Real Estate Investor Magazine South Africa February 2014 | Page 22

GETTING STARTED BY KOOS DU TOIT Why Invest In Property? It’s the simple, understandable alternative, that’s why! F ew investors follow sage advice from the world’s most successful investor, Warren Buffett: “Never invest in something you don’t understand.” Instead, most investors pay dearly for investment “advice” regarding risk tolerance, asset allocation strategies, securitisation, hedging, offshoring, intrinsic values and valuations, liquidity, price-earnings ratios, market volatility, return targets, risk premiums, growth assets and risk assets, bulls, bears and bubbles… and then face the intricacies of assembling all these complex factors into a coherent investment strategy that will, hopefully, deliver returns above inflation given the many uncontrollable risks involved. Looking for an investment alternative that will allow you to follow Buffet’s advice? Many investors are surprised to discover just how simple buy-to-let property investment is. It is really simply a matter of understanding a common sense strategy and implementing a proven system: acquire a well-chosen property, rent the property out to a good tenant, get a professional rental management company to manage the tenant and the property for a fee, and then watch your relatively small investment grow into a passive income stream for life as the property produces an inf lation-linked rental income month after month, while also producing capital growth year after year. Used to the complexity of the world of investments, investors often have a range of objections to the simplicity of this investment alternative, but – as can be expected from such a simple strategy – there is a simple solution for every objection. 20 February 2014 SA Real Estate Investor Buy a property The first objection most investors pose is that they can’t afford to buy a property. The solution is simple: using “gearing” or “leveraging” by borrowing the money to acquire the property through a home loan. The next common objection is that they already have a home loan, so they can’t get another one. The solution is simple: set up a trust, which falls outside the ambit of the National Credit Act, and obtain a second bond through the trust. Rent it out The obvious next objection is that they can’t afford to pay a second bond. Again, the solution is simple: use the rental income from the property to pay the bond and the other property expenses. Of course, this means access to the passive income the property generates is delayed. It is, however, a temporary situation, because the rental increases each year, while the biggest monthly expense, the bond repayments, remain static (barring interest rate movements). Within a few years, the growing rental amount will exceed the property expenses, and the investor will start receiving a monthly income from the property. And once the bond is settled – and it is possible to do so in as little as 11 years – the monthly rental becomes an ongoing, inflation-linked passive income for the investor that will continue for as long as the property is held. Use professionals Another objection is a lack of property knowledge and experience. Another simple solution is to join a professional property investment organisation, such as P3 Investment Group, which will provide access to pre-screened, pre-selected properties; custom-designed software investors can use SUBSCRIBE to check each investment option and compare different options; as well as step-by-step assistance and a personal mentor. Some investors will still argue that finding a good tenant is almost impossible and that there is too much maintenance involved. But the solution is simple: use a professional rental management company that, for a reasonable fee each month, will find, thoroughly screen and manage a reliable tenant, as well as take care of the maintenance of the property. In addition, rental insurance is available to ensure that the investor receives the rental each month on time and that delinquent tenants are evicted at no cost to the investor. Repeat Once an investor has acquired one buy-to-let property and successfully tenanted it, it is a simple matter of duplicating the process to acquire another buy-to-let property, creating yet another income stream and yet another source of capital growth. This simple system can be duplicated as often as the investor’s cash flow [