Investing in Rental Property

[Joseph Mpho]

Hi all, well Hi investors!

I am considering buying vacant land and building rental property as one of my income generating instrument. im not talking about multi story buildings and stuff like that. I am looking into building multiple 1 room and bathroom properties in the space i find. Target Market will be at middles class areas around gauteng.

The strategy i am thinking of using is saving up at least 150 000 to build the the small rental rooms and taking up a loan to purchase the vacant land. Currently i have spotted various vacant lands for sale at a market price of 350 000 with an Erf Size of 620 m2. and another with 400 m2 at a price of 370 000.

Again at the top of my head im thinking of getting a loan to purchase and build. but im worried about the high interest that might be charged as there is no collateral for the bank (and whether this will be approved, i dont know)

Now about me: im a young black male aged 24 earning 30 000 after tax. i only have a car under finance at 5300 per month and still live with my parents at home ever since i started working a year ago.

So what advice do you have for me? and i missing some of the options i can peruse and how viable is this idea i have as my first investment?


Looking forward to hearing you all out. thank you

 

[Alton Turner Blackwood]

Are you white?

edit: I see you're black.

 

[elL0L]

How are you 24 and earn R30k after tax, but can't even capitalize or use punctuation properly?

 

[Deadmanza]

Hi all, well Hi investors!

I am considering buying vacant land and building rental property as one of my income generating instrument. im not talking about multi story buildings and stuff like that. I am looking into building multiple 1 room and bathroom properties in the space i find. Target Market will be at middles class areas around gauteng.

The strategy i am thinking of using is saving up at least 150 000 to build the the small rental rooms and taking up a loan to purchase the vacant land. Currently i have spotted various vacant lands for sale at a market price of 350 000 with an Erf Size of 620 m2. and another with 400 m2 at a price of 370 000.

Again at the top of my head im thinking of getting a loan to purchase and build. but im worried about the high interest that might be charged as there is no collateral for the bank (and whether this will be approved, i dont know)

Now about me: im a young black male aged 24 earning 30 000 after tax. i only have a car under finance at 5300 per month and still live with my parents at home ever since i started working a year ago.

So what advice do you have for me? and i missing some of the options i can peruse and how viable is this idea i have as my first investment?


Looking forward to hearing you all out. thank you

Nicely done!

I would apply your credit record is probably very good, no harm in trying.

 

[Mista_Mobsta]

To start off with you will have to check whether the property has the correct zoning IF you are planning to go the building rental route. May need to subdivide as council will need to know amount of residences built on the property. As far as my limited knowledge takes me, you can't just pop up 30 units on a property without the proper zoning and approval from council.

 

[Tman*]

As a property investor and landlord I can give you a subjective opinion.

Being a landlord can be a full time job. Having to deal with contractors, builders etc over and above can be time consuming and expensive if you dont have any experince in the game.

I assume this will be your 1st property? If I were you I'd rather look at buying an existing small flat that maybe needs minimal cosmetic maintenance to start off with. Use it as a test dummy to learn and proceed from there.

If successfully managed, a property portfolio can be very rewarding and provide you with residual income and a retirement vehicle unlike anything else.

 

[newby_investor]

Just from an investment point of view:

• Property can be a very good investment provided that you understand the risks and caveats involved (zoning, construction costs, legal costs to obtain transfers, what to do if tenants don't pay, etc).
• Buying property at all in the current climate is a very brave thing IMO.
• There are other investment opportunities too.

The main problem that I have with property for small-scale investments like this is that it locks up a lot of capital. Sure, if you're lucky you can make it big, but you could also wind up with a big headache. It's the whole "all your eggs in one basket" thing. Go and search on Moneyweb for Magnus Heystek's posts about rental property, for an example of what I'm talking about.

What I'd do if I were in your position (well done, by the way) - is set up a debit order with Allan Gray or Coronation in some broadly diversified equity funds with a hefty exposure (at least 60%) to offshore assets. A financial adviser will be able to advise you well.

Once you've got a comfortable amount saved, then if you have any left over that you can afford to speculate with, use that.

