Real Estate Investor Magazine South Africa September 2013 | Page 8

ASK THE EXPERTS Buying Property Lending Criteria Managing Tenants Q JT Foxx JT Foxx Organization www.jtfoxx.com Jonathan Stewart Asks: Q Ken Reynolds Nedbank Corporate Property Finance www.nedbank.co.za Steven Mzimande Asks: Q Michelle Dickens TPN www.tpn.co.za Ryan Daniels Asks: I have read about buying properties below market value and also buying property without using any of your finance in the US quite a lot.  In SA I have also heard a few people say that is possible to do the same. My question is how does that work in practice? I am having difficulty getting finance to purchase an office block with a residential component in the Johannesburg CBD. What is the bank’s criteria in awarding finance to a Pty Ltd that is applying for the finance? I am a landlord who owns more than 200 properties both located in flats, I refuse to use an estate agent to manage my properties. Is there a cost-effective way to use tenant check validation via a central tenant management system?” A JT Foxx Responds: A Ken Reynolds Responds: A Michelle Dickens Responds: Buying properties below market is essential, not only for short-term success in real estate but also long-term sustaibility as a real estate entrepreneur. Too many investors approach real estate like gambling, they buy hoping it will go up. The houses win most times and it’s usually not your house. Buying properties without money doesn’t mean that there is no money involved, it just means it’s not your own money. My whole life people told me, it does not work here, this country is different or the laws are different here. Bottom line good deals don’t come to you, you have to make them good deals. So the answer to your question is, yes it works, and I plan on showing the entire country how to do it, not by teaching but by lots of properties. Here is a little secret, I buy real estate, I never just put in one offer. If you put in one offer you are allowing the person to say yes or no, you want to engage in dialogue. So I usually put in a low all cash offer and another that is more creative. You will be surprised at the multitudes of opportunities you now have and the negations you can take part in. At that point everything is negotiable. Lending of money in general and specifically in the property field is about the certainty of future income and its ability to service the debt required, together with the value of security available to secure the debt. In this specific case the future income is only secure for three years on the offices, depending on the quality of the tenant, and the residential income is subject to market conditions over the period. The property valuation will ref lect this as reducing the value of the asset and it will prove difficult to entertain an aggressive level of lending on this property. Funding of property is not an exact science but depends on a mixture of the certainty of future income, adequate capitalisation and the expertise of the borrower to run the asset. The norm in the market for the funding of commercial properties is between 60% and 75% of value, with the balance having to be equity funded. Investing in commercial property is a capitalhungry business in that any portion of the purchase price of a property not covered by debt needs to be equity funded and the numbers are usually large. Tenant screening is a fundamental part of property management. A landlord’s property investment can be seriously impacted by a nonpaying tenant, or worse a squatting tenant. TPN Credit Bureau understands that the ability to place quality tenants depends on having a previous record of that tenant’s rental behaviour. For this reason TPN contracts with landlords who may simply have one property, even a cottage which they rent out, all property managers including independent agents, franchises as well as listed property funds. TPN members can access the TPN credit bureau database to search for their prospective tenant’s rental history including how the tenant paid their rent each month of the lease. TPN members also feedback to the database on a monthly basis how their tenant is paying (on time, late, partially or not at all), this feedback is loaded on the tenant’s credit profile and the tenant is advised via SMS how their payments are positively or negatively affecting their credit profile. If so, post it on ASK THE EXPERTS on www.reimag.co.za or email [email protected] 6 September 2013 SA Real Estate Investor www.reimag.co.za Do you have a property question you would like answered by our experts?