Tackle the monster while it is small

The biggest threat hanging over SA consumers is our high debt burden. Debt is out of fashion and currently around 78% of consumer disposable income is used to pay off debt. This makes consumers highly vulnerable to absorb any further debt or extra expenses from other sources such as increased fuel prices, higher interest rates, higher food prices or higher taxes and toll fees. It is a well-known fact that more than half of credit worthy individuals can no longer get access to additional credit or home loan motrgages. Of those 50% brave enough to apply for more credit will be declined.

 We are part of massive debt-ridden world, which is not going to disappear quickly. We will have to either reduce our accumulation of additional debt or set-off what is already been accumulated. The added pressure on most indebted property owners is to maintain their monthly mortgage payments. For existing indebted property owners it is more of a question of how they can make more money to survive, sustain and retain their property rather than have an aggressive growth strategy. Property rates have more than doubled over a 5-year period while sectional title levies have also increased way above standard inflation. The added increase of electricity costs, higher taxes. Add to that additional maintenance costs of the property and it all adds up to the odds being incredibly stacked against investing in rental property for the short-term.

  Up until June 2007 when the National Credit Act was implemented the rate of broad based mortgage lending came to a grinding halt. Many banks did not know whom the other bank was lending to prior to NCA. Today banks now have all the systems and information and more to monitor that situation. Banks are still feeling distress and are actively foreclosing on properties and driving forced sales creating more distress in the market.

 The lack of mortgage finance from banks has been a major setback for cash poor investors. The few investors buying today are cash only buyers and according to many auctioneers are the same faces that return to win the bids. These cash buyers are buying for such low prices and are decent making profits when they on-sell those properties. So there are investors profiting in the current market. 

 First-time homeowners are probably best placed to benefit from the low pricing and bargains on the market while buy-to-let investors pretty much have to hold on to what they have got.

 Welcome to the new world of investing

Despite the doom and gloom and negativity there is lots of opportunity. I have always believed real estate is still the safest and best investment of all over the long term. The numbers and returns bear me out. If you want a quick sanity check then just compare the returns of any property over a 7-year period to a Retirement Annuity (RA) or endowment policy.

 That doesn’t mean that you have to put your dreams or your goals of accumulating wealth on hold. If you have the right information, education, strategy and willingness to take action to grow your wealth as well as protect yourself (and your family) from uncertain times ahead then you will always be successful.

 Investing is about earning a profit by understanding the technicalities of the investment, the dynamic markets and sub-markets and their many unique opportunities that present themselves to you the wily investor.

 The legendary founder of KFC Harland Saunders had his idea of a franchise turned down 2000 times. However, he never gave up in his quest and only became a millionaire at the age of 65. If we can apply his perseverance to the fact that the market will turn and that we must persevere in our businesses and in our property investments as well.

The most frequently asked question I get from investors is “when will the market recover?” My stock answer is, “why is that important to you?” I asked the same question to Robert Kiyosaki international investor, author of the US market when I interviewed him at one of his events in Auckland, New Zealand in May 2009. His answer was probably the last quarter of 2012 and if there is no recovery by then possibly 2015. He added that we couldn’t accept that if the market recovers that our property portfolios will automatically recover. It might be good for access to more bank finance, more property transactions for homebuyers but insists that successful investors mainly make their money in the downtimes through leveraging their resources in all types of markets.

The Global Property Guide reports that in Q1 2011, house prices fell in 25 countries, and rose in only 10 countries. According to the UK’s National Institute of Economic and Social Research, UK house prices will continue falling until 2015. In the US, Freddie Mac reports that the US housing market is showing strain as well. The S&P/Case-Shiller® National Home Price Index fell 5.1% between the first quarters of 2010 and 2011.

What about South African house prices? FNB’s May House price index notes that April real house price growth rate remained negative (-2.4%), and a period of house price decline is expected in the wake of interest rate hiking, or of slowing economic growth. Does this mean 2015 is a reasonable prediction for the turning point in the South African market too?

