“Learning is the beginning of wealth. Learning is the beginning of health.
Learning is the beginning of spirituality. Searching and learning is where
the miracle process all begins.” Jim Rohn

2011 is but a memory. It was an amazing year, full of opportunity and challenges. However everything has to be taken into context as we move forward into 2012. The definition of stupidity is, “there is no problem with making a mistake, it is when you make the same mistake again and don’t learn from it, that is stupidity.”

For this reason, Scott Picken, IPS CEO wanted to share with you his top 10 lessons from 2011 in property:

1. Income – Once again this is the most important lesson of the year. Wise investors focus on income only when investing. If you buy the right property, the capital growth will come with time, but if you focus on income, then it will provide you with the balance to ensure that whatever happens in the market you can ride the wave. From the biggest property funds in the world to individual investors, when they focus on capital growth, they crumble when the market turns. Only invest in property with secure rental demand and you can join the really successful investors who make the most money in these troubled times.
2. Bad developers – according to research 93% of people are dissatisfied with what they buy from developers. I invested with one of the top (not anymore) developers in Cape Town and the product they handed over they should be ashamed of. They own none of the units themselves (always a massive sign) and they blame everything on maintenance, except the building is falling apart after only 2 years. The beauty is though that these developers’ days are numbered. They launched another development this year and the problem is the public is none the wiser as they have another nice marketing budget and they sell to more unsuspecting clients. This is going to stop very soon. With the internet, social media and social proofing your track record will follow you and they won’t be able to get away with it. Personally I am taking them to the NHRBC, but even if that doesn’t work, social media will be their downfall, if they and other developers don’t up their game, have pride in what they deliver and provide quality after sales service. In 2012 we will be launching Property Watch Dog and so watch this space.
3. Body Corporates & Estate Managers – in one of our developments we have a big problem with the tenant mix and it was affecting the whole development with badly behaved tenants and little control. We brought in an estate manager from JHB who is really tough and takes no sh*t and in less than 6 months he has turned that development around.
4. Offplan developments overseas – one has to be very careful when investing overseas as more than 80% of people lose money. This year we experienced a massive problem with clients who bought off-plan in 2008 and 2009. At the time we assisted them with mortgage brokers and they were given assurances of being able to get finance, based on the current criteria. However the problem in the UK and Australia is you can only get final finance approval 6 months prior to transfers (handover / settlement) and if you don’t get finance you lose your 10% deposit. Therefore with a development transferring this year, and the banks having completely changed their lending criteria, it provided a nightmare. I do believe in business though it is not what you do when things are going well, it is what you do when they go wrong. We did everything in our power, including extensive negotiations with the developers and getting finance through banks like the Bank of Nigeria and Bank of Cyprus. After 6 months of hell and frustration for the clients, we eventually managed to help 23 out of 30 clients get finance. Due to this experience and never going to be able to control what the banks will do in 2 years time, we have updated our report for investing offshore to “The 6 things you have to know before you invest offshore!” and changed our strategy to mitigate this risk. If you would like a copy, email scott@ipsinvest.com
5. Following the market – allot of people get caught up in the hype of whether the market is going up or down. Bottom line is it is not about this, but about the individual opportunities and whether they make great investments. As the Chinese say, there is plenty of opportunity amongst chaos, but you have to have the skills, strategies and tools to determine a great investment. In 2012 we will be providing courses on how to do this.
6. Auction property – although there is allot of talk about auction property and how much value you can get there, it is very difficult process and you have to know what you are doing. I was at an auction with a friend who bought a property and he thought it was an absolute bargain until he went there the next day and he saw hundreds of ‘to let’ and ‘for sale’ boards. I am not going to regale you with hundreds of horror stories, but having dealt with this for more than 18 months now, you need to understand it is very intricate process, the banks are generally very disorganised, it is very frustrating and fraught with problems. For this reason we will be launching a course in 2012 about “How to buy auction property” as there are great opportunities if you know what you are doing.
7. Rand Devaluation – we had a number of clients invest overseas in the last 3 years. Although the clients who have invested in Australia have seen great capital growth, the ones in London have seen prices go fairly sideways. They are getting good cash flow positive yields, but the bonus is that the Rand over time consistently devalues and for this reason they have seen above average returns on their Rand investment.
8. Deal behind the deal – in negotiating the purchase of Student Accommodation in Sydney worth $34 million, I worked with two of my partners and friends. The one is worth hundreds of millions and the other a billionaire and all made in property. What seemed like a simple transaction, they thought out the box and completely restructured the deal, to more than double the returns. People without the skills would have bought the same property and got half the returns.
9. Be prepared to walk away – on the same deal, we actually walked away in the end. Even though we all agreed it was the best investment opportunity we had found in Australia in 4 years, we could not get the seller to agree to our terms and so we walked away. Bottom line is that successful and wealthy investors walk away, unless they are getting the right returns on their capital.
10. Indecision – I have found this year that people are very concerned about what is happening in South Africa, but they are equally concerned about what is happening in the global markets. Because of this they have analysis paralysis and have done nothing. This is not necessarily a bad thing, but as Warren Buffet says, “Be fearful when others are greedy and greedy when others are fearful.”

