investment question!

[raf]

if you had R400 000 from a previous propery would you

invest the whole amount into your new property to keep the repayment low or invest the the whole amount in a investment and use the monthly interest
to pay some of your new bond...or just invest the whole amount in a long term equity for 15 to 20 years. alternatively

buy a small bachlor flat cash and use the monthly income to put into your new bond or sell it later for a profit or buy a small business.

any suggestions ?

[daveob]

Looks like the ideal subject for a poll.

[Chatmaster]

if you had R400 000 from a previous propery would you

invest the whole amount into your new property to keep the repayment low or invest the the whole amount in a investment and use the monthly interest
to pay some of your new bond...or just invest the whole amount in a long term equity for 15 to 20 years. alternatively

buy a small bachlor flat cash and use the monthly income to put into your new bond or sell it later for a profit or buy a small business.

any suggestions ?

A year ago I would have suggested that you dump the money into your existing property as the rate at which the property prices were growing was equal to none.

Things has changed since then and Standard bank issued a statement yesterday that the property price growth is down considerably. However there is still a large demand for property which means to me that rentals should be in high demand.

I am no investment professional but I would suggest that you check out flats or houses that are about to be repossessed by the banks and pick up a property that are below value and rent it out. That way you have property that is already worth more than what you pay for and you earn a decent income of it each month.

[Dave A]

There's a wonderful story I heard - I'm sure it was an advert actually.

In 1600 (something) Mahattan Island was bought from the locals for a handful of beads.
Today Manhattan Island is worth (lots of money).

If those locals had invested the value of the beads in an interest bearing account, the value of that account would today be worth (even more money). The power of compound interest.

It was an eye opener.

Now I'm inclined to say that blue chips are outperforming interest over the long haul, and of course the last 400 years may not have a bearing on the next ten.

So I would lean towards balancing your portfolio a bit.

Note: I'm not a financial advisor.

[RKS Computer Solutions]

Hi raf, please read the PM I sent you, I have included personal bank details plus a document you need to sign wavering me of any responsibility towards the new-found 400k...

hahahahahaha

Seriously though, where are you based? My suggestion is to find a Financial Advisor, and discuss your various options. We can comment all we like, but unless you sit down with someone professionaly and get all your details and aims on the table, we will all be shooting in the dark.

Good luck and be safe!

[duncan drennan]

Raf, what are your goals and needs with the money? Cash flow, capital growth, security?

[Balsak]

Raf, the question posed by dsd is very important. The investment strategy for each goal will differ substantially. Below is just some of my thoughts on the subject. Read this while keeping in mind that my own goal is long term capital growth.

South Africa's current account deficit is currently standing at more than 8% of GDP. What's more, this figure is expected to grow for at least another three years. The driver of this situation is simple, we are importing considerable capital assets (machinery etc) to drive our local capital expansion and not exporting enough goods and services to fund this outflow of money. Because we have to pay for these capital assets in foreign currency, there is a net drop in demand for the rand (selling rands to purchase, say pounds). We can therefor expect the value of the rand to slide commensurately against other major currencies. Unfortunately we can't see into the future, but based on the little we know, it would be advisable to invest your money offshore. Of course the simplest way to achieve this is to invest in exchange traded funds. Currently only two Itrix funds are available but an additional three will be launched soon. Contact a broker to find out more. Alternatively, in my opinion the SA banking shares are offering excellent value and was probably oversold by foreign investors.

Please note that I'm not a financial adviser but I do have much of my own money invested in both Itrix funds as well as in Standard Bank Ltd and Investec Ltd.

In the very long run (20 years +) you probably won't loose out on well chosen property. However, to make good returns in the short term, you'll need lots of property investment know-how and of course some luck.

Lastly, if you are unsure, the best might be to temporarily leave your money in a money market fund. You can get before tax returns of roughly 11% with a minimum amount of risk exposure. SARS will allow you a R19000 interest exemption per annum. If you are married and your wife doesn't earn any interest income, you can donate some of the money to her so that you both make use of your exemptions. Donations between spouses are not subject to donations tax, unless SARS suspects you of trying to evade tax :-).

Again, I'm not a financial adviser, I'm simply posting my own thoughts around the issue. You have to fit the facts to your own needs and circumstances.

[Balsak]

One more thought. The real power of property investments come from the leverage effect that you get by borrowing money. Essentially this means that you can say, invest only R300000 in a new property and have the tenant's rent cover the outstanding bond repayments. You then still have an additional R100000 to invest elsewhere. However to achieve this now, you'll almost certainly have to pick up a bank repossessed property at a bargain price.

If you buy a property cash, the investment question boils down to what your time horizon is because in the long run your equities would ALMOST certainly outperform such a property investment.

[Karenwhe]

I am not financial advisor either [end of disclaimer]

1. You can invest the whole amount somewhere (not the stock market in the following situation, or very little in SM).

2. Once that is done, then you could buy property (more than one) based on your affordability which will include the amount invested with a bond to the max they give you (if you have good affordability + your invested amount 100% bond should be easy).

You make sure the property is cash+ (essential).

3. Then (give it 1 to 2 years depending on market) you refinance your properties to the new equity, with your new affordability with the cash+ and your amount invested (which assumably has not been touched).

4. Then you take the refinanced money and buy more property cash+.

5. and you repeat the process until you are financially free, which shouldn't take that long if you have good solid affordability and you keep buying the correct properties.

-----
6. Then you could add to that the stock market and take some of that money (a little though) learn to invest with it (warning: this could be painful at the beginning).

7. Double that amount in the stock market, put the initial amount back where you took it from and,

8. Repeat the process.

This of course is just an idea, hope this helps. It is easier said than done, but done it is by investors all the time. It just takes time to learn how to do it.

