Real Estate Investor Magazine South Africa July 2013 | Page 24
SMART MOVES
BY KOOS DU TOIT
You Don’t Need Money
To make money
M
ost of us have grown up with the
belief that “you need money to make
money”. While hard cash may be
a requirement for most traditional savings
and investments, this old adage is indeed a
myth when it comes to buy-to-let property
investment.
The reason is simple: buy-to-let property
allows investors to use the fundamental
financial principle of “leveraging” or “gearing”,
which is widely used by institutional investors
and wealthy individuals to overcome the
challenge of not having enough hard cash
to invest in a good opportunity. It is a very
powerful principle, as Archimedes reminded us
hundreds of years ago when he said: “Give me a
lever long enough and I shall move the world”.
Using other people’s money
In very simple terms, leveraging or gearing is
simply using other people’s money, instead
of your own, to invest. And the ability to
leverage or gear an investment is one of the
most outstanding and unique features of a buyto-let investment strategy. What few people
understand is that you don’t need R500 000 in
hard cash to buy a buy-to-let property valued
at R500 000. You can borrow money from
the bank in the form of a home loan to buy
the property. By obtaining a 100% mortgage
or home loan, the investor would ‘gear’ the
investment 100%. In the current market, you
may need a 10% deposit of R50 000, which
would amount to 90% gearing.
22
July 2013 SA Real Estate Investor
Repaying the loan
Getting the money
Of course it is all good and well if the bank
gives you a bond, but how will you repay the
bond ever y month? Another outstanding
feature of buy-to-let property is the fact that
you are not simply investing in a property
that will appreciate in value over time, you
ar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˜?Z[XY????B??