In vital signs we trust

The much-publicized double dip has happened and the drop was only 4% since last June whereas the first decline in the US was 32% from April 2006 to May 2009. Even in the Great Depression housing prices dropped 30% according to the S & P/Case- Schiller index. Not much further room for further dips one would think. SA housing prices are comparable to 2007 at the height of the boom while US house prices are closer around 2002 prices, which demonstrates how deep the US economy has been affected compared to SA. In SA there are currently around 18 000 property transactions per month compared to 45 000 per month in 2007. This will probably continue at the current pedestrian pace for at least the next year or so.

Have you made the shift?
More psychology is needed in investing. Change is inevitable; if we don’t change and transform ourselves change will take charge of us. We have moved from the agricultural age 30 000 years ago followed by the industrial age 300 years ago to the information age 30 years ago, The shift from 2006 onwards has been the flow from local to global or glocalisation, the flow to and power to the individual.

Here are six intelligent ways to always create wealth in property 

1: Set your goals and strategy from the outset

What are you looking to achieve? Are you looking for capital growth or passive income? By what date do you want to achieve that? For example – what do you want 31 December 2012 to look like financially?

2: Have a solid base to start

Where are your funds now? Are they accessible or are they tied up? If you are borrowing money to invest has the finance accessible?

3: Invest with the head not the heart!

It is easy to fall in love with a property for all the wrong reasons. Ask yourself does it fit in with your strategy as an investment?

4: What is your exit route?

This should be one of your first considerations. Do I want to hold the property forever or buy and sell in a few years? When you want to realise your profit on sale who will want to buy this property? Are you making the investment widely sellable or are you limiting your options by being too specialised?

5: Learn how to use leveraging sensibly

Borrowing other people’s money to grow your portfolio is a great way to grow your portfolio quickly. If you do this make sure you are allowing for interest rate increases and rental lapses, etc. Work out a worst case scenario and then calculate how much you should borrow.

6:Buy under market value

You are more likely to determine the success of your investment by how you pay for your property rather than how much you sell it for. For example, if you purchase a property for say R600 000 with a real 20% discount you are already! Ensure it is a genuine discount by analysing comparative prices through using data like Lightstone. Attractive discounts can also be obtained by investing off-plan at the earliest possible stage.

Auctions are normally associated with distressed sellers, deceased estates, and liquidation of assets but are an age-old proven method of selling property. In many cases they are becoming the first choice option for both sellers and serious buyers. Real estate auctions generally allow investors to purchase property inexpensively.

 The first step is to know where the auctions are and how to sign up for them. Investors need to have the right tools and resources to make the best decision on these properties, especially with there are a number of properties available.

 Tips for investor’s

Real property auctions provide investors with only basic property information on the properties for sale. Investors must always not take everything on face value and they must dig deeper to learn the affordability and any potential problems prior to investing in auction property. When considering investing, keep these things in mind before you attend the auction:

1. Get finance in place or even a loan prequalification where possible prior to attending an auction to speed up the purchase process.

 2. Invest time in researching properties online independent of what is available from the actual auction company.

 3. Get a comprehensive valuation of the property and decide on a reserve price for sale and a ceiling on a purchase price for buyers.

4. Understand the deal in terms of costs, deposits and the finance process.

 What to buy at auctions?

 A good mix of all categories from residential, industrial, retail, office and hospitality are all generally on show at auctions. Monitor auction houses, government gazette, and banks for local foreclosures for both residential and commercial auctions.

 Many quick sell auctions information are available online are from the commercial banks and private lenders hoping to sell property quickly. These may not be advertised as heavily. Keeping tabs on foreclosures happening in the local area can help investors find potentially valuable properties operating in the auction arena.

 Tips & Tactics 


Use online auction real estate listings and services and other foreclosure services to find potential auction properties before other investors purchase them. Foreclosure listings are public information but are generally difficult to find.

