- How much do you estimate your current net worth is across your entire portfolio?
- What type of property do you invest in.
Residential: 2 houses, Observatory, Cape Town, Western Cape
Residential: 2 flats, Maitland, Cape Town, Western Cape
Residential: 1 flat, Claremont, Cape Town, Western Cape
Offshore: 1 flat Hamburg, Germany (boarding house) – semi commercial
Offshore: 2 houses Memphis, USA
Offshore: 1 house Atlanta, USA
Other: 1 house, Claremont, Cape Town, W Cape (primary residence)_
- What is your reasoning for your property selection criteria? (Why, when, where and how?)
I focus on entry level residential property as demand is the highest and most sustainable for the average tenant. Rental demand must be high in the area. Income vs expenses must be balanced to achieve cash flow positive or close to. I am focussing on residential as that is all I know and its recession proof too. One might have to give up a business (in a commercial property), but then one still has to have a roof to sleep under.
- What has your overall strategy been since you started investing?
Cash flow (income), not capital gain (growth). Growth is long term speculation and a bonus and can only be realised on sale (and is taxed). It might also be useful to re-finance, but I have rarely done that. Rental income can be predicted far better. My portfolio is to provide income for pension as I have no other plans due to emigration and because I do not trust paper assets for various reasons. I never sell unless I absolutely have to as selling costs and new buying costs are hard to recover. I rather buy more properties. I do not invest much in paper assets and policies, only brick and mortar. I also started dabbling in crowd funded investments in USA and Germany which will be the future as I can spread risk/diversify my funds even further.
- When did you start investing in property?
In 2000 we bought our primary residence. I know they say that its not classed as an investment. However we immediately split it in two and rented out a flat to repay our bond much faster. We got hooked on sending tenants to work to pay for our portfolio and bought more in 2002 and 2003 etc.
- What was the first property you ever invested in?
See 5 (primary residence). Otherwise 3 bed houses in Observatory in 2002 and 2003.
- What has been your most significant property investment to date?
I went global for the first time, visited the USA on a buyers trip and bought 3 houses in USA in one go with expensive 50% hard money lending end 2014. At the same time I bought a small fully furnished unit in a boarding house in Germany and leased it back for 20y to the operator (hassle free investment with 5% return guarantee). Going global and at that scale was a big “jump”.
- How much of the capital used to start investing was your own?
I lived in the UK for 3 years before emigrating to Cape Town and had some saved pounds, not much. RSA banks wanted 22% interest plus for a bond and that sounded crazy (I was a beginner/1st time buyer). I took out a RSA bond anyway on my own to learn the ropes and not having to rely on others. I started with 2.1% below prime and later negotiated it to 2.4% below prime. I still have this access bond now as it’s a brilliant facility. Shortly after purchase I asked my father for a loan in Euro at 2% and that was a good deal for both of us and I paid off a big chunk of the RSA bond from that. The bond was paid off fairly quickly as we also had the flats rental income. However, if I would have to have paid back my fathers loan I would have fared worse than sticking with RSA loans due to the huge exchange rate decline over time. Fortunately my father declared it as a pre-inheritance and I never paid it back. That was for our primary residence and enabled us to pay for the first investment cash. So in summary it was a bit of our money and otherwise mostly other people’s money which enabled us to start investing.
- Outline your asset management and risk management/strategies for these categories:
Lender diversification: This is my current ‘weakness’ as I only have a bond on my primary residence which is paid up and kept open as its a very good access bond at 2.4% below prime. Otherwise I have one smaller bond for my property trust and no other debt. (Even cars are paid cash as they are depreciating)
We made 2 “mistakes”: The first mistake was not taking out more bonds while I and my wife still had payslips more than a decade ago. That would have allowed us to buy more aggressively as banks easily gave bonds in those days. Maybe not the worst mistake as I know many investors over extended themselves and suffered or even folded. I then changed careers from an engineer to a self employed property letting agency owner ten years ago to follow my new passion. I also started a family at the same time.
Secondly I threw in the towel when trying to get a bond to buy Claremont flat. It became too much hassle as it required financials from our trust, letting business and myself and I did not really need the bond anyway. It is my intention to look into a large debt facility to buy another round of properties once I managed to find a capable manager who will allow me to step out of the day to day business of my company.
