It is time to multiply your wealth using other people’s money
All investment is an equation of risk versus reward and very time you make an investment decision, you need to consider the risks vs the rewards of your investment.
Regardless what you hear about the current political climate and the economy, it is currently a fantastic time to invest in buy-to-let property!
In this article we will explore the timing and how to ensure that you multiply your wealth while minimising your risk - and I'll show you how to do so with other people’s money!
1 It is time
Why it is time now and how does one “time the market”?
It’s a seller’s market at the moment as the general public has lost faith in the economy. Fear of land expropriations without compensation has halted property investment spending and the vast majority of investors and buyers are sitting on the fence.
You may have heard wealthy investors say something along the lines of “Buy when the herd sells and sell when the herd is buys."
Ask any estate agent in South Africa about the state of the market at the moment. You will likely hear, “it’s a buyers market”. In other words the buyers have control of the prices. The supply and demand scales are tipped in favour of supply. Too much is available for sale with not enough buyers to buy all the properties as they come available. Prices are therefore very attractive as investment properties become more and more affordable to buy while rentals are continue rising.
In a year or two when the general investment public realise that it is "business as usual" and the next property boom starts, those who held back fearfully will unfortunately have to pay a premium to get into the property market.
When there is blood in the streets, buy property. is another pearl of wisdom belonging to seasoned investors.
In other words, political and financial tough economic times create fantastic opportunities to buy property. For example, in 2008 in the USA banking and property crisis Robert Kiyosaki saw the opportunity and bought thousands of residential properties.
Rarely does a week go by that I don’t hear the question, “ But what about the new land expropriation without compensation bill?”
My answer to this question remains the same - Yes, there are political pressures but the Land Expropriation Bill effect exactly that - “LAND”. The Act intends to make fallow, abandoned and unproductive land available to the government for the purpose of economic upliftment of disadvantaged people. So if you own a farm that is lying fallow and unproductive, then you may have cause to be afraid. But if you are considering an income generating productive investment property then you have nothing to fear.
Even on a purely irrational level, if the government does the unthinkable wholesale land grab. The moment they implement it, every farmer and homeowner will stop paying their mortgage bonds instantly and hand their keys to the bank. The banks (and the country) will will go bankrupt instantly and we start bartering bananas.
The banks, who are the most risk averse institutions out there are still providing investors with 100% property finance payable over the next 25 years. Clearly they know something that the general fear filled public do not!
2 Multiply your wealth
Multiply my wealth, how does one do that?
You measure any investment by looking at the profit earnings as a percentage of what was invested, otherwise known as the Return On Investment – (ROI)
Astute investors then balance the return on investment with their risk. The higher your risk, the higher you expect your return on investment to be and vice versa.
To get a feel for the returns that different asset classes offer, let’s look at the return on investment on the three most common classes of asset over a 5 year period.
Cash in the bank : You can expect a 5 year ROI of 27%
Stocks and Shares : You can expect a 5 year ROI of 48%
Buy to let property investment: You can expect a 5 year ROI of 213%
In the tables below I will tabulate my working to see how I got here. I used numbers that approximate a small townhouse investment.
Cash in the bank
Cash invested: R 700 000
Interest rate : 7% (fixed deposit)
Tax rate :30% (the personal tax rate of a relatively high earning investor)
| Interest earned
|Year end Total
5 year Return on investment calculation – (Cash in the bank)
Your Return (the after tax interest earned) divided by your investment amount results in your ROI
R 189,151 / 700,000 = 0.27
Your 5 year return on investment (ROI) is therefore 27.0% ( ie : you added 27% to your original investment over a 5 year period)
Stocks and Shares
Assuming a moderate risk (ie a well known “good” unit trust portfolio) you can expect your return on investment to be approximately 10% to 12 % per year.
This return would be in the form of capital growth plus dividends.
Cash Invested : R 700 000
Interest rate : 11 %
Tax rate : 30% of 40% of capital gain assumed
|Earnings (dividends plus growth)
|Year end Total after CGT
5 year Return on investment - calculation for stocks and shares
Your Return (after tax ) divided by your investment amount results in your ROI
R 332 971/ R 700,000 = 0.47
5 year ROI is therefore = 47.% ( ie; you added 47 % to your investment over 5 years)
Buy-to-let property investment
Assuming a moderate buy to let townhouse investment of R 700 000 of the right type of property (a two bedroom townhouse) in the right area with conservative capital growth expectations.
