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5 Ways to Finance your Properties

By | Invest


“A bank is a place that will lend you money if you can prove that you don’t need it.” – Bob Hope



When using Other People’s Money (OPM), you need a good credit record. Although it is noble to have no personal debt, it is a disadvantage when you want to use the bank’s money to build your property portfolio as you need credit to get credit. Start with a very small credit card, overdraft, and a clothing account or two. Remember to check your credit score annually. The better your score, the better the financing you’ll get.


Banks compensate bond originators, so it won’t cost you anything for them to apply at all the banks for financing and assist with the negotiation of your term and interest rate. Don’t be afraid to negotiate and send the proposal back if you are unhappy with it. We often get better interest rates and terms simply by asking!


Even if I have a deposit, I prefer to apply for 100% financing. You can rather park your deposit or available funds in the access bond afterwards. Get a refresher on how to use your access bond to its fullest on one our previous articles: “Start Using Your Access Bond Today”.


This is an investment property. Your tenant is paying your interest, so why pay your bond off faster and use your own money when you can rather improve cash flow and use as little of your own money as possible? You can find out more about this on one of our previous articles: “The Only Time 30 Is Better Than 20”.


I often get better deals from banks other than my own. Remember, each bank’s strategy and risk appetite are different at different times.

Now that you’ve got these 5 easy strategies in your property investment arsenal, all that is left is to go forth and prosper!

When Opportunity Comes Knocking, Open The Door!

By | Invest



Although we live by the philosophy that any time is a good time to buy a good investment property, the recent home loan growth means there is a great opportunity for you to grow your investment property portfolio.

South African banks continue to show confidence in our property market and are currently approving home loans at a rate we haven’t seen in years! In the opinion of FNB property economist, Siphamandla Mkhwanazi, if this growth continues, the residential property will receive a nice boost.

Mkhwanazi says, “The progressively faster pace of growth in mortgage advances this year could be a positive outlier for future growth. While the property market has underperformed in recent years, the growth in mortgage advances this year has provided some support, injecting much-needed liquidity into the market.”

Mortgage advances have outpaced average house price growth in South Africa since June 2011. But what does this mean for you and your investment property portfolio? Well, for one thing, it means you should throw the door wide open to the opportunity that is knocking.

Let’s consider the good news for property investors with this home loan approval growth.

•    More home loans available to buy investment properties
•    Economic growth (good for us all)
•    Increased employment levels
•    Lower interest rates
•    Constructive lending
•    An increase in residential property transaction volumes
•    Banks are willing to finance bigger proportions of the purchase price
•    Smaller deposits required from banks

Timing is everything, and when the iron is hot, you better strike. So, our only advice to you is to take advantage of the increased home loan advances and buy!


Start Using Your Access Bond Today

By | Invest



Your access bond is a great way to save money and build up reserves for an emergency fund. You are earning the interest that is charged on your home loan on any money that is paid into your access bond account, which is usually much more than you would earn on any other fixed deposit account or even other investments.

The great thing about an access bond is that any money you pay into your bond is seen as a loan repayment, which reduces the interest charged since a smaller capital amount is now outstanding. This either reduces the monthly bond payment, or you can ask the bank to keep the payment the same, which will then result in the bond being paid off quicker as a larger portion of the bond payment is now allocated to capital instead of interest. The difference with an access bond is that any additional money you paid into your bond, you can access again when needed.

I always try and obtain a 100% loan from the bank when purchasing a property. I do this even if I have funds to put a deposit down. I do this because I can always pay those funds I had available into my access bond after the bond has been registered. It will have the exact same effect as putting down a deposit beforehand. The only difference now is that I have those funds available for future requirements or investments if needed.

There are four things you can do with the additional money you pay into your access bond:

  1. You can leave the funds in there to build up your reserve fund to healthy levels in case of emergencies or changes in the economic climate.
  2. You can use the funds to cover your monthly shortfalls, so you don’t have to pay shortfalls from your pocket.
  3. You can use the funds to expand your property portfolio and cover the costs, such as transfer fees, as well as deposits (if needed) required to acquire more investment property; and
  4. You can use the funds for your enjoyment if your reserves are healthy.