Asset protection: We are married out of community of property with accrual so one cannot take down the other if there is financial stress. Our primary residence is in both our names as we needed both incomes to qualify for our fist bond. The next 2 houses were bought in my wife’s name as she had far less/no income so it was tax efficient. I already had the itch to start my own business one day too so it made sense not to own much in my name to deflect risk. The next three flats were bought in a trust as we had established a double trust structure by then. The USA houses were bought in the name of an USA company, called a Limited Liability Company, of which we are both members so if one dies the other can carry on. One should not hold properties in the USA in a personal capacity anyway as they have the habit to ‘sue for nothing’. The German flat was bought remotely in my personal name as I am German and it made things much simpler by giving my father a Power of Attorney. Its probably safe to say that in case of financial trouble it will be very difficult for anyone in RSA to find and attach overseas properties/assets.
Property Price: We focus on entry level properties in sensible areas where demand is high. Ideally they must be cash flow positive or as close as possible to from day one. Also with limited capital/cash resources and fairly low thresholds of risk entry level prices allow us to buy more smaller instead of bigger and fewer units where demand is lower and risk is higher too. Of course below market value properties are the target, but they are hard to find nowadays. From my experience auctions are generally a waste of time too. Buying a ‘non bargain’ is not a big issue as it will level itself out In the long run.
Interest Rates: We do not have much debt so it does not affect us much at all. If I evaluate an investment property I work out cash flow on at least 2-3% above current prime/lending rates so I am not stretched too far when the rate goes up a bit. By now our property income is positive so we can “weather many storms” easily. One item on my to do list is to find better finance terms for the expensive 12% interest in the USA. It is not easy for a non resident foreigner to get any finance and banks are pretty useless too there. Strangely the USA banking system seems to be miles if not light years behind compared to RSA banks.
- How would you say you conducted yourself ethically in your investment practices?
A long time ago I once made the mistake trying to circumvent a selling estate agent and going direct. It worked, but I will never do it again. Otherwise I am firm and demanding, but fair. (In my role as property manager/letting agent unfortunately I still often hear of dishonest and unethical agents. Of course dishonest tenants and owners are also around.)
- Do you contribute to your family or community? How?
We support my parents in law with car instalments. I volunteered several years at the local CPF (Community Policing Forum). We make various monthly and ongoing donations to registered charities. I am recruiting my landlord clients to join in to donate monthly to a local organisation supporting the homeless (since we are all in the business of providing ‘shelter’). My wife is giving a lot of time to our kids school. It’s a Waldorf School which typically has a lot of parent participation. When time allows I attend school workshops on weekends to make goods to sell as fundraiser at the annual school fair.
- If you could do it all over again, what would you change and why?
I once bought a plot for allegedly “half price”. I waited far longer than the projected timelines, but the planned development never took off – at all. I eventually sold it and will never buy a non-income generating plot again. Also see above iro I need to take out more finance to grow the portfolio faster. I should have been more aggressive/less conservative in younger years. Aged 49 I probably still can accelerate if I would have more time. Also find suitable partners (which is hard) so I don’t have to do all myself.
- How has investing in property changed/altered your life?
It has changed me/our life to a very big extent. It even caused me to discard my studied career path after 12 years. At the beginning, I did my own letting for a few years. I once burned my fingers badly never recovering my losses. About 11 years ago I started to use letting agent and their traditional model. I realised very quickly that this model is not investor friendly at all. Shortly thereafter opportunity presented itself. I resigned from my job and I jumped on the idea to start my own letting agency almost from scratch, but very niche and specialised for investors. This includes value added offerings like guaranteed cash flow, 3m rental cover and free evictions. It was and still is hard work and doing long hours, but I never regretted my decision as the agency, named Hosues4Rent, is rather successful. It keeps growing without any marketing purely based on word of mouth. My analytical and technical skills also come in very handy. In hindsight I could not have started this business without any financial pressures due the passive rental income I already had. My wife was not working and the first baby was on the way too.
I am convinced I would not be better off having stayed in my old career being employed enriching others. Our property portfolio will secure our pension income/early retirement as we have next to no paper assets or policies as they are too unpredictable and make other people wealthy. Having being bitten by the property bug was definitely a life changing event. We also live a very modest lifestyle to ensure that we will never run out of funds later. We do not lack of anything significant and cannot understand how the average person can spend so much on depreciating items. E.g. I ride a cheap scooter instead of a fancy car as it saves me a lot of time (and money) while in transit.