When most people think of a Master Real Estate investor they think of a business person who has a high rise office and pinned to their walls are their 3D models of their shopping centers and Secure residential estate developments.
I don’t have a background in Real Estate investing. I qualified as South Africa’s first male pre-school teacher in 1995 and have spent more time starting a school and teaching kids. It was only when I sold the school that I realized that the same qualities that made me a really good teacher are the same that have supported me in being a really good property investor. And…. I had ownership of the land the school was founded on.
I believe the Master Real Estate investor is not just a job description.
They have certain core values that are expressed in their every deal in diverse ways.
These same core values are part of their personality and make up.
These values of Creativity, Diligence, Consistency and the Expression of Ethical values facilitate the growth of investment opportunities and win-win partnerships.
So instead of writing the theory of these values for you in this application, I thought I would let the deals of the year 2017/2018 demonstrate and prove those values to you.
There is not just one deal or one project which deserves specific mention. The Real Estate investor has the same values, skills and insights that they bring to any project, no matter what niche they are working in.
The Master Real Estate Investor is aware of current trends and looks for opportunities in these trends:
Student housing is one of the fastest growing industries in real estate. In 2017 we decided to step out of our comfort zone and explore this model.
CREATIVE FINANCING: in early 2017 we got this deal under contract from a deceased estate. The estate took a full 12 months to be processed and we took advantage of that. While we did the refurbishment in the first 4 months, we didn’t pay any occupational rent. Then for the following 8 months until the property transferred, we only paid R3 500 occupational rent (but we are collecting R23 000 per month in student accommodation so in effect saved R80 000 in finance costs). Also, the purchase price came from a creative solution of transferring a different rental property’s bare dominium into a trust so we
could access bank financing on that property through one of the trustees.
NEGOTIATION SKILLS: The original asking price was R1 050 000 based on the seller’s optimistic promise that it would generate R30 000 monthly rental income. So we creatively avoided a risky situation by linking the purchase price commissions to a sliding scale of actual rental income achieved. This meant we finally bought it for R758 000 because of these creative negotiations (saving R292 000).
AUTOMATION AND SCALABILITY: There are no Property managers of Student housing in this whole area. We have since automated a whole series of situations (inspections, applications, monthly student surveys) and people (all so we do not have to go there or manage the house.) We can now scale this model and possibly sell more houses like this onto other investors as a turn-key solution.
FINAL FIGURES: R1 230 000 (transfer, refurbishment, rent
Airbnb income generator
USING OTHER PEOPLE’S PROPERTY TO GENERATE MY INCOME:
The Master Real Estate investor has different wealth creating strategies. Some long term, some shorter, some for equity gain, and others for cash flow.
In our case (Oct 2017) we successfully created a scalable model where we rent from a landlord, and then sublet that out on Airbnb (with everyone’s consent and permission). The beauty of this is in it being automated such that we can scale it up, and expand. Since then we have taken on another 2 Apartments in the last month and are acquiring new ones every 2 weeks.
CREATIVE FINANCING: We first rented a non-furnished apartment, but that required over R70 000 outlay of capital to buy furniture. Now we selectively rent furnished apartments so the only capital outlay is the security deposit, and the remaining items of furniture needed. In these cases R10 000 security deposit with R10 000 upgrade in furniture, and we generate R5000 profit per month per apartment (averaged over the year).
HOW WE LIMIT RISK: Buying a property means you are at risk for everything to do with the property (the financing, the repairs, the rates, insurance etc). But in this model we have eliminated nearly ALL the risk. If for some reason we need to terminate the agreement, we can use the 21 day Consumer Protection Act to terminate the lease. And as we know how to find long term tenants, we can find someone to take over the lease, or to enter into a new lease, thereby mitigating all the ‘damage’ to the landlord in terminating the lease. Therefore the risk to us in a worse case scenario is very small or negligible. Also, any damage outside of general wear and tear is to the landlord’s account (as we are the
master tenants) so we don’t even have to worry about the risk of those repairs.
CONTROL OF PROJECT AND CASH FLOW: We have all the benefits of control of the property and the cash flow. And as we know how to use Airbnb really well (we are SUPERHOSTS), we are generating rental income within a week of signing the lease.
AUTOMATION AND SCALABILITY: This is our unique skill. We know how to create systems that automate the check-ins (through video), the servicing of the apartments, and how to land on the 1st page on Airbnb. Having found the right service providers, we are now scaling this model to 20 apartments.
NEGOTITATION SKILLS: This passive income model is only as good as my ability to convince the landlords in entering into this agreement with us. Most landlords don’t like short term tenanting (and for good reason). This is our SECRET IP….We know how to make this a win-win for everyone!
Living for FREE in a beach front home
The Master Real Estate investor does not only use property to create wealth, but also to create a life style of their choosing. I love kitesurfing. And I love the idea of landing my kite on the beach and walking into my house.
Back in 2016, the rent for this Blouberg Beach front house was too high for us. But we were willing to take a calculated risk that if we could rent the house out over December, that extra income would subsidize the yearly rent, making it affordable to us.
So for that first year (2016) that meant instead of paying R18 000 per month, we averaged paying R13 000 per month because of that Christmas rental arrangement.
But the Master real Estate investor keeps looking for other creative ways to maximize returns, and now (2017 and 2018) we live in this 4 bedroom house for free! We use the front ensuite room (with its own entrance and security) for Airbnb throughout the year (2017), AND let out of the house on Airbnb over Christmas while we go visit family. The income generated by these two projects pay for the WHOLE year’s rent (so letting us live for free on the world’s most famous Kite surfing beach).