 

[biena]

If you want to sell the property (after it was developed) do you think someone else will buy it from you ?
That is the true test for me, am I investing in something that someone else would want to buy. As such the way you are describing the plan it sounds like a headache.

 

[Tman*]

Just from an investment point of view:

What I'd do if I were in your position (well done, by the way) - is set up a debit order with Allan Gray or Coronation in some broadly diversified equity funds with a hefty exposure (at least 60%) to offshore assets. A financial adviser will be able to advise you well.

Oke wants to invest in property, and you tell him to set up a debit order with Allan Gray?

Thats so far apart, you might as well told him to buy Bitcoin or invest in MMM

 

[newby_investor]

Oke wants to invest in property, and you tell him to set up a debit order with Allan Gray?

Thats so far apart, you might as well told him to buy Bitcoin or invest in MMM

Except that bitcoin (speculation) and MMM (ponzi scheme) aren't actually investments.

I didn't tell him to do that, I told him why I don't like property as an investment and I added what I'd rather do. If he feels he should go for property, then by all means, but I just think he should do it with his eyes open, and be aware (1) of the risks, and (2) of the alternatives.

You could very well go to Allan Gray and invest in property funds, then your money would still be in the property sector but with two advantages. Diversification and liquidity. And much less hassle.

 

[Tman*]

with two advantages. Diversification and liquidity. And much less hassle.

Also several disadvantages.

I have had many endowments/unit trusts vs actual property over the years. Property wins every time due to a simple fact:

Investing in Allan Gray or similar you trust and pay someone else to manage your money and hope they yield a return, as we all know past performance is not an indication of future performance. With a property you are behind the wheel, and if you know what you are doing you can minimise risk & variables.

Suppose each has their own target market, my feedback is based on the original post.

 

[Dretastic06]

How are you 24 and earn R30k after tax, but can't even capitalize or use punctuation properly?

With lots of money comes auto-correct.

 

[chrisc]

The first 3 houses I purchased for rent were existing structures. I had to spend a nominal amount to get them ship-shape, paint jobs, kitchens, garage doors, small repairs, etc

In 2004 I bought a plot in Ottery for R120k. The house cost R800k to build. I was there every single day making sure the builder did not slack off, and made him sign a contract. Its been rented out successfully

In 2012 I bought a 1795 built house in Montagu which had severe neglect. The first builder disappeared after 3 months, having done about 20% of what he said he did. The second builder I discovered stole paint and fittings and blamed it on an accident. He was fired. The third builder finished the job, 11 months late. I received a fantastic cash offer from a corporate, so that ended well

A big problem was the Historical Society. They approved the plans after a 4 month delay and agreed to plumbing pipes on the rear wall, which is out of sight. An "inspector" came around and tried to blackmail me into giving her R150 000 to "approve" a new alteration she thought she could get away with. She had a nice BMW X5. I recorded her discussion and played it to her boss

The long and the short is, you must be on hand most of the time. In my working life, I dealt with hundreds of builders. I would say that 2 or 3 were ok, the rest useless in one way or the other. I have never borrowed money to buy a house

 

[newby_investor]

Also several disadvantages.

Yes, this is true. I'll admit that.

Investing in Allan Gray or similar you trust and pay someone else to manage your money and hope they yield a return, as we all know past performance is not an indication of future performance.

Yes, also true, but in the long term for the most part they do quite well. There are also passively-managed funds, including property funds, which are a lot less expensive but your point stands.

With a property you are behind the wheel, and if you know what you are doing you can minimise risk & variables.

I'll agree with that only to an extent. There's only so much you can do behind the wheel - market sentiment as a whole, for example, you can't manage. If you buy at a high point (e.g. in Cape Town city bowl a couple of years ago) and now you can't find tenants because there's an oversupply, so you have to reduce the rent you're asking, or accept a loss if you want to sell out.

Sure, you can argue that if you were an intelligent investor you wouldn't have made such mistakes. That's fair. You may be right. But my crystal ball doesn't work that well.

I have a friend who owns a few houses and flats in Donetsk, with good plans to rent them out. Started with what looked like very good returns, then the separatists came along and the war started, now Donetsk is under their control. All his assets were fixed property in Donetsk. Technically he still owns them, but had to flee, doesn't get any income from them and can't sell them. Yes I know, this example is very extreme, but it kind of illustrates my point.

