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5 Points to Keep in Mind when you Refinance Property

By | Invest, Rates

HOW TO MAKE CASH FLOW AVAILABLE THROUGH REFINANCING

Not everything in property investment is about the cash flow generated from rental income. There is another leg to your returns that often dwarfs the cash flow generated from rental income minus your outflows: The capital growth or equity in a property.

You can access this capital growth or equity by selling your property at a higher value than you purchased it. This, however, incurs costs such as agent commissions, bond cancellation fees and capital gains tax.

Or you can refinance, which allows you to access the capital growth in your property and keep the property. Refinancing is to finance something again, typically with new loans at a lower rate of interest. The beauty of this strategy is that the refinanced funds are accessed tax-free since you don’t pay tax on refinanced money.

Keep these five points about refinancing in mind:

1)  BUY BELOW MARKET VALUE

If there is no equity, you cannot refinance. Your property must be worth more than the debt on the property to refinance. One of the best ways to achieve this is to buy the property below market value.  In one of our previous articles, Ready, Set, Negotiate, we discuss why someone would sell a property below market value.

2)  UPDATE YOUR ADMIN

When you refinance, banks request the latest annual financial statements of the entity that holds the property, up to date lease agreements and information about your finances. Have all this documentation in place.

3)  LOOK AFTER YOUR CREDIT SCORE

Without an excellent credit score, it becomes challenging to refinance. We discussed this in more in the following article, 5 Ways to Finance your Properties.

4)  USE YOUR ACCESS BOND TO STORE YOUR REFINANCED FUNDS

Once you have refinanced your property, immediately put those funds in your access bond to avoid paying unnecessary interest. When you refinance, your monthly bond payment could increase, but while your funds are in the access bond, it could reduce the monthly bond payment.  You can read more about how to use your access bond in the following article, Start Using Your Access Bond Today.

5)  KEEP SUFFICIENT CASH RESERVES

Do not spend all your refinanced funds on expanding your portfolio or settling other debt. Even though you now have capital available, make sure to keep an emergency fund in one of your access bonds. I always keep 10% of the value of my properties as cash.

And there you have it. If you want to free up cash or grow your property portfolio, refinancing is the way to go!

– Jaco Grobbelaar

The Interest Rate Drop is GREAT for South African Property Investors

By | Invest, Rates

USE THIS INTEREST RATE DECREASE TO GROW YOUR PROPERTY PORTFOLIO

On 19 March 2020, the Reserve Bank announced a 100 basis points (1%) reduction in the repo rate. Amazing news, right?! Then they announced ANOTHER 100 basis points reduction! That means a 2% drop in interest rates in less than a month!

If your money is lying in some fixed deposit account earning interest, it’s not great news. However, it’s phenomenal news for anyone with debt, but especially for property investors with significant debt backed by assets that are appreciating (good debt).

To put this into perspective, you will save R20,000 per year or ±R1,700 per month for every R1,000,000 bond that you have. If your investment property had a shortfall of ±R1,700 per month, suddenly you will have no shortfall at all! And if you had a surplus, your monthly surplus is suddenly ±R1,700 more.

But why is the Reserve Bank reducing interest rates so much? Well, their focus is price stability, i.e. to keep inflation under control. When inflation is under control, the Reserve Bank can reduce interest rates to stimulate the economy and economic growth. Many economists expect to see a further reduction in interest rates during 2020.

However, be warned, interest rates will probably increase in the medium to long-term. You need to be prepared by having cash reserves in place for your property portfolio. Build these reserves up by refinancing your properties and keeping those funds in your access bond, so you don’t have to pay interest.

How can you benefit from these interest rate reductions?

In our article, How The Property Market Will Look After COVID-19, we concluded that it is still worth investing during these uncertain times. We also discussed the current opportunities and threats to property investment. And with our free one-hour webinar, we discussed COVID-19, the Moody’s downgrade and how to structure your property portfolio. Download the recording for free here.

The decrease in interest rates would usually cause property price growth. However, the global and national uncertainty and the current economic challenges are creating fantastic buying opportunities for the short to medium-term. You will be able to buy good assets at excellent prices. And the lower interest rates also make it more possible to acquire and service the (good) debt on these assets.

At the beginning of 2020, we published an article, 5 Reasons To Build Your Property Investment Portfolio In 2020 Despite The Lows. This article is even more relevant now if you’re willing to take a risk and build while everyone else is running scared.