As it is the festive season I wanted to give you a gift. Please click here to download “Think and Grow Rich” by Napoleon Hill. This book was written in 1937 and has been the cause of more millionaires than any other book ever written. I listened to this book a third time when I ran comrades this year and if you apply the principles, you can literally create all the wealth you want in your life!

In conclusion, the 21st century is all about knowledge and wisdom. Sandra Carey said, “Never mistake knowledge for wisdom. One helps you make a living; the other helps you make a life” In 2012 IPS is going to go even further in providing you with wisdom and we have a number of online courses we will be launching in the new year and so watch out of them.

Here’s to 2012 and turning it into your best year yet!

Thanks

Scott Picken

IPS CEO

www.ipsinvest.com

The biggest myth that we bust was that almost all South Africans still believe strongly in property as an investment class . In fact 74% thought that buying a property even in today’s uncertain economic climate was a prudent investment but an even bigger majority of 93% said that they would prefer to buy rather than rent if they could afford to. Overall, owning property had far more positive association than renting. Generally owning was associated with investment and assets, while renting property was perceived to be unwise and irresponsible by those in the survey.

So why don’t the respondent’s buy? The broad answer is that they cannot afford to buy, or they could not afford to buy the same amenities that they could rent. We know that banks that traditionally loaned money to home buyers are lending very cautiously at the moment and this comes out clearly in the survey. Applying for a homeloan is the most stressful event in the home buying process. A remarkably low 15% of tenants suggested that they preferred to rent because they could get better returns in other investments.

Other important factors that influenced the buying decisions of potential buyers were the price (67%), the proximity to work (44%) , the proximity to good schools (42%) , and the proximity to shopping centres (35%).

But one of the most interesting points to note was security. When asked what the most important factor which influenced the choice of area for both buying and selling the answer came out very clearly in favour of god security. Nearly 44% of respondent’s suggested that the crime rate, the security presence and the cleanliness of the area was the strongest influence when deciding on an area.

To sum it all up, nothing has really changed my view on buy-to-Let property investment. I will continue to look for small 2 bedroom units in good areas, within a secure complex. The banks and the state of the economy will continue to control the volume of tenants who become owners but we now have confirmation that there is huge pent up demand for affordable good housing. If you love the idea of owning property, you are not one of the crazy ones. If you can but don’t choose to invest in property, maybe you are…

If you choose to see the cup half empty it probably will be, but more than ever we need to take a good look at how we have prepared ourselves for retirement and the question of which asset class to trust still looms large.

I still challenge the perception held by many that it is not a good time for investing in property. The argument against property often makes a point that property prices are expected to remain flat for a while with very modest capital appreciation which I accept.