Suppose each has their own target market, my feedback is based on the original post.

Quite. You and I agree on that point.

I just reiterate. Property investing can be very good and very lucrative, but it's not for everyone. And if you go into it you should be aware of the two main problems that I pointed out: liquidity and diversification. If you're aware of those, you don't mind tying up a large portion of your wealth in a few properties, then that's great. Go for it.

 

[chrisc]

Today, I would rather buy a flat in a suburb where there is an under-supply of rentals. I had to reduce the rent in my Vredehoek/Disa Park flat since there are too many rentals offered

Rondebosch to Observatory is fantastic. A large 6-bedroomed house in Wesley Street is let to students. It is wrecked already, so I am not fussed about minor damage. Income is excellent

 

[Joseph Mpho]

As a property investor and landlord I can give you a subjective opinion.

Being a landlord can be a full time job. Having to deal with contractors, builders etc over and above can be time consuming and expensive if you dont have any experince in the game.

I assume this will be your 1st property? If I were you I'd rather look at buying an existing small flat that maybe needs minimal cosmetic maintenance to start off with. Use it as a test dummy to learn and proceed from there.

If successfully managed, a property portfolio can be very rewarding and provide you with residual income and a retirement vehicle unlike anything else.

As a property investor and landlord I can give you a subjective opinion.

Being a landlord can be a full time job. Having to deal with contractors, builders etc over and above can be time consuming and expensive if you dont have any experince in the game.

I assume this will be your 1st property? If I were you I'd rather look at buying an existing small flat that maybe needs minimal cosmetic maintenance to start off with. Use it as a test dummy to learn and proceed from there.

If successfully managed, a property portfolio can be very rewarding and provide you with residual income and a retirement vehicle unlike anything else.

This sounds good. What purchase prices should i be looking at in order to balance out the repayments on the property after receiving the rental premium? Are most flats rented on a premium that is enough to cover its repayments?

 

[Joseph Mpho]

Just from an investment point of view:

• Property can be a very good investment provided that you understand the risks and caveats involved (zoning, construction costs, legal costs to obtain transfers, what to do if tenants don't pay, etc).
• Buying property at all in the current climate is a very brave thing IMO.
• There are other investment opportunities too.

The main problem that I have with property for small-scale investments like this is that it locks up a lot of capital. Sure, if you're lucky you can make it big, but you could also wind up with a big headache. It's the whole "all your eggs in one basket" thing. Go and search on Moneyweb for Magnus Heystek's posts about rental property, for an example of what I'm talking about.

What I'd do if I were in your position (well done, by the way) - is set up a debit order with Allan Gray or Coronation in some broadly diversified equity funds with a hefty exposure (at least 60%) to offshore assets. A financial adviser will be able to advise you well.

Once you've got a comfortable amount saved, then if you have any left over that you can afford to speculate with, use that.

Very insightful. Thank You

 

[Joseph Mpho]

If you want to sell the property (after it was developed) do you think someone else will buy it from you ?
That is the true test for me, am I investing in something that someone else would want to buy. As such the way you are describing the plan it sounds like a headache.

So rental property as a start up is not so much of a good option?

From what your saying, should i rather look into buying an already built house and rent it out?

 

[newby_investor]

This sounds good. What purchase prices should i be looking at in order to balance out the repayments on the property after receiving the rental premium? Are most flats rented on a premium that is enough to cover its repayments?

Unless you have a substantial deposit, or a really good deal. usually you will have to put a bit extra in. The rentals don't quite cover all the expenses.

The exact amounts will form part of the research you'll need to do for your business plan.

So rental property as a start up is not so much of a good option?

From what your saying, should i rather look into buying an already built house and rent it out?

Depends on what you mean by start up? It can be a very good business, but probably not as your first business. I think the suggestion was to cut your teeth on something a bit less ambitious.

 

[Salmank]

Buy Krugerrands for the next 24 months, then go into property.

Start with Gold, than property, than go with anything else.