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Making Money Through Buy-to-Let in South Africa by Francois Janse van Rensburg
THE nature of world economics today makes it impossible to calculate inflation rates over as short a period as the next five years. As such, saving for retirement only provides a false sense of security, because savings do not keep up with inflation.
This book is not for anyone looking to get rich quick (I have NEVER come across a successful get-rich-quick scheme): this is a book for the 99.9% of people who, if they ever do become rich or even comfortable, will do so by following a ‘get-rich-slow’ programme.
Done well, with time, your buy-to-let property or properties will give you annuity or passive income.
“My aim is not to convince you to invest in property, but rather to provide a tool kit with step-by-step guidelines for you to follow as you set out investing in property,” Janse van Rensburg explains. And he does this remarkably well.
If you believe that property investment is only for the rich, ask yourself how the rich became rich in the first place. Most of the property rich started off poor, or broke. Just think of property multi-millionaires such as South African Gordon Mackay who “at one stage owed 5 million rand and believed that suicide was his only way out”. Or the American property multi-millionaire Robert Kiyosaki who was completely broke when he started.
A buy-to-rent book for beginners
This book was written for beginners, who are thinking about this type of investment. The author presumes you know nothing about the field, and leads you through all you need to know to start. All terms are clearly explained and there is a six-page glossary of necessary terms, explained succinctly and accurately for beginners.
So where should you start looking for property to buy to rent? “Search for property not too far from your own home, so that you will be familiar with the neighbourhood.” You will probably have a better sense of what rentals should be and how long vacancies can last. And, of course, neighbourhoods change over time.
If you think you can’t make money without money, this book will show you how you can use the bank’s money instead of your own to build your buy-to-rent property portfolio. Banks are in the business of lending money, and really need (let me say that again, need) to lend money.
Banks are always willing to lend you money if there is enough value in the property you want to buy. No bank will lend you money to buy shares, and they will be far happier to lend you money for property than for a new car. Unlike a car, they will lend you money with only a small down payment, and spread your loan over 20 or 30 years (always take 20.)
The bank’s risk is so much lower for property because the loan is secured by the property itself, which they will sell if you don’t pay.
You will need a plan and you will need a reliable team of people to support you. Your team will comprise a real estate agent you trust to find the property you have decided meets your investment needs. You will need to choose a bond originator to help you find the money you need. You will need legal advice to take you through the maze of getting ownership of the property.
Everyone on your team must be interviewed. This is business, and you are employing them to make money for you. They are not doing you a favour by taking on your assignment. Let them know this first property is part of your investment plan, and you would like a long-term relationship with them.
The process of acquiring investment properties is very different from buying a home for yourself and your family. This is a cold numbers-based decision, grounded on the best information you can acquire, and solidly focused on the goal – having passive income for the future.
There is a glut of information available, much of which is in the public domain and so freely available. Paying for information that is not freely available is well worth the investment, such as credit reports on prospective tenants.
Quality of the tenant
Possibly the highest risk of a buy-to-rent property is not the choice of the property itself, but the quality of the tenant. A good tenant is a terrific asset; a bad one can put your plan back years. Finding a good tenant is not an impossible feat; nationally, 86% of tenants are reliable. Screen your prospective tenants properly and you can reduce the risk of battling to collect your rent or, worse still, battling to evict the tenants.
There are many financing options that a good bond originator can help with, so you don’t need to forgo your plan just because of a rejection. Rejection may well alert you to other available options. “Whatever you decide, work on the basis of never using your own money to buy an investment property; i.e. always try to use the bank’s money instead.”
In the initial phase of your investment, expect to be supplementing the shortfall in costs, but this will reduce as your rentals increase and ultimately produce passive income.
With a buy-to-let investment, you don’t need to time the market, you only need time in the market. Markets go down and up, but people always need a place to stay.
When should you start to build your property investment? When you have received your first salary - but if you missed that date, start tomorrow. Don’t buy tomorrow, just start the process!
Buy this book and study it, don’t read it as a novel. Take notes, write in the margins. This may well be your route to a secure future. Think 20 years into the future. The sooner you start, the larger your property investment will be.
Investing in real estate is not rocket science, but it does require that you do your homework. This book has all the checklists and information you will need to develop your plan: get studying!
Readability: Light --+-- Serious
Insights: High -+--- Low
Practical: High +---- Low
* Ian Mann of Gateways consults internationally on leadership and strategy, and is the author of the recently released ‘Executive Update’. Views expressed are his own.
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