I have made arguments over the last 12 months about how good times are now for finding great opportunities in property, and have laboured the view that this is the time that you should be in the market, but there is another very important point. A disciplined property investor will pay little attention to the business cycle and focus more on yield and cash flow than what the ebb and flow of capital in and out of the market.

A few weeks ago I attended a talk by Jim Collins, the influential business management expert with top selling books to his credit like Good to Great and Built to Last, and I was inspired to borrow this story from his new book to share with you.

In December 1911 two teams of explorers pitted against each other on a journey to be the first to reach the South Pole. Both teams were determined to be the first to achieve this audacious goal, but they were vastly different in preparation and strategy.

Firstly, the English explorer, Robert Scott decided to take advantage of good weather to drive his team to the maximum to cover the most distance they could in a day (sometimes covering 45 miles on a good day) so they could rest and recover when bad weather would make the journey impossible. Scott had new untested equipment and ideas which he predicted would give him the edge and was confident that he would be the first to plant his flag at the pole.

Norwegian explorer Roald Amundsen on the other hand, paced his team to cover only a set distance every day regardless of weather conditions, covering no more than 20 miles a day. He learned from living with the Eskimos what equipment, food and clothing worked in sub minus conditions, and planned carefully to cover only a short distance every day to prevent his team from suffering from fatigue. So they kept moving slowly with skis, dogs and sleds, able to make progress even in the worst of conditions. On the evening of 12 December, after years of planning and more than 650 miles of journey through torturous conditions, Amundsen found himself only 45 miles from the pole. The weather was clear and he had no idea of Scott’s whereabouts, but instead of pushing through to the pole he covered only 17 miles and set up camp once again, refusing to be tempted or influenced by conditions to change his strategy.

Amundsen eventually got to the pole first and returned back to base with his team intact. Scott, on the other hand perished with his entire team, found eventually only a few miles from the safety of camp.

Jim Collins refers to this strategy in as the 20 mile rule and his research shows that companies that grow consistently perform better in the long run than those that adjust their plan according to market conditions. But in real estate investment this rule is even more relevant.

Think back over the last 7 years and remember how many unprepared adventurers dived into residential property investment and bought up houses in a frenzy while the conditions were bullish. At one stage in 2007 one in every four properties sold was bought for investment purposes and this fuelled an oversupply of housing especially in the mid-priced market. Off plan offerings were snapped up by investors with no plan other than to flip on to a willing buyer who would hopefully be prepared to pay more for the property on completion. The result was catastrophic for many who would have been significantly better off if they had a long term plan and stuck to it religiously. I am sure you know investors like Scott who perished in the financial crisis that followed.

Most people buy property as a pension plan to replace their income when they retire, and this is where property investment is a winner.

But apply the 20 mile rule.

Look at the end goal and decide how much free cash flow you will need to live off at that future date. Calculate the value of the debt free property you will need to own to generate that income at that future date and work back to see what you will have to acquire to make that happen. Work on yield or cash flow.

There is no wrong answer as long as you end up with a plan and you stick to it religiously, regardless of what the markets are doing.

For more information go to www.ipsinvest.com

PS Scott is completing a full investment report and this will be available in the next few weeks.

This year the Discovery Invest Leadership Summit will be taking place in Johannesburg at Sandton Convention Centre on Wednesday, 21 September 2011. Speakers include Dr Nouriel Roubini, Ricardo Semler, Chris Anderson, Dan Ariely, Graça Machel, Maria Ramos, and Al Gore, a huge line up I am sure you will agree.

I have been to the previous 2 summits and I would not miss this one. Check out www.theleadershipsummit.co.za

Without getting too heavy I found the facts quite obviously shouting out in favour of this asset class.