P.S. No offense to financial planners, but I wouldn't use one as they sell you what they get commission on. I would rather learn to invest myself in all asset classes (which I did in my life), than buy all sorts of financial planner products.

[Chatmaster]

I wish I can one day understand how you can make money buying a property you eventually pay double or tipple for, sigh. My head is just to flat for this...

[Dave A]

I think when it comes to your primary residence, you've got to factor in the fact that you need to stay somewhere - so the equivalent rental needs to be factored into the equation.

For investment properties, someone else is paying the rent - and the money is made by capital growth as well as rental escalations. This, of course, assumes capital growth and an inflationary environment.

As an aside - I suspect this is why good equities outperform property over the long term. With a property - well, it's earnings footprint growth is rather limited to the size of the plot. With a good company, they are constantly striving to grow their earnings footprint.

As Karen pointed out earlier, though - External financing is something of a swing factor in what might be best for any particular individual at any given time.

I also share Karen's concern that financial planners might be more motivated by what yields the best commission as opposed to the best return for the investor.

[Karenwhe]

Chatmaster, I don't understand what you don't understand .

You actually do not buy property. You buy money it is called a bond and you sell it at a higher rate than you buy it. You do this by buying with that money a property that is cash positive.

You sell this money (figuratively speaking) to the person/tenant that can not or does not want to have a bond right now.

Does that make more sense.

P.S. If you buy property in the entry level townhouses where there is a shortfall between the bond repayments and the income, then of course you can't do what I just said because eventually bankruptcy may lurk around. Though even that is not 100% true, but only a possibility if finances are miss managed in a restructure should things get tight.

[Karenwhe]

I think when it comes to your primary residence, you've got to factor in the fact that you need to stay somewhere - so the equivalent rental needs to be factored into the equation.

Primary residence is usually a liability up to the time when equity becomes realized. I know a million people would want to argue with me because it hurts their perceptions, but that is besides the point...... simply because primary residence does not make money and equity is "ghost money" until it is realized and you can :take it to the bank", as they say.

And if you don't believe me ask all the people that didn't have sound financial management and now are being repossessed. What does their asset equity help them? It is the exact liability that got them repossesses because......... they couldn't afford it anymore.

For investment properties, someone else is paying the rent - and the money is made by capital growth as well as rental escalations. This, of course, assumes capital growth and an inflationary environment.

That is true. Money is made both in capital and income. But if one aims to be financially free one day soon, they should aim to buy properties that are suited for income and leave the capital issues as a side benefits.

The best situation is to find the middle ground between income and capital. But that will depend on what ones strategy and what one needs (e.g. at an advanced age person may not be able to think much about capital but more about income to live on because of obvious reasons).

As an aside - I suspect this is why good equities outperform property over the long term. With a property - well, it's earnings footprint growth is rather limited to the size of the plot. With a good company, they are constantly striving to grow their earnings footprint.

I do not remember last when, equities have made someone financially free within 3 to 5 years and rich beyond any basic needs quite fast thereafter.

That set aside, I believe in equities, but less than in properties, simply because you have no control. It is as simple as that.

Good companies go down, properties don't and if they burn, get wiped out you have insurance. And if equity goes down, rent still comes in. Think about that for a second.

What do you get when the stock market goes down (a lot of money if you are short, but besides that) if you are invested in a company and the sectors is getting wiped out for some reason and the good company can't make it. What do you get? And then how much control do you have to save your situation?

That is not to say that one can't lose a property, but that would be the investors fault in financial management and it can happen, but the investor still has control. In good companies you have to take a microsoft perspective: "plug and pray" . Just kidding.

If I want equities I would rather go IPO than invest in someone else. But hey that is me. I play the stock market, but not for investment at any rate, but pure making money day and intra day trading (and I must make a shameless admition....... also for fun).

Hope this helps.

[Dave A]

I do not remember last when, equities have made someone financially free within 3 to 5 years and rich beyond any basic needs quite fast thereafter.

You reckon it's not happening? I reckon folks just don't shout it from the rooftops as much anymore.

I've got to say, there's a lot to think about in this thread.

[Karenwhe]

You reckon it's not happening? I reckon folks just don't shout it from the rooftops as much anymore.

I just don't see that, that is why I am saying it. I don't really understand why, but many people have become financially free through property, again, you may think I am not objective, but I live in both worlds, just happen to focus on one right now more than the other.

When were they bragging? I missed that point in time. Maybe it is me, no worries. But other than the tech boom, (in which time I was right in the middle of it and working with telcos - not in SA), IPOs plenty, money was growing on the trees, no kidding it wasn't even funny anymore.... I did not see this happening.

But again, I am not saying it is not possible, or it didn't happen, but what I see is that it does not happen as often as property and you have NO control.

In equities and companies if you want to have control, build a company with an IPO exist strategy - but that is no kiddies game and we all know that.

Which..... with the risk of sounding like a control freak, which I am, I don't live in denial about anything - control of ones assets and knowledge has massive importance for fast and easy success.

Forget strategy and anything else, if you have no control, all bets are off. Just think about it for a second.

I don't want so sound anti in any way, as I said I live in both worlds, but for the man in the street with a job and basic needs such as putting food on the table, playing in a world of the "good companies" can be vastly misleading to where it can end up. And we all know Enron and even Apple was up for explanations with back dated shares, sub-prime problem was also created by some "good old companies" with some dumb ideas, and the list is so long that is not worth mentioning anymore.

Opportunities are plenty in both markets, "short", "long", "bull, "bear" you name it... but you need control to a decent extent and lots of knowledge to make the right decisions in both markets.

Property is just far more easier and even more forgiving to some extent.