NEGOTIATION SKILLS: We believe in always being open and honest. And we ensured the Landlord knew that they would get what they wanted, and their property would be well looked after. For most people it’s not easy to get a landlord to give you permission to do what we do. Further to that, instead of paying annual increases in the rent, we negotiate with the landlord saying that we will improve the property (like replacing all the delaminating glass in the big windows) to equal the difference the annual
increase would amount to. So the property improves for us to rent out, but the landlord willingly pays for that!
AUTOMATION AND SCALABILITY: We always say that you should manage your investment property the same way, whether it be next door, or in another country. If you manage it based on how close you are to it, then you can never automate it and scale it up. You will always be limited by how much time you spend on each property. So even though this room is part of our house, it is managed, cleaned, and maintained just like every other property we control. Whether we are in Cape Town, or in Thailand, everything runs smoothly!
CREATIVE FINANCING: We love using other people’s time and money to create our income and wealth. In this instance, we are literary generating income out of ‘nothing’, allowing us to live in a great place for free, and use this as great tax saving strategies as well.
The Master Real Estate Investor realizes that wealth can be created through changing the land use to another zoning, thereby creating a new value proposition.
In 2017, we were approached by a development company to see if we would be interested in developing the school land we purchased in 2004.
The Master Real Estate also realizes that if they don’t have the expertise in any area, they connect with the people who do. Doing Joint Ventures is a major driver of accelerate wealth creation.
As I had no experience in Development and Construction, I wanted to avoid the risks of ‘being taken for a ride.’ Because of being diligent and thorough, we made it a priority to find the right partners to work with, with the importance on being the core values of partnership, rather than on just making a quick buck. It is best to get the right people on the bus, and then decide where you want to go (and in this case, what we want to do with the land)
This project could be residential apartments, could be a shopping mall, could include a local police station, tourist venues and more. But it is my job to get the right people on the bus.
Going to Court
The Master Real Estate investor knows and understands the importance of diligently keeping good records of all contracts and agreements.
In January 2018 the Simons Town magistrates court ruled in our favour after a lengthy 2 year court case after our commercial tenant tried to exit a rental contract by claiming a force major situation.
The reason we won the case was because we had always acted with integrity, were open and honest with the court, but more importantly, we had everything recorded in writing and through photos and video. The other party was continuously trying to discredit us and play dirty games, but in our testimonies being consistent and backed with the diligence of a good property investor, justice was served.
But to be honest, my greatest learning about this long and frustrating situation was to ensure that I never get into this situation again. Even though we came out the victors in this court case, there were no winners. Everyone paid a price that was far greater than the financial price tag.
Now, before I try and prove that I am right and go the legal route, my drive is to resolve it in the quickest amount of time using all the negotiating and communication skills I have learnt. Successful Real Estate investing is in understanding the value of relationship capital, and that communication and an attitude of win-win is where success lies.
The Master Real Estate Investor looks to see where other opportunities arise, and diversifies their portfolio through property types, and regions.
I started investing in the USA residential market in 2014. But as a foreign investor, I could only get private financing and at costly terms. After 4 years of trying to refinance my properties through various means, in June 2017 I came across a seller finance model where I buy a property subject to the seller keeping their mortgage in place, and the title and all rights to the property are mine.
The loan is not in my name, no credit needed, no-one asking me to stand surety, no declaring of my worldly income, no reserve funding needed…. Just a few signatures and I have increased my portfolio by using a lot of other people’s money and time. Everything is above board and legit (we even found a way to avoid the triggering of the Due-on clause). We subsequently bought 3 more properties like this and have many more lined up as we move towards this investing model.
This totally changed the foreign investing game and put me on the global market helping other investors from around the world buy property in the USA using the same model.
This model resolves one of the greatest challenges of any Real Estate investor, and that is finding capital to keep expanding their portfolios, while minimizing the risk. Although this is investing offshore, the characteristics of investing offshore are the same as investing in South Africa.
A master real estate investor creates strategies that minimizes the risk on rental properties.
After having to evict a non-paying tenant in 2016, we had learnt our lesson and focused on getting international tenants who paid up their rent (1 to 2 years in advance).
In 2016 we had a tenant who had paid 2 years in advance (R850 000), and in 2017 when they needed to terminate early (as they were starting another business out of town), we had the control of creating a smooth transition to finding a new foreign tenant without any loss of rental income to us.
We again found a foreign tenant who signed a long term lease and paid everything upfront.
Every mistake, or error in judgement, or dodgy decision is a learning experience, which can be turned around for future growth and wealth. A successful real estate investor is constantly learning and upskilling themselves, and it is often this attitude that creates exponential growth.
The Master Real Estate investor finds ways to follow their dreams while still giving back to their communities
In April 2017 I set out to climb and summit the high altitude ‘Island Peak’ in the Himalayas. This peak is the neighbor peak of Mount Everest. For every metre above sea level climbed, we were able to get online courses for parents and teachers donated around the world. These courses support parents and teachers in finding positive ways to get their children to cooperate. And more importantly, it helps parents and teachers know they are not Islands in bringing up their children.
Over 7000 courses to the value of over R7 500 000 were donated, impacting over 15 000 kids around the world. Investing in Real Estate has allowed me to create my own path, and if done wisely, gives me the time to discover new places and take on different adventures.
It also allows me to connect with other investors and entrepreneurs from around the world, and in that space inspire other investors to create the lives they wish for.
On 10 May 2018, we start our South African tour (The Wealth Builder series) helping other investors start their journey, or accelerate their current investing portfolios.
Real Estate is an incredible vehicle to create the life style, or legacy for you and your family. And If a pre-school teacher can do this, then so can every South African!