10 Things We Love about Property Investment

By | Invest



My wife recently reminded me that we’ve been investing in property for 10 years. So, to celebrate, here are 10 practical lessons that we’ve learned through our experience and mistakes about investing in property for the past 10 years.

  1. Small Action is Better than No Action

Possess the land little by little. When you take the right small steps continuously, you will get BIG results!

  1. Have Cash Reserves

If you run out of cash reserves, it is game over. You stand the chance of losing everything that you’ve built up. It’s as simple as that.

  1. You Make your Money When you Buy

When you buy a property below market value, the chances are that you will make a great return on your investment.

  1. Use your Own Conveyancing Attorney

The service I get with my own attorney is always better, and the costs are significantly less.

  1. Apply for Financing at Multiple Banks

Don’t assume that your bank will give you the best financing. We’ve often gotten a better deal from a different bank.

  1. Register your Bond for More than what you Bought the Property for

When you refinance in the future, you do not have to apply for a second bond; you can merely take an advance on your existing bond, which is much easier to do and cheaper.

  1. Renovate (Not too Much and Not too Little)

Don’t overcapitalise on your investment properties and spend more than what is necessary. Also, don’t delay fixing problems or allow your property to deteriorate.

  1. Avoid Property Registration at Year-End if Possible

People often move at the beginning of the year. If you purchased a vacant property that is only going to register at year-end, be aware that your chances of having the property vacant into the new year are higher.

  1. Rather Accept Lower Rent than an Empty Unit

The math is simple… Having your unit vacant for a month or two is much worse than dropping your rent and immediately placing a (good) tenant in your property.

  1. Be strict on Rental Collections

Debtors will always pay the creditors who shout the loudest first. If your tenant pays late, take decisive and severe action.


Make the Most out of the Lower Interest Rate

By | Invest, Rates


What better way to start a week than with good news on the property investment front?! This past Thursday, the South African Reserve Bank’s Monetary Policy Committee announced a cut in the interest rate from 6,75% to 6,5%.

Now, you might say, “Why is everyone making such a fuss about such a small cut?” Let me tell you… The last time the benchmark interest rate was cut was March 2018 and last week’s cut, combined with the recent petrol price cut, is a relief for salary-earners and property investors alike and also good for market sentiment.

The first big win from the interest rate cut is the lower prime lending rate, which is usually the lowest rate at which banks start lending to clients. Right now, the lending rate is 10% instead of 10,25%, and over time, this means better cash flow for property investors.

If you are an existing property investor, you will save ±R16 a month per R100 000 borrowed. Therefore, on an R1 million loan, you will save ±R166. This might not seem significant; however, for a 20-year loan this becomes an R40 000 interest saving!

The second win from the interest rate cut is for first-time property investors. The lower interest rate means borrowers should find it a little easier to qualify for a loan.

Lastly, with most people’s budgets under pressure, the lower interest rate provides a bit of breathing room and makes property ownership more affordable for everyone.

And although the interest rate cut won’t solve all our problems, it’s a great opportunity to further your property investment portfolio. So, go ahead and make the most out of the interest rate cut and win, win, win!

5 Tips to Buy Investment Property

By | Invest




I used to focus on how much I could earn in a year. But my financial priorities have changed completely. These days my focus is on how many GOOD assets I can acquire in a year because they grow in value much faster than my earnings can.

I learned that it is possible to buy an investment property with very little of your cash and still buy another property soon after.

And if you also want to experience the unstoppable snowball effect that comes from buying good assets, here are our top five tips:

You make your money when you buy. If you buy a discounted property, you make an immediate unrealised profit that you can access sooner.
The less of your money you use, the better. Remember, even if the bank does not give you 100% financing, you can obtain the deposit you need to put down from other sources.
You CAN do this. This does not mean you can access those funds immediately, but it does mean that you can access those funds in the future when you refinance without having to register a second bond.
Do not buy in your name! Not even one property. Every property in your name is debt that limits your capacity to obtain financing for future deals.

Since the bond is registered for market value, you can refinance the property to that value after six months to make cash available. Use this to pay yourself back what came out of your pocket and use the rest to build your reserve fund in an access bond. Or just go ahead and purchase your next investment property!


Did Someone Say Tax Benefits? Sign Us Up!

By | Invest


Investors are often advised not to buy property in a trust due to the high tax rates, but the ‘advisor’ often does not understand trusts or how the trust-related taxes work.