-Jaco Grobbelaar

How The Property Market Will Look After COVID-19

By | Ideas, Invest

IS IT STILL WORTH INVESTING IN PROPERTY IN THESE UNCERTAIN TIMES?

In our previous article, Your Property Plan Of Action During The Lockdown, we considered the current lockdown situation and how you should prepare yourself. Now we’d like to discuss the future.

For those who think everything is going to go back to normal after COVID-19 and the lockdown are unfortunately in for a nasty surprise. Things will never be the same again! We will feel the repercussions for a long time after this crisis; not just psychologically, but economically.

South Africa already had challenges to grow the economy before this crisis. Now, we don’t only have to grow the economy; we have to recover from this. Moody’s has also downgraded South Africa to sub-investment grade. However, it’s not all doom and gloom.

The people of South Africa are more united now than they have been for a long time, and our leaders are addressing the issues of the day. I believe this will continue even after the crisis.

Many economists across the globe regard the South African rand as one of the most undervalued currencies in the world. Therefore, we could see a significant strengthening of the rand once things stabilise.

But how does all of this affect the property market and property as an investment in South Africa?

The Reserve Bank’s decision to cut interest rates with 100 basis points was well received as this reduces bonds and thus shortfalls (or increases surpluses) significantly. Most economists expect further decreases in interest rates in the short-term to stimulate the economy, given that inflation remains intact.

There are currently significantly more sellers than buyers in the market as we were already in a buyer’s market where buyers had negotiation power. The economic repercussions of COVID-19 will push us further into a buyer’s market. Many people will have to sell their properties due to job losses, salary cuts or their businesses suffering. This will create opportunities for investors to acquire assets at very low prices and will extend the buyer’s market for quite some time.

Read Here’s Why I Am Buying As Many Properties As I Can (While Others Are Selling) to learn why you should acquire property aggressively in a buyer’s market.

However, always ensure you have cash on hand. Do whatever you can to improve your current cash situation and cash flow without jeopardising your credibility. If your cash flow is not healthy enough, you can use the bond payment relief that banks are currently offering. Things may get rough in the short-term and rent collection and occupancy may become more challenging.

If you want to learn how to get as much cash in your access bond as possible, read our article, Start Using Your Access Bond Today. We explained how you can keep cash in your access bond to save interest yet have the funds accessible. This may come in handy during these uncertain times.

In summary, yes these are tough and uncertain times, but it still is worth investing in property!

 

Your Property Plan Of Action During The Lockdown

By | Invest

WAYS TO BUILD YOUR PROPERTY PORTFOLIO AND
FINANCIAL FREEDOM DESPITE COVID-19

We find ourselves in challenging times. The COVID-19 virus has brought the world and economies to a near stand-still. The social and economic repercussions of this crisis is severe. Moody’s has further downgraded South Africa.

Now is the time for us to be wise, but also positive as there are always opportunities no matter what the circumstances. For example, our Reserve Bank cut interest rates with 1% last week, which is a HUGE positive for your cash flow and returns as a property investor with bonds.

Baron Rothschild, a member of the Rothschild banking family, once said: “The time to buy is when there’s blood in the streets”. And right now, it’s chaos out there! So here are our five ways to keep building your property portfolio despite the circumstances.

1. THINK ABOUT YOUR FUTURE, GOALS AND PUT AN INVESTMENT STRATEGY IN PLACE

No one is going to look after you. Only YOU are responsible for your future. Not your employer or anyone else for that matter. Use this time to plan for the future and how you can build wealth through investing in property. In our previous article, If You aren’t Investing in Property, You’re Wasting your Time, we discuss the opportunity that property investment creates.

2. INVEST IN YOURSELF BY SELF-EDUCATING

You can only produce what is in you. If you are not going to invest in yourself and self-educate, you will not make good investments and choices. Use this time to read, watch educational content and attend webinars. Also, read our Q&A Section in Real Estate Investment Magazine (Reimag) to learn how you can invest in yourself.

3. START PUTTING STRUCTURES IN PLACE

If you are serious about building wealth with property, you cannot do it in your name. You must buy property in the correct entities. In one of our previous articles, Trust Us, You Need Trusts, you can read why trusts are such a great investment vehicle.

We are also doing a FULL LEGAL SERIES in Real Estate Investment Magazine (Reimag) about structuring. Read the first article in the series to see Why You Should Invest in a Legal Structure.