Take a look at the graph below. If you were pretty average and bought an average property in 2000 for cash, and held on to it for all of 11 years, even having the benefit of living in it for the period, you would have done pretty well growing your money by 214%. And according to FNB, even if you had taken inflation (CPI) into account you would still be up 64%. I can’t help thinking that this must be the ultimate advert for real estate investment. Can you imagine if you had taken advantage of leverage, and rented the house out to cover the bond what your returns could have been?

Another thing we should read into this is that in a particularly poor economy the index was the highest ever at 314, 6, so property you could say has never been so expensive.

I (like many other residential investors) am working on the assumption that house prices will remain flat for the next 12 months at least, and will buy property that is being sold below market value in an area where rental yield is good and where I can earn a nett income to cover my expenses after paying a small deposit. So any positive growth in the next 12 months is a bonus. So the stats shown below are again encouraging.

The FNB House Price Index rose by 6.1% in August compared with August a year ago, and an improvement over July. The black line shows the real increase after adjustment for inflation and it seems like the average house is again growing in value at a rate faster than inflation!

Too much analysis of these broad averages is misleading and if you are an astute investor, you will probably have selected property that is performing better than average, and you will have geared it to accelerate your returns.

But as they say the stats don’t lie.

 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.

Buying a home is probably one of the biggest investments you will make. The good news is you can share the experience with professionals who really know what they are talking about. This is why we have introduced Property Leader – to help you every step of the way. And we’re not just talking about finance. We know about locations, valuations, and all the legal jargon. We are not just able to help you sell, we can help you buy too. Think of it as a partnership and a way to draw on our knowledge, a helping hand.

Know how much can you afford

We will provide you with a view on how much you would qualify for in order to ensure that you make an informed decision. We will require proof of income from you and upon receipt we will do a credit approval and will provide you with a Passport to Purchase (Approval in Principle) that is valid for 90 days. You are then able to negotiate the best price for your dream home, with the peace of mind that you already have secured your finance.

Sell your existing property…

We will provide you with a valuation on your existing property to enable you to sell at the right price and introduce you to the best estate agency in your area. Best of all we arrange reduced agency commission and we hold your hand throughout the process.

Find and buy a home

FNB Home Loans has a host of valuable information to ensure that you are up to date with the latest trends in the market. We are also able to supply you with area reports on suburbs you are interested in, and suggest a few others which suit your specific needs. Understanding your requirements allows us to match you with a specific property in your selected area(s). Again, we introduce you to the best estate agent in the area and hold your hand throughout the process.

View the latest Property Barometer information on http://blog.propertyleader.co.za, or speak to one of our Property Leader consultants through www.propertyleader.co.za about more detailed reports.

Start the paperwork

Provide us with the valid Passport to Purchase as well as the Offer to Purchase and we will process your application.

 Seal the deal

Buying a home is admin-intensive and we’ll make sure you know exactly what documents are required and when to make the deal happen for you. Once your ‘Approval in Principal’ (or AIP as it is referred to) is already complete, all we need from you is the following documentation 

- Copy of your ID

- Copy of your Offer to Purchase

- Proof of residential address like a municipal account

- Proof of income

 It’s a good feeling, knowing you have left no stone unturned when it comes to a significant investment.

For further information about Property Leader, visit www.propertyleader.co.za, call 0860 449 006 or e-mail us at propleader@fnb.co.za.

A few inescapable points of warning which might help: 

1. Screen your tenant; be merciless in your criteria. After all, this is a business decision;
2. Have a decent legal compliant lease in place;
3. Have a respected managing agent to assist you, if you are happy to pay for this service;
4. Be vigilant with incoming inspections, snag lists – these will bite you come the expiration of the lease and outgoing inspection, if not done correctly;
5. Get the deposit upfront to cover potential damages and make sure that if it needs to be utilised during the currency of the lease that the tenant replenishes it;
6. Remind the tenants about imminent rental payment, belated payments and always draw the tenant back to the lease terms and consequences of not paying;
7. Demand payment when not paid timeously and if you entertain a late payment remind the tenant that belated rental payments are a breach of the lease agreement and your acceptance of a late payment does not mean that you will allow that to happen again
8. Have a decent attorney on standby in case points 1 -7  don’t work out

Be alive to the fact that the profits achieved from a rental property investment is marginal compared to rates, maintenance, legal fees etc, so ensure that you treat the rental property  as a business proposition and not as a haven for an occupier whose payments are as inconsistent as the New Zealand rugby team.

