What I didn’t know when I bought my first investment property

By Neil Vorster 

In answering this question that was recently posed to me, my immediate thoughts were;

•  Maybe I should have started investing in property earlier.
• I didn’t know how property actually worked as a wealth transfer mechanism.
• I didn’t know how to manage my tenants.
• I didn’t know how to raise finance or how to select an investment –

   I had heard that it was good, but I honestly I didn’t know much!  

Back in 1991 I spent R 15 000 converting my double garage and out-dated “maid’s quarters” into a cottage because my wife and I thought it would be a “good idea”. We thought that it would earn us a little extra income and hopefully increase the value of our house by more than the R15 000 we were spending.

Besides, I relished the idea of being able to bash down walls – it’s a guy thing!

Little did I know that I was inadvertently making a life changing decision that would play out over the next 22 years.

My 2 daughters were both at nursery school at the time and it didn’t take long for me to work out that the monthly cottage rental paid for both of their crèche fees.

Each year, my rental would escalate between 8% and 10%, as did their creche fees.

Schooling was next, and blow me down, the increased rental kept pace with their school fees too! It soon dawned on me that my investment of R 15 000 back in 1991, was probably going to pay for all of their schooling.

Why didn’t anybody teach me this stuff? 

I was a property convert!

The next step in my progression of property investment, ended in failure and a great lesson. I partnered with 3 friends and developed some factories in Midrand in 1997. We managed 100% financing and our pricing, budgeted rentals and timing were all perfect.

Perfect, except for one “small thing”! The interest rate spike of 1998!

Interest rates increased by more than 7% in 6 months and stayed high for a year. Our cashflow went severely negative and I couldn’t hold onto my share in the property. My remaining partners could afford the hairy interest rate ride and cashed in 2 years later when they sold it for a tidy profit.

Lesson learned, don’t bite off more than you can chew!

I licked my wounds and looked around for the next opportunity. This came along in 2001 when I discovered the magic of buy to let townhouse investments. After a tentative first investment property  purchase, then another and another, I realised that bite sized chunks was the way to go.

Having learned my lesson well, my wife and I paced ourselves and kept a healthy cashflow buffer. The market in the early 2000’s was amazingly poised for investors. Rentals were high, property prices were skyrocketing and home-loans plentiful. Soon we were able to take out second bonds on our properties and use the debt to fund our cash buffer and future investments.

Our portfolio of properties was becoming too large to manage comfortably and I started looking out for a property manager. I ended up buying a small established Bryanston estate agency in 2005. This worked perfectly for me as I was tired of being a corporate slave and my portfolio needed managing.

I knew the hassle factors associated with owning a number of small townhouses intimately and set about building a company that took the hassle out of property investment.

I forgot to mention that by this time, my investment properties had paid for a pilot’s licence, a few aircraft, 2 cars, university fees for two and a personal pension fund!

Over the years I taught my friends and anybody who would listen how to invest in property – property was in my blood!

This stuff is too valuable to hide under a bushel and it nauseated me to realise how much money South Africans pour into retirement annuities and pension schemes every year.

They do this in an effort to attain the elusive ideal called financial freedom. I say elusive, because that is what it unfortunately remains for most people.

Resisting the calls of “write a book ”, I co-founded Organic Growth early in 2013 to coach property investment to the man-in-the-street.

We need to pay the bills, but manage to do most of this coaching free.

Some people think we are crazy to give it all away, maybe they are right! I just think it too valuable to keep to myself.

Image by Sujin Jetkasettakorn courtesy of FreeDigitalPhotos.net