 Which class to invest?

 There are few bargains left in the public auction arena for residential property right now however, its time will return again. There are bargains abound in all sectors and the secret is to identify it, do your due diligence and then be in apposition to invest. The industrial sector has many bargains particularly in the industrial sector plus

 What the market will do in 6 months?

 The global financial crisis has not made trading conditions in business easy and has also had adverse effects on property owners. Many commercial property owners have suffered cash flow problems and have not renewed their leases. Many highly-geared commercial and office retail owners have decided to offload their properties in the downturn. This has resulted in a lot of properties coming onto market.

The market is in a long slow recovery process and will not have a dramatic change over the next 6 months. Real recovery will only start to kick-in the last quarter of 2012. Investors who invest long-term who demonstrate patience will always reap long-term benefits in real estate no matter what category.

Now is probably the best time ever to invest in property with prices at it lowest point and with medium- to long term recovery in sight it is probably a good time to get back to understand the basics. While bank finance is difficult to get this calls for creativity on behalf of the investor. Now is when the real money is made. Property investment is a professional business undertaking and it requires a professional approach. Just like any other investor or professional, you have to get the knowledge to be successful.

A surgeon can’t successfully operate on a patient without the knowledge of the human anatomy and the surgical procedures. A property investor can’t expect to be successful without the knowledge of the property market and the various investment strategies. Educating yourself is the first priority. 

A solid education is an investment in your future. The reason is simple – there are risks involved in any undertaking and the best way to manage these risks is to understand the game, so you know what to expect and how to deal with it. The time and money required to get this education from the many reputable sources available before you start, will pale in comparison to the cost and time involved in learning by trial and error at the University of Hard Knocks!

“There are no risky investments, only risky investors.” – Robert Kiyosaki

Remember, applied knowledge is power. Having a thorough understanding of the market, the risks and the strategies for dealing with these will give you an edge to take action in the investment world.

Investors have so many options and resources from which to choose that life-long learning really takes on a literal meaning in the property investment world. Getting knowledge on how to maximize your tax, how to use debt effectively, when to take risks and how to maximize your compensation from the investment can give you a real unfair advantage in the market.

Books and magazines

Many successful property investors have shared their knowledge, expertise and experiences in a number of books that are available in local bookstores or can be bought online. Reading these books are one of the most cost-effective ways to get the knowledge you need. Don’t have time to read? Then get the audio books and keep them in your car’s CD player, so you can get the knowledge while you are driving.

There are a number of property magazines that can help your widen your understanding of the property market, as well as the trends and developments that are shaping the future. Subscribe to the magazines so you can stay abreast of what is happening and more importantly give you real time tips and information, which you can use immediately. Magazines like Real Estate Investor magazine can be downloaded onto your tablet or iPad and read while you are doing downtime.

Read every property investment book and property magazine you can lay your hands on, so you have a comprehensive overview of the industry and the latest trends, as well as the different strategies and approaches advocated by the various writers.

Websites

The Internet has placed the greatest library in the world at your fingertips. Use it to expand your knowledge base to include international views and approaches. There are countless websites offering free information, extensive archives of articles, free e-books and other resources such as calculators, webinars and newsletters. And the wealth of case studies and personal experiences will ensure you remain motivated.

Even if you learn just one tip from each website, it will be well worth the time and effort. The best place is to Google information

Training courses

Many universities and colleges offer property training courses. But for property investment training, your best bet is one of the many property investment clubs in the world that offer regular courses covering every aspect of property investment.

Attending just one training course will provide a solid background, but why limit yourself to just one approach? Each property investment club has something unique to offer. Attend as many courses as you can, so you know exactly what the various approaches entail and so you can choose the one, or a combination, most suited to your own style.

Many of the property investment gurus have made their training courses available online, or in an electronic format, which means that no matter how hectic your schedule, you can complete a training course. E-courses combined with CD packs and manuals means you can work through it at your own pace.

