Have you chopped down your fruit tree – (sold your buy-to-let property)?
Ok so the story about George Washington chopping down his family’s prize cherry tree was probably apocryphal but if he did it, he wasn’t the first person to chop down a fruit-producing tree. And nor, unfortunately, was he the last, I am guilty of it too. By this I mean I sold my buy-to-let investment property.
I consider a townhouse investment to be very much like a fruit tree, an avocado pear tree in particular. When you plant an avo tree, it requires investment in the form of your time and money as you water, fertilize, prune and cultivate it. For the first 6 or 7 years, you don’t expect fruit, and there is none. BUT when it grows in stature from a sapling into a mature tree, it starts bearing fruit, and continues to do so year after year. Any farmer will tell you that the mature tree still needs care, but the fruit it bears easily outweighs the effort required.
This is a perfect picture of a townhouse investment.
When you buy a townhouse, you need to spend some money (in the form of your bond) and you have to water and fertilize the investment (by subsidizing the shortfall between the rental income and the monthly bond repayments). As time passes, it grows in value and the rentals increase, but your bond repayment remains largely unaffected. The interest rate may vary, but not radically. Pretty soon you reach the break-even point where the monthly income is higher than the monthly costs (which include the bond repayment and the levies). Now it the point where it starts to bear fruit and you earn a monthly income off the property. As the years progress, the income increases exponentially, just like an avocado pear tree! When this happens, you may have to guard against the temptation to sell it when you realize that it is worth a few hundred thousand rand more than you paid for it. To do so, would be like a farmer chopping down his precious fruit tree to sell the firewood for a quick profit. Please don’t get me wrong, there is a time to sell, but your reasons should be based on future growth, like replacing it with an investment in a better growth area.
Have you ever chopped down one of your Avo trees?
Please let me have your comments below.
Buy to let property South Africa Image “George Washington”: A Figure Upon the Stage courtesy of (Washington, D.C.: The Smithsonian Institution Press, 1982), 72.