In a previous article, Should You Buy Property in Your Name, a Company or a Trust?, we discussed which entity to buy property in. However, this article focuses on the tax advantages of trusts.

The income tax of a trust is 45%, and the income tax of a company is 28%. The difference is the conduit principle that only applies to trusts. The conduit principle is one of the biggest advantages of using trusts and is explained as follows by the South African Institute of Chartered Accountants (SAICA):

“If income accrues to a trust and the trustees award it to one or more beneficiaries in the same year, the income retains its nature in the hands of the beneficiary.”

This means that whatever profit is made in the trust, whether it is capital or income in nature, can be distributed to any of the beneficiaries and the beneficiaries will pay tax in their personal capacity.

Let’s look at two examples.

Capital Gains:

Let’s assume an investment property is sold and the capital gain is R400 000.

Scenario 1:
You own the property in a company which has a tax rate of 28%. Therefore, the capital gains tax will be:

[R400 000 (Capital Gain) – R0 (Capital Gain Exclusion)] x 80% (Inclusion Rate) x 28% (Income Tax Rate)

Total Capital Gains Tax = R89 600

Keep in mind that if you want to distribute these profits to yourself, you will still need to pay an additional 20% dividends tax on what you distribute.

Scenario 2:
You own the property in a trust and let’s assume you have two children who need to go to university soon and you would like to use this profit/gain to pay for their studies. Both children don’t earn any other income yet. The capital gains tax will be:

R400 000 / 2 = R200 000

Child 1:
[R200 000 (Capital Gain) – R40 000 (Capital Gain Exclusion)] x 40% (Inclusion Rate) x 10% (Estimate Effective Tax Rate After Rebates at an Income of R160 000) = R6 400

Child 2:
[R200 000 (Capital Gain) – R40 000 (Capital Gain Exclusion)] x 40% (Inclusion Rate) x 10% (Estimate Effective Tax Rate After Rebates at an Income of R160 000) = R6 400

Total Capital Gains Tax = R12 800

It’s clear that even though trusts have a higher tax rate, you pay the least tax because of the conduit principle.

Net Profit:

Now, let’s assume your property portfolio generated a net profit (rental income minus expenses such as interest on mortgage bonds, rental agency commissions, levies, rates and taxes, maintenance and administration costs) of R400 000 for the year.

Scenario 1: 
(The above assumptions for capital gains tax still apply)

R400 000 (Net Profit) x 28% (Income Tax Rate) = R112 000

Total Income Tax = R112 000 (plus the additional 20% dividends tax on any profits distributed)

Scenario 2:
(The above assumptions for capital gains tax still apply)

R400 000 / 2 = R200 000

Child 1:
R200 000 (Net Profit) x 10% (Estimate Effective Tax Rate After Rebates at an Income of R200 000) = R20 000

Child 2:
R200 000 (Net Profit) x 10% (Estimate Effective Tax Rate After Rebates at an Income of R200 000) = R20 000

Total Income Tax = R40 000

Once again, it’s clear that even though trusts have higher tax rates, you pay less tax because of the conduit principle.

The conduit principle allows you to distribute to any beneficiaries, not only your children. You can also distribute to your spouse or parents if they are on a lower tax bracket. And if you don’t have children yet, your tax challenges will usually only come later once your property portfolio has existed for some years

Success is Like a Snowball…

By | Ideas, Invest


Have you ever read a book that changed your life?

I recently completed Warren Buffet’s biography, The Snowball: Warren Buffet and the Business of Life. And I can truly add this book to the list of best books I’ve ever read.

By making great investments over his lifetime, Warren Buffet has created a snowball that has become so big and unstoppable. Although he mostly invests in stocks, and I primarily invest in property, I learned so many principles from him that I can apply to my strategies.

One thing he emphasises over and over in the book is not to undermine independent thinking and not to mind others’ opinions too much. In other words, listen to others but think for yourself.

“You can’t do well in investing unless you think independently. And the truth is, you are neither right nor wrong because people agree with you. You’re right because your facts and reasoning are right. In the end, that’s what counts,” Buffet states in the book.

This is something I’m applying to my property portfolio. There are a lot of opinions out there, but I’ve decided to start looking at the facts. Success is like a snowball. And people’s opinions are the debris on the mountain that only serves to slow the snowball down. Facts allow you to grow your snowball and pick up momentum.

