INVESTOR INTELLIGENCE
Cash Flow Positive
Property
CBD Purchases
BY PIERRE VAN DEN BERG
Prior to 2007 I did not even know of the existence of “ cash flow positive properties ”. I got awakened only through networking with different property investment groups , specifically to examples in Johannesburg . Having been familiar to a scenario where it takes at least 5 years for your rental income to cover all compulsory expenses , this sounded like the way to go . But how is it possible to manage a property and tenant in Johannesburg if you live in the Western Cape ? And how intelligent is it to buy property in Hillbrow , Berea , etc ? Many experienced property investors will actually warn you against these exact actions .
Due to a persuasive agent I jumped in and bought my 1st cash flow positive flat during 2007 in Joubert Park [ 61 sqm , R 120 000 ]. And then the learning process started . Three years later I sold this property for a loss , because of a BC that became corrupt and non functional . But matters improved from 2010 as I got involved with a property investment group consisting mainly of Cape Tonians investing in Johannesburg cbd flats . I would not have pursued this option it if it was not for their support and guidance – advice as to which rental agent to use , the better and safer blocks to invest in , aspects to investigate before committing to buy , etc .
Having resigned from my job and not qualifying for further bank financing , it turned out that this option worked perfectly for me . With purchase prices this low I could still afford buying in cash , making use of access funds accumulated in an already existing bond . [ Buying in cash is not advised , as these riskier
properties should rather be financed ]. Doing the calculations , these flats are usually cash flow positive from day one . Generating a net monthly income , suited me like a glove . Although income , and not capital growth , is the main motivator for buying this type of property , my flats indicate an average capital growth of 10 % per year . After 6 years of ownership most of my flats are currently showing an annual ROI of between 14 to 22 %.
If this sounds like a fairy tale , maybe that is exactly what it is . This is high-risk property investment . The potential for things to go wrong is high . Most buildings in cbd are old and have not been maintained that well ; the needed financial- and other skills lack among the trustees of Bodies Corporate ; situations easily develop whereby a number of owners default on paying levies ; often special levies are initiated to try and fund the most critical maintenance . Before opting to buy , a thorough due diligence should be done . Numerous aspects should be scrutinised , e . g . the financial status of the BC [ the majority of blocks in cbd are in debt with City Council ]. Although an over supply of tenants exist , a huge effort should be put into tenant sourcing to minimize risk and to only place the best suitable candidate .
My experience is that one should invest lots of personal time in the sourcing and management of these properties . Leaving everything in the hands of an agent won ’ t be good enough to succeed .
RESOURCES
thankstoproperty . co . za
28 NOVEMBER 2016 SA Real Estate Investor www . reimag . co . za