Real Estate Investor Magazine South Africa November 2018 | Page 63

INVESTOR INTELLIGENCE
Your liabilities are all the things that take money away
from you, which might include your credit cards, the
remaining balance on your car loan, or the mortgage on
your home. Your balance sheet will give you a picture of
your current wealth.
Your personal financial statement will bring your
financial goals into sharp relief. You’ll see where your debt
is concentrated or how to pay it down, and you might
see where you could bolster your asset column. It may
lead you to form a plan to decrease expenses or increase
income. Some decide to downsize their homes in order
to free up some money for investment, while others may
opt to rent out their existing home and move to a smaller
home to generate cash flow, increase passive income and
decrease expenses. Only you can decide how to address
your financial situation. Seeing your assets and liabilities in
black and white will open up a lot of possibilities you hadn’t
considered before.
But unless you plan to increase your working hours, ask
for a raise, or seek a better-paying job, your income options
will be limited. The only real way to significantly improve
your income will be to increase your passive or portfolio
income. • Sectional title house on estate
Passive income is the suggested method for growing wealth.
It is not only the fastest method, but is also the easiest,
because it means other people’s money, time, and energy are
working for you.
If you’re like most people, your financial report card
reveals that zero percent of your income is passive. So your
first step is to determine what percentage of your income
you’d like to make passive. Start with where you’d like to
be one year from now, as well as a longer-term goal of five
years from now. What would a reasonable monthly passive
income goal be? $1,000? $5,000? $10,000? More than that?
Remember that your goals are dependent on what you’re
willing to do to make them happen. Know that you can also
recalibrate your goals down the road as you learn more and
determine what works and what doesn’t.
A lot of people, once they’ve made up their minds to
invest in real estate, decide to jump right in and figure
things out as they go along. Some people learn best by
doing and making the occasional mistake, while others do
what they can to head off those mistakes by completely
educating themselves first and consulting with advisors and
investors. Everyone is different, and you should do whatever
is most comfortable for you.
Essentially you’ll want to determine something
specific—how much you want to save, how much of an
initial investment you plan to make, what you’ll do with
that initial investment, and over what period of time.
For example, maybe you’ve decided that within six
months, you want to save R100,000, which you’ll then turn
around and invest into a piece of rental property by the end
of one year. If this is doable for you, it’s a worthy goal. From
there, perhaps, you might decide that within ten years you
want to have five rental properties.Beyond that, you have
other decisions to make: What kind of properties you’ll
invest in, where, and what to do with them.
The following are your numerous real estate options: • Buy and hold, capitalizing on appreciation, or
2. Set Your Real Estate Goals
• Freehold house
• Flats/Apartments
• Townhouses /Duplexes
• Commercial office space
• Commercial industrial space
• Retail
• Hotels/Motels
Each of these has its own choices as well—flats vary
in size, so are you interested in 20-unit complexes, 100,
or more? Starter-market or high-end gated communities?
High-rise office, strip-mall retail… your choices are
plentiful.
Then you must decide where you want your properties to
be. Are you looking for properties nearby in your town, in
a neighboring town, in another province, near water, urban,
rural?
Now, what will you do with the property? You could:
• Buy foreclosures cheaply, without intending to earn
immediate cash flow from them
• Fix and flip, intending to purchase cheaply, refurbish,
and resell for a profit
• Buy, hold, and rent, earning both appreciation and cash
flow.
The Rich Dad strategy is buying and renting, which
maximizes short- and long-term income potential.
3. The Wisdom of Investment Specialization
Because the real estate world offers so many options, it’s a
good idea to focus on a particular area of specialization. For
instance, you might become an expert in buying, holding,
and renting small, one and two-bedroom apartment
buildings in a particular area of town. Perhaps you used to
live in an apartment in that area years ago and understand
the needs of that community and that type of resident.
Each geographic area has its own unique dynamic, its
own zoning regulations and its own distinctive resident,
so it’s a good idea to focus on one particular area. As you
become an expert in one investment area, you will be more
apt to learn another area quickly.
Another word of advice: Start small. You will make
mistakes, so make them early on, with low-risk, low-end
properties in which there isn’t as much at stake for you.
4. Stick with Your Game Plan
One final point about why it’s a good idea to stick to the
same game plan when you’re investing in real estate: When
you assemble your team of advisors, one of them will be
your real estate agent. He or she will be an expert in one
particular sector—the one you’re investing in—but most
likely won’t be an expert in other sectors. For example, he or
she might specialize in duplexes, but not strip malls.
By sticking with one sector, you can retain the same team
of advisors without having to seek others. And as far as your
team is concerned, it’s best to find them, understand their
strengths and use them as your investment vehicle. This also
leverages experience. When you’re ready to broaden your
investment horizons, you can seek new team members.
SOURCE Corporatedirect.com; RichDad.com
SA Real Estate Investor Magazine NOVEMBER/DECEMBER 2018
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