 Marlon Shevelew

Property and business is all about creating wealth. Tony Robbins says that success in business, and property is a business, is 80% psychology and 20% implementation. To be successful you need to model the best globally, you need to know what they are doing, implement it and then you will get the same results. You also need to be able to recognise patterns, so that you can gauge world events and make educated and informed decisions for your future.

For this reason, I will be joining Roger James Hamilton, Global Thought Leader and creator of Wealth Dynamics, in presenting with other Thought Leaders to discuss a few critical steps that could determine whether your business or the business you are creating, will succeed or fail in the near future, and that includes your property business?

I truly believe that one of the greatest trends worldwide is Glocalisation – ‘thinking globally, acting locally’. This workshop provides you with the opportunity to learn from the best globally and not something I would recommend missing if you want to be part of the future.

I look forward to you joining me there and please find the details below about the full day workshop event, especially the piece in bold. Click here to secure your tickets now

I will be one of the guests on stage that Roger will be interviewing as part of the Changemakers forum. Being part of the Changemakers forum also makes it possible for me to make a special offer to my network – I have negotiated a special deal!

In other words you will get:

• 2 x tickets for the full day event,
• 2 x Wealth Dynamics Profiles,
• 2 x Wealth Spectrum profiles
• for only R497
• (or R1 697 if you choose the VIP tickets – only 10 still available)
• Amazing value

Fast Forward Your Business Events:

• Johannesburg, Grayston Drive Southern Sun, Sandton, 12 September 2011
• Cape Town, Seapoint Ritz Hotel, 15 September 2011

Bonus Value over R2000 includes:-

• 2 x FREE Wealth Dynamics Profile – value R725,
• 2 x FREE Wealth Dynamics Spectrum Profile – value R280
• plus the a FREE copy of Your Life Your Legacy e-book – value R75
• Click here to secure you tickets now

Limited amount of VIP Tickets at R1697 – including all the above PLUS VIP registration and “front row” seating for the event as well as a Cocktail Lunch with Roger James Hamilton- number of VIP ticket available are LIMITED

Click here to secure your tickets now

The Fast Forward program does that … and more.

What will our economy, technologies and customer’s habits look like in the next 5 years. They are changing rapidly and you need to be ready to profit from these and global changes taking place?

In the coming years, your customers will:

• buy differently,
• pay differently,
• be served differently and
• have entirely different expectations on what they want and how they want it.

And you’ll learn about what this means to your business or the business you work in, that almost no-one else knows about right now!

Find out how, if you don’t start taking action, your competitors will accelerate their businesses ahead by building their teams and harnessing resources differently, promote and partner differently and transform the way they make money.

Click here to secure your tickets now

During this event you will learn:

• How to take charge of your business and financial destiny.
• The Top 10 trends are that will make or break your business in the next 5 years.
• Discover where you are today and the specific steps YOU need to take to profit from the changes taking place – accelerate your business income and wealth.
• How Million and Billion Dollar companies use and create teams to propel their business and wealth (and why you never have to go at it alone again).
• Understand the cycles and patterns of business, property, the share market and your life no matter what industry, location or position you are in.
• How the wealthy solve the exact same problems you may be hitting your head against every day…effectively and instantly…and how you too can focus on the most important tasks that will lead

So What’s Stopping You From Achieving REAL ‘Business Success’, and Enjoying a HEALTHY 6 or 7 Figure Income?

Click here to secure your tickets now

To helping you create wealth through property and business.

Thanks

Scott Picken

IPS CEO

www.ipsinvest.com