I often say to those around me that I am where I am in life, because of WHO I am. And If I want to change where I am, I need to look inwardly and change WHO I am by developing myself. And it seems like I am on the same page as Warren Buffet because this is what he says towards the end of the book:

“You’ve got to be the kind of person that the snow wants to attach itself to. You’ve got to be your own wet snow in effect. You’d better be picking up snow as you go along, because you’re not going to be getting back up to the top of the hill again. That’s the way life works.”

What are you doing to grow your snowball?

Is Buy-To-Let Housing Really Dying?

By | Invest


We live in uncertain times, and the economic climate (and other factors) have some investors running scared. There’s no doubt that buy-to-let property investments have certainly had its challenges in the last few years.

There is currently an oversupply in rental stock, which pushes up vacancy rates and lowers annual rent escalations. South Africa’s vacancy rates are at a historical high of 8.1%, and annual rental escalations are only 3.57% according to the TPN Vacancy Survey for Quarter 4 2018. Property price growth has also been low at an estimated 4.2% annual growth according to FNB’s November 2018 data.

The problem that I have with so many investors’ strategies is that they are obsessed with “quarterly earnings” (short-term performance); whereas I take Warren Buffet’s approach to investing. I am not interested in what is going to happen in the next quarter, year or even two years. I look at the next 10 or 20 years.

Property is a long-term investment and, therefore, one should look at long-term statistics such as these:

  • According to Lightstone, the average annual property price growth has been 9.92% year-on-year from 2000 to 2019, and
  • The average annual rental escalation has also been significantly higher year-on-year from 2000 to 2019, according to Payprop, compared to current rental escalations.
Now, I can work with those figures!

In one of my previous articles, Here’s Why I Am Buying As Many Properties As I Can (While Others Are Selling), I focused on why you should use the uncertain and unfavourable economic climate to your advantage. It is this very uncertainty and fear that create opportunities to purchase properties from panicked sellers who have no regard for the intrinsic value and long-term economic worth of the properties they are selling.

Property is, and will always be, a basic need and the demand for property will continue to grow in the long-term. This means that property price growth and rental escalations will also continue to increase in the long-term. Therefore, my verdict on buy-to-let housing is to keep buying and building your property investment portfolio!

Home is Where the Heart is, but is it an Investment?

By | Invest


Delayed gratification has become a rare virtue these days, but those who can wait benefit greatly from it. One of the biggest financial mistakes people make is to buy a primary residence that is not within their means. And even worse, they justify it by saying it is an investment. I sit with clients every week who have overextended themselves so much on their primary residence that there is no way they can still acquire investment properties.There is a cliché that goes: “Live below your means”. I hate that saying! I’d rather find ways to increase my means and find ways to afford what I want to buy. But living within your means is always going to be necessary and even more so when you are just starting.  Usually, one would purchase a primary residence that is three times your annual household income.  If, however, you are serious about investing, you should consider purchasing a primary residence that is two years or less of your annual household income.

So, is it wise to own the property you live in? Well, that depends… There are many benefits to owning the property you live in, including:

  • You don’t need a rental agent to manage the property for you (unless you need someone to collect money from you to pay you 😉 )
  • You don’t need to worry about bad tenants who won’t pay or damage your property, and
  •  Renovations are not in vain and add value to your property. It can also mean higher future rental when you rent out the unit.
I always ask two questions to determine if you should buy or rent the home you live in:
  1. Can you afford the monthly costs of the property and does it fit into your budget? Remember, this is without justifying it as an investment because this is technically a lifestyle decision.
  2. Is this a good investment property regardless if you live there? Remember, the correct way to own property is in an entity, such as a trust, and then to rent the property from your trust. In other words, would this property form part of your investment portfolio?

If you can answer yes to both these questions, then it makes sense to own the property you live in. If you answer no to even one, you need to reconsider.There is a new trend emerging with many property investors where they own many investment properties but rent the house they live in since it is not the greatest investment. And I believe a valid question to ask is, “How many properties can I acquire with the cash flow I have available from renting instead of paying much more to buy?”

You can have a home that satisfies your emotional needs or one that will help you increase your means. Which will you choose?

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