s on par with the area’s rental prices). To get 117% ROI (return on investment based on bond cost) is great, considering that the ROI expected in the first 3 years of an investment like this is usually 60%-80%.

 

[Jehosefat]

A friend of mine bought a 1 bedroom place last year for R450k, he is paying R3500 for the bond and R500 for levies (incl. rates), he is charging R4700 rent and will be increasing the rent at the end of the rental agreement to R5200 (that’s on par with the area’s rental prices). To get 117% ROI (return on investment based on bond cost) is great, considering that the ROI expected in the first 3 years of an investment like this is usually 60%-80%.

Uh, return of between R700 and R1200 per month (R4700 or R5200 - R4000) on a place worth R450,000 works out to a ROI of between 1.8% and 3.2% per year (roughly) plus house price appreciation. Nowhere near this 117% that you are referring to...

 

[KaMoS]

Uh, return of between R700 and R1200 per month (R4700 or R5200 - R4000) on a place worth R450,000 works out to a ROI of between 1.8% and 3.2% per year (roughly) plus house price appreciation. Nowhere near this 117% that you are referring to...

I did say it's based on the bond cost. My friend is spending R4000 per month on his bond and getting back R4700, that equates to 117.5% return. The point here is that it's a good investment with low to medium risk. Let the OP decide for himself what he wants to do with his money, I'm just giving my 2c to help.

 

[supersunbird]

I did say it's based on the bond cost. My friend is spending R4000 per month on his bond and getting back R4700, that equates to 117.5% return. The point here is that it's a good investment with low to medium risk. Let the OP decide for himself what he wants to do with his money, I'm just giving my 2c to help.

No, its a 17.5% return. You must deduct the costs from the revenue.

 

[KaMoS]

No, its a 17.5% return. You must deduct the costs from the revenue.

Granted, that is still VERY good...

 

[SauRoNZA]

No, its a 17.5% return. You must deduct the costs from the revenue.

Not to mention the interest being lost against the bond.

Unless he pays the R4500 he should + the R4700 he is getting the interest is probably going to absorb the entire 17.5%.

 

[SauRoNZA]

Granted, that is still VERY good...

Not really once you consider all the costs of interest lost, insurance paid on the property...stuff that goes wrong etc.

The average RA would do about the same or better...for less effort.

Also how long does he need to rent it out before he even breaks even on the transfer costs and lawyers fees? You can't look at a ROI in the short term when things are going swell, you need to take it over 5 years and include ALL costs.

Not saying it's not possible or a bad idea or anything, but often the values are skewed by people and other investments are a much better bet.

 

[foschinni]

What you want to do is a different type of investment in property. It's a risky type. And its not what the guys at Treoc recommends either. With good reason.

You want to do house flipping. That's dangerous. You really need to know the market, and predict the market. Its risky business. You will also struggle with buying auctioned property that is currently inhabited.

The other type of property investment, the one that makes you rich with least effort, is of course buy-to-let property. In this case you buy properties without the intention to ever sell them. You make money by having your tenants pay your bond and then some; as well as having your property grow in value (which you can borrow against in the future).
So you buy a property with say 10% deposit, and get a tenant in to pay the other 90% and more.
That's safer and with less hassle.

Can we break down the risks;
1 - Challenges with evicting current tenants
2 - House might have huge outstanding rates and taxes which I might be liable for
What are the others?

 

[foschinni]

What do you expect the return out of the R300 000 investment to be?

I don't have enough facts to gauge that. Part of the current exercise is to work out this,

 

[foschinni]

Was my question as well, considering the amount of effort required to fix stuff up and the associated costs of transfer etc (although I think those don't apply at such a low cost) not to mention that kind of price is going to land you a pretty dodgy place...unless you do score a really good auction deal which also isn't exactly the listed price you might expect after all costs have been added.

Instead I would rather invest the money into a more conventional investment for say 5 years.

300k could almost become 500k in 5 years if you manage to get only 10% interest on it.


If you are going to pool money together I would rather do that than all the potential risks of properties and their dramas, not to mention insurance costs etc, just doesn't seem worth it.

Now if you had a million rand to play with, different story...maybe.

Point taken, I can raise the amount to R500-R700K

 

[foschinni]

Buying to flip is not lucrative. You should be looking at long term investment, like buy to rent. The segment that your budget allows you to buy into is not very good right now. Most of the repossessed places in that segment are VERY run down. Besides that, they aren’t in good neighbourhoods. So the risk factor is high.

I would recommend you wait, save a bit more and increase your budget to the R500k – R600k segment of the market, one bedroom and even 2 bedroom places are in abundance in loads of good areas in this segment. People can’t afford to buy so the rental market is thriving at the moment. A friend of mine bought a 1 bedroom place last year for R450k, he is paying R3500 for the bond and R500 for levies (incl. rates), he is charging R4700 rent and will be increasing the rent at the end of the rental agreement to R5200 (that’s on par with the area’s rental prices). To get 117% ROI (return on investment based on bond cost) is great, considering that the ROI expected in the first 3 years of an investment like this is usually 60%-80%.

Thanks Kamos. I'm able to lift the bar to R500-R700K. With that I should be able to get something decent right,

 

[KaMoS]

Thanks Kamos. I'm able to lift the bar to R500-R700K. With that I should be able to get something decent right,

Yes. Keep in mind that the threshold for free transfer is R600k. You don't pay transfer costs for places that cost less than that.

 

[Other Pineapple Smurf]

Yes. Keep in mind that the threshold for free transfer is R600k. You don't pay transfer costs for places that cost less than that.

I don't understand the fascination of avoiding the transfer cost. Buyers are so focused on trying to save a few K that they ignore the better properties costing R50K-R100K more.

I saw this when I was buying my house and found that sub R600K properties where overpriced where post R600K was better value for money. When I compared properties going for R590K to R650K it was day and night.

Just remember tenants don't care how much you paid for your property. So if you pay too much, don't expect to your tenants to pay for your mistake.

 

[Other Pineapple Smurf]

Thanks Kamos. I'm able to lift the bar to R500-R700K. With that I should be able to get something decent right,

Speak to a rental agent in an area your interested in. They will tell you which is the most sought after property and what type of returns you can expect.

We have a good friend who is a rental agent and through chats with her, we have identified the best local properties to consider when we start buying.

But remember location, location, location.