Real estate investment calculation - are the numbers right?

[Houses4Rent]

I also have property which I rent out. The extra money I put into the bond. To me this is a better investment.

An access bond is a very good investment indeed. Once paid off never cancel it and just buy the next property.
Property is the only investment which I can gear. No bank will borrow me money to buy shares etc etc. And to top it all I send my tenants to work to pay of my assets.

[Justloadit]

I cannot exclude that chance, but I am sure my urban properties owned in a trust are not the easiest targets for a land grab.

Does not matter who owns the property, they simply take it over.

[Houses4Rent]

Does not matter who owns the property, they simply take it over.

So lets talk colours here. If a black person owns/lives in a property (flat/house) another black person just comes and takes it over?
Where do you get these stories from?

[Dave A]

If you want hassle-free investments, put your money in government bonds, they render 8% per annum.

It's been a while since I've seen someone make this recommendation. Not sure it's the best option right now in an environment conducive to rising interest rates, but I agree - it's a viable, relatively hassle free option. In fact, tradable bonds purchased at the right time can produce spectacular results.

[Justloadit]

So lets talk colours here. If a black person owns/lives in a property (flat/house) another black person just comes and takes it over?
Where do you get these stories from?

Who is talking colour here?

Some wise words

"When you talk, you are only repeating what you already know;
But when you listen, you may learn something new"

I have family and friends who lost business, houses and apartments during the 70s in neighboring countries.

[Phil Cooper]

The secret is a GOOD tenant.

We are currently spending over R30,000 to fix up the damage caused by a tenant we recently kicked out.....

Not to mention loss of rent while property is empty, being fixed up.....

[Basment Dweller]

The secret is a GOOD tenant.

THIS^^

Finding yourself good tenants also means being in a position to negotiate and turn away tenants that are otherwise qualied but if there's something you don't like about them you can pass and nor worry about going into a month vacancy. Which is why landlords should build up a sizable vacancy/repairs fund.

[Houses4Rent]

All true, but a good tenant generally cannot be easily recognised upfront.

However, if any residential landlord is interested to reduce their risks simply go here
http://www.houses4rent.co.za/landlords.php
and then talk to me. In areas where we cannot do the management we can still put you in touch with the people I use for the risk reduction as an ad on.

[reuphk]

Your calculations on the hypothetical scenario is too simplified and does not take into account a lot of factors.
I suppose we can have very many different views on this, but let me just explain my experience to you and share what I look at (I have been investing in properties for more than 20 years on a small scale, but doing fairly well)

1 - Firstly, look for properties where you have rental income and rental demand. Like anything - if the demand is there for your product, you'll be fine. If not...
Rule of thumb is 1% i.e. rentals in the area go for around 1% of your purchase price. this works for interest rate around 10% (yep, that is not 100% accurate - just rule of thumb)
2 - spread your risk. Better to buy 2x houses for R750K than one for R1,5M. Simple - if one is empty, no income of R7500, but still for the other one. If the R1,5M one is empty, no income for R15000
3 - shop around for homeowners insurance. Not just the premium, but also service. It is normally better to stick to the bank where your loan is, you write this cost off against tax anyway (remember I said you did not factor in all considerations - tax is one)
4 - dont use a rental agency. They do very little, and you part with 7% - 10% for running an advert which you could have done for free
5 - take rentloss insurance. If the tenant defaults, they pay you up to 6 months and take all legal fees and work on them. Worth the 3% - 6% cost
6 - Increase your rent by 5% per annum. Most say 10%, but look at the economy and make your decision from there. Economy in this sector means other rental property