4. START LINING UP PROPERTY DEALS

Now is the time to BUY property. I have not seen this many buying opportunities in the last ten years! You just need to know how to buy a property at a discount and why someone would sell their property at a discount. Read our article, Ready, Set, Negotiate on this topic.

5. BUILD YOUR PROPERTY INVESTMENT TEAM

You are going to need experts around you if you want to build anything significant. Use this time to look for the right investment team members to walk this investment journey with you. Read our article, How to Build your Property Investment Team, to learn more.

Remember, hoping is not a plan of action. It’s not enough to just want something; you must do something to reach your goal. And there is no better time than now!

 

How My First Property Made More Than My Entire Year’s Salary

By | Invest

WHO NEEDS A SALARY WHEN YOU HAVE PROPERTY INVESTMENTS?

I have always been interested in property and wanted to build a property portfolio. Although I knew that investing in property could be lucrative, I was not fully aware of how lucrative. This quickly changed after my first property investment.

I had ample time to educate myself on property investment as I did not have funds or financing capacity to acquire my first property yet and was not aware of all the ways one could acquire property without capital or financing capacity. My wife (girlfriend back then) and I attended seminars, read books and met with property investors. This part of our journey was extremely important as this preparation and education helped us build a successful property portfolio.

Read one of our previous articles, 5 Ways to Finance your Property.

I was in business for a while and then got offered a job with a lucrative salary for someone my age (R15,000 p/m or R180,000 p/a). I never wanted a job as I was very passionate about business, but when I received this offer, the first thing that went through my mind is that if I took this job, I would be able to get financing for my first investment property. Looking back today, I am very thankful for the jobs and bosses I had as the experience and exposure I gained were crucial for what we are doing today.

A couple of months after I took my first job, we pulled the trigger. We looked for a property BELOW market value and were fortunate to acquire our first property WAY BELOW market value. Acquiring a property below market value gives you protection against the downside of property investment and has so much upside potential.

In one of our previous articles, Ready, Set, Negotiate! we discuss why someone would sell a property below market value.

We bought an R750,000 property for R525,000, which was a profit of R225,000, even though we could not “cash in” immediately. The total amount of “work” to acquire that property was probably equivalent to one week’s work, but it made me more money than my entire year’s salary! I then realised that I WANT TO invest in property! We refinanced this property a few years later, and the funds made available were enough to acquire three more properties (deposits and transfer fees). I don’t like selling properties; I would rather refinance.

Property is a great way to invest and a great hobby to have while working or running a business. At that time, property investment was a hobby for me. Today I am in property investment full-time because it enables me to do what I love! Also read one of our other articles, 10 Things We Love About Property Investment, where we share ten property investment lessons we have learned in the last ten years.

 

5 Reasons To Build Your Property Investment Portfolio In 2020 Despite The Lows

By | Invest

HOW LOW CAN THE PROPERTY MARKET GO?

The property market is at an all-time low, but these lows aren’t what you imagine. Things are about to get better! Because when everything is low, it creates opportunities for property investors.

South Africa has experienced some lows recently, including the low GDP growth, rolling power blackouts, the business rescue of SAA, the anticipated Moody’s downgrade, and pressure on household finances.

However, the new century brings great opportunities for Africa because of the rising demand for its natural resources, the need for its workforce, and investors’ search for new markets, of which Africa is a market of over one billion people. South Africa is one of the most promising emerging global markets and is the economic powerhouse of Africa. It has world-class infrastructure, innovations, sophisticated financial, legal, and telecommunications sectors.

In short, it’s not all bad news. South Africa and Africa still offer fantastic investment opportunities. And the best thing about hitting rock bottom is that you cannot go any lower. The only way to go is up!

In one of our previous articles, Here’s Why I Am Buying As Many Properties As I Can (While Others Are Selling), we discussed the opportunity that uncertain times and fear create for wise and patient property investors.

Here are our five reasons why you should continue building your property investment portfolio in 2020 despite the lows.

1. LOW PRICES

The supply of investment properties is higher than the demand, which means it’s still a buyers’ market. This is wonderful news for first-time buyers and repeat investors. Sellers are ready (or even desperate) to sell, so investors can negotiate great deals.