 Attend seminars

At any one time, you will find an astounding number of property and property investment seminars you can, and should, attend.

Seminars are a time-efficient way to address many current issues that are of interest to a property investor or professional at that point in time. Often several expert speakers are brought together in one place, at one time, to provide clarity on a pressing issue. Seminars are real-time and interactive, so you can join in lively discussions about strategies, challenges and solutions, and get answers to your questions.

In the shortest time possible, you can listen to and interact with the experts, hear what other investors are struggling with, learn about new solutions, get answers to questions you have not even asked yet, and be reminded of all those fundamental principles you may have forgotten. 

Find successful property investment mentors

There are many property investment experts who are willing to share their success secrets and help others to achieve success. Mentors are available through property investor clubs and even online. These are people who will guide you, advise you and motivate you, while providing you with an expert to bounce your ideas off.

There are also a great many role models on which you can model your success. For example, if you like Donald Trump’s approach, read up about him, his life and his strategies. Sign up to his newsletters and courses, follow his blog and interact with him online. It doesn’t matter which role model you choose, as long as his or her success inspires you to achieve your own. In South Africa there are also a number of wealth coaches and property mentors who have had great success in the investment world depending  on where your appetite for investment is.

By Neale Petersen – Real Estate Investor Magazine

Speculation is viewed, as a bad investment methodology as it is short-term and is equivalent to gambling. Buy-to-let which was traditionally promoted as a passive way of investing. is typically viewed as a good way of building up a retirement nest egg but recently is filled with multiple challenges for ill-informed investors.  

When investing an investor should ensure they have good reasons to invest first and this 7 point checklist is what an investor needs to do to get started: 

1. Know what you want from your investments
2. Know the market
3. Get knowledge on the gearing of properties
4. Listen cautiously to the so-called experts in the market
5. Know when to use capital gains as a strategy
6. Understand the risks and rewards as an investor
7. Strategise your income streams based on market dynamics

 Strategies can change according to investor needs at any given time in the life cycle of investing. The last 2 years in particular have been tumultuous times for many residential property investors. Cash flow has suddenly become the Holy Grail for many unsuspecting investors with highly geared properties reliant on maximum rental income with high shortfalls. The start of the uninformed investor problems came with the introduction of the National Credit Act, coupled with rising interest rates which eventually dropped to current 30-year lows of 9,5%. This made little difference to the market as refinance, which was a major finance tool used for propping up cash flow has dried up. Banks have stopped lending to the over exposed investor who needs much needed liquidity as well as slowed down on granting new loans. This has therefore forced investors to look at new ways of creating finance. 

There are a variety of strategies within the traditional buy-to-let investment process. Investing in property is an active process and some of the multiple strategies that an investor can apply include the following: 

1. Buy and hold (and refinance every few years)
2. Buy and ‘flip’ (quickly reselling it) in the same market
3. Buy, renovate and sell
4. Rent-to-Buy (option to buy on contract in the longer term)
5. Alienation of land act (property is transferred into the buyers name at a later date)
6. On selling contracts (vendor finance where there are deferred loans on the property) 

There are few options for the highly geared investor, and sometimes even astute investors end up in financial trouble as a result of being retrenched or their business closing down. The additional financial burden of increased levies on sectional title properties, increased rates and taxes, high electricity costs, steep maintenance costs, low property value growth and defaulting tenants have resulted in many a property investor’s portfolio being jeopardized. As a result the distressed market is picking up momentum and many investors are forced to sell at all costs to recover their investment. 16 weeks is the average time it takes for a property to sell via an estate agent so turning your distressed investment into cash is a slow and difficult process. 

Cash rich investors are stuck with multiple opportunities and choice that they sometimes end up doing nothing. The slowdown in demand in residential property means the normal willing buyer and willing seller model is under strain. Discounts between 40 – 60% are not uncommon on the auction floors and it is bringing back the property trader and the more seasoned long-term investor looking for longer –term value. Only 18% of sellers are getting their asking prices. 

