Real Estate Investor Magazine South Africa September 2015

COVER STORY How to Turn Bad Debt into Good Debt Leverage, Invest and be proactive to thrive BY NEALE PETERSEN T he South African consumer has never been under so much financial. The world economies are teetering on the brink of a currency and financial collapse according to Robert Kiyosaki, international investor and financial forecaster. He predicted the sub prime crash in 2007 and the bankruptcy of Lehman Brothers bank in the US in 2008. There is a currency war between the US dollar and other currencies and it is going to result in a crash. South Africa’s Gross Domestic Product growth is not expected to be more than 2% for 2015. Business confidence is weak, which in turn makes investment conditions weak, resulting in high unemployment. There is limited credit growth for households, which directly affects their pockets and the cost of living is spiraling out of control from increased interest rates and inflation from governments passing on more financial burden to taxpayers. South African consumers already spend more than 80% of their income to service bad debt. Unemployment is at a high while businesses struggle to survive and banks start jockeying for position to seize properties on mortgage bond defaulters. Now is the time to understand the rules of the game more so than before to thrive and survive. Consumers need to be educated in the difference between good and bad debt, and the steps to take to alleviate yourself from bad debt. 16 SEPTEMBER 2015 SA Real Estate Investor Good Debt - How money works for you Real Estate loans on commercial or industrial property are usually available for up to 75% of the property’s appraised value. Repayment, usually monthly, is amortized over 10 to 25 years, with payments completely covering the loan by the end of the loan period. If needed it is often possible to obtain a second mortgage on the owner’s remaining equity in the property. Interest rates are typically higher than those for the first mortgage. If the value of the property has increased since it was first financed, it may be possible to refinance by taking out a new mortgage. The old mortgage is paid off from the new, and the borrower receives the difference. It is advisable not to risk real estate if the business is in a weak position within the market. When you offer real estate as collateral, you should have a solid business position. The real estate is simply the asset that leverages your business for growth through the liquid cash gained through financing. Prudent business owners will carefully consider whether to borrow on their equipment to finance ongoing operations or expansion. Bad debt makes you poorer and is the dependence on credit card expenditure, store card car credit, car loans and anything that is a lavish expense such as holidays and furniture used to buy liabilities. It was King Solomon who said, “The borrower is slave to www.reimag.co.za

Real Estate Investor Magazine South Africa September 2015 | Page 18