Adrian Goslett, the regional director and CEO of RE/MAX of Southern Africa, says, “I remain confident in the local property market and believe that we are near the bottom of a downward cycle that is poised to start a long-term corrective journey as we head into 2020.”

2. LOW RISK AND VOLATILITY

Property in South Africa has grown consistently over the last 40 years. Sometimes it grew faster and sometimes slower, but property prices have continued to grow. Rental income has also shown very consistent growth over this period.

3. LOW INTEREST RATES

Property industry experts anticipate lowered interest rates for mid-2020, which means you will pay less servicing debt and enjoy an increased disposable income.

In the year before the end of November 2019, the number of home loan applications increased by 9,7%.  In one of our previous articles, When Opportunity Comes Knocking, Open The Door!, we discussed the good news for property investors with this home loan approval growth.

The banks are also granting more affordable and easier access to home loans, which makes property an increasingly attractive investment option.

4. LOW RENTALS 

Low rental prices help investors to acquire properties at low prices. Paul Stevens, the CEO of Just Property, also added the following: “On a positive note, I believe rentals will start to increase in the second half of the year. This presents savvy investors with an opportunity to take advantage of the buyers’ market now, with the cautious expectation of yields improving going forward.”

5. LOW RETURNS ON OTHER INVESTMENTS

Over the last five years, the JSE has effectively been flat. Even balanced funds used to save for retirement have struggled to stay ahead of inflation. However, property always seems to come out on top when your capital growth plus your net rental yield, which gives you your ungeared return on a property, is still much higher than returns on other investments.

Do not worry if the property market goes low; your property investments will continue to soar high!

 

How To Build Your Property Investment Team

By | Invest

TEAMWORK MAKES THE DREAM WORK!

“In a multitude of counsellors, there is safety.”

The rich surround themselves with experts. If you want to do something great, you are not going to do it alone. It is no different when building your property investment portfolio.

You cannot be good at everything, and you do not want to be good at everything as it will divert your focus. You need to surround yourself with a great team. I would not have been able to build my property portfolio without the following people.

MENTORSHIP:
Firstly, you need a Mentor in your investment team. You can also have more than one. Your mentor should specialise and focus on property investment. They should have achieved what you still need to achieve and have walked the walk.

ACCOUNTING:
You also need an Accountant in your team because you are going to build your property portfolio in entities and need financial statements and tax returns.

LEGAL:
You also need the following Legal Experts in your investment team.

Firstly, you need an Independent Trustee who knows the laws around trusts and understands trusts. They need to ensure that your trust is always compliant and that it ticks all the necessary compliance boxes.

The second legal person you need is a Conveyancing Attorney. Read our article, 12 Guidelines on Submitting an Offer to Purchase, for the benefits of using your own conveyancing attorney.

FINANCING:
You need a Bond Originator in your investment team who can assist you in obtaining the best financing. For more on this subject, read our article, 5 Ways to Finance your Properties.

You also need a Personal Banker. And if you can get private banking, get it. The benefits of having a private banker to get things done and save you significant amounts of time far outweighs the costs.

REAL ESTATE INDUSTRY:
You need Estate Agents and Letting Agents who can manage your property portfolio. In our article, How to Manage your Rental Property the Easy Way, we discuss the role and benefits of a property management company.

STRUCTURAL AND MAINTENANCE:
Having a Handyman in your team is a must, and you’ll need them very early in your property portfolio already.

A Property Inspector also forms part of your team. They will give you a comprehensive report of the current condition of a property as well as the possible consequences of those defects in the future.

Look after your investment team. Pay them in time and referrals if possible. When you look after them, they will look after you!

 

5 Ways to Finance your Properties

By | Invest

EASY STEPS TO BUILD YOUR PROPERTY INVESTMENT PORTFOLIO

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

 

1. IMPROVE YOUR CREDIT SCORE

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.

2. USE A BOND ORIGINATOR

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!

3. APPLY FOR 100% FINANCING

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”.

4. APPLY FOR THE LONGEST BOND POSSIBLE

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”.

5. APPLY AT MULTIPLE INSTITUTIONS

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

WHEN OPPORTUNITY COMES KNOCKING, OPEN THE DOOR!

THE TIME TO BUY INVESTMENT PROPERTIES IS NOW

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

START USING YOUR ACCESS BOND TODAY

YET ANOTHER USEFUL TOOL IN YOUR PROPERTY INVESTMENT TOOLBOX…

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.

 

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