Capital Growth per annum : 7%
Rental Growth per annum : 8%
Tax rate (personal tax rate) :30%
Capital Gains Tax ( CGT) Inclusion rate :33.3%
Annual provision for vacancies & Repairs :R10 000
5 year Return on investment - calculation for buy to let property
|Total annual Investment - Expenses after tax
|Capital Growth (adjusted for CGT)
|Property Value after CGT
Total Investment over the 5 years is R 128 830
Capital Growth R 275 370
Your Return (Capital Growth) divided by your investment amount results in your ROI
R 275 370 / R 128 830 = 2.13
5 year ROI is therefore = 213% - (IE ; YOU MULTIPLIED YOUR MONEY OVER 5 YEARS!
Something important to notice is that since the bank paid for your investment, your investment portion is not teh full R 700 000 but only R40 000 initially plus R 88 000 which was payable over the next 5 years making the total investment amount only R 128 830.
You have therefore multiplied your money, not merely added a percentage to it.
This brings us to the next point, using other people money to pay for your investment.
3 Using Other People’s Money
Seriously? Can ask other people to invest for me with their cash?
Yes you can! When you buy a townhouse, you can get other people to pay for it, and you get the benefit of the investment.
By this time you may think I am insane, but please stick with me, We do this all the time.
The buy to let formula is essentially that you buy a lettable property that the bank pays for initially and then the tenant pays the bank back and you are left with the property free and clear after some years.
Any normal investment anywhere in the world would require you to pay for the entire investment with your money - after all that is the definition of investment!
Normal Investments - (eg shares and precious metals) you pay 100% of the purchase price. You pay for the whole pie
You pay for the whole pie when you invest in normal assets such as
- Cash – (a savings account in your local bank)
- Currencies (like US Dollars , Pounds Euro, Yen etc)
- Crypto Currencies (Bitcoin, Litecoin, Ethethium etc )
- Stocks and Shares (even General Electric or Microsoft shares!)
- Unit trusts (generally a basket of various shares)
Buy to let property investments
However, when you buy property the bank pays for the property not you!
The bank lends you up to 100% of the total cost and your tenants then pay the bank loan off. Basically you get the whole pie, but only pay for a slice.
One of my clients said, “This is too good to be true and feels like it should be illegal. But it isn’t!”
You get the whole pie, but only pay for a slice!
After looking at these three assets classes, the way forward becomes obvious, the numbers speak for themselves.
Cash in the bank: In 5 years you add 27% to your money
Stocks and Shares: In 5 years you add 48% to your money
Buy to let property investment: In 5 years you multiply your money - 213%
With return on investment numbers like these you may well be asking yourself, "Why haven’t I seen this before?"
Isn’t it time you got started with buy to let property investment? Multiply your wealth using other people’s money!
Before you react with a knee jerk and jump in and buy a property you need to know how to avoid the many pitfalls of property investment. Many people think its easy and then make disastrous mistakes, give up , and tell their mates, "Property investment is bad !
In case you think there are only 4 or 5 simple steps to buy to let investment, think again. Unless you get help, you are destined to make the mistakes that all the people before you made when they "had a go" at property investment…
The basic process of buying a property is as follows;
- Select the correct type of buy to let property,
- Select the right right location to suit future tenant demand,
- Pay the right price - balance the cashflows,
- Bond finance application,
- Overcome the complication of buying already tenanted property,
- Installing credit worthy tenants
- Manage your cashflow for the next 30 years
. . . the list goes on. At every step mistakes can be made which can cost up to hundreds of thousand of Rands! We have compiled a list of 501 common mistakes that often cost inexperienced investors both time and money. - Heaps of it!
A friend of mine who reached out to me for help had initiated an illegal eviction due to his ignorance of the various applicable laws. He believed the property was his own and he could therefore do as he pleased, " I'm the landlord after all ! "
He decided to take action and lock his tenant out. While he and his locksmith were busy changing the locks, the police arrived and arrested him for breaking and entering ! In terms of the law he was guilty, even though he had cancelled his tenants lease and told him to "get out"
Ask around and you will find hundreds of similar horror stories out there caused by inexperienced investors who simply have a go !
Don't let other people's mistakes prevent you from taking part in this awesome investment opportunity. I can help you navigate the many pitfalls and make sure that you buy the right type of property, in the right place and at the right price. Thereafter I'll help you mange your unit to maximise your returns for years to come.
Call me and let us discuss how you can get in on the action while avoiding the the 501 common costly mistakes,
Whether you are fighting for your financial freedom, planning for retirement or simply trying to increase your wealth, call or Whatsapp me ( Neil ) on 082 44 44 034 and I’ll show you how to join our Premium Investment Club and start your own property investment portfolio today!
In my next article which will only be available only to our Premium Club Members, I unpack the explosive and exponential growth that occurs in buy to let property returns over longer time periods and tell the story of how my return on investment is beyond calculation. The ROI on my first investment property is infinite!