Distressed buy-to-let investors, homeowners and holiday property owners drive this below market value trend while bank finance is scarce. The challenges of limited bank finance are being replaced with creative investor financing. Flipping of properties to willing bargain hunters with cash is the order of the day. Cash buying is on the increase but is still a small market in volume terms. Those without cash are forming JV’s to finance the property or use ‘vendor’ or owner finance or make a quick profit on the turn of the sale. This is not speculation as some would term but rather a creative way of creating much needed finance in a cash tight market.  

10 sure-fire ways to ensure that you derive value from the market through value investing is: 

1. Research the market thoroughly
2. Identify an area which has high growth potential
3. Do the math – know the bond and property overheads and budget for the worst case scenario
4. Shop around for bargains – there are many
5. Understand tenant market demands when buying
6. Invest for income first not capital growth
7. Look further afield for better deals whether in another province or even offshore
8. Negotiate on price as there is additional value
9. Get to know all the pitfalls of investing so that you can counter this in your strategy
10. Decide whether you are going to be hands-on or hands-off on your investment 

Like any investment investing in property comes with no guarantees but those who have faith in bricks and mortars versus shares always win in any market provided they apply the fundamental principles of investing.

Treoc has been identified as the culprits of the downfall of the Surf Trust and have been accused of fraud by the liquidators namely a particular Mr Olivier representing the liquidators. Werner Britz held a property portfolio worth R2,9 million with a monthly income of R17 000 and a monthly shortfall of R33 000. Treoc apparently handled the bond applications for the trust and are now asked to justify the application based on Werner Britz’s personal income. Many people forget prior to the implementation of NCA in June 2007 banks were throwing credit cards, loans and refinance at all and sundry to get their numbers up.

Coert Coetzee chairman of Treoc decided that enough was enough in his “Coert is nou gatvol” and in his blog on lightminded.com he lambasted the people who he believes has destroyed his reputation and challenged his methodology. This has created a wave of approval from many but also a lashback on those that disapprove of his methods.

The general media is now using one negative case to disprove a property investment methodology which has also made many people extremely wealthy on the other hand. This is sensationalism in its purest form. The general media will do anything to get readers and they know that good news does not sell but bad news does. The more dramatic it is the better it sells.

Treoc as a property education company along with other education companies like P3, YDL, Hannes Dreyer have a successful track record in creating many new property millionaire’s. Robert Kiyosaki of ‘Rich Dad Poor Dad’ fame has been doing this for over 30 years in the US and elsewhere in the world. Essentially these educators have found legal loopholes in the system to allow investors fast track their property investments in achieving financial freedom within a 5 year period in the last boom. They have also got investors to embrace property as a powerful investment vehicle particularly in South Africa where only an exclusive wealthy few were privy and beneficiaries to property wealth. Many people became millionaires through property from the last property boom. South African’s invested in poor performing RA’s, unit trusts, endowment policies that robbed investors of millions. Property was the one vehicle that could put cash into your pocket and grow in capital value.

Property investing like any business has to be run and managed well by the investor and also has its risks.Yes you can lose money if you invest without the proper education, grounding and perserverance. While there have been many successful investors who applied various types of methodologies in growing their portfolios legally there is also others who allow their emotions to run away with them. Not all investors are successful and many investors do lose money and learn many lessons along the way. Some that lose feel that there is no way back and that it is easier to play the blame game than take responsibility for their own investment future. They give up and never invest in property again and then blame the investment vehicle.

How can licenced financial planners sell you dud investments while investors and not take responsibility? The question is who is responsible for your financial freedom and future? Is it your financial planner, your accountant, your attorney, banker or estate agent? Bottom-line no matter who you take advice from you are the only person you can point a finger at ? It seems that Treoc situation will be an on-going debate and a lesson to those who probably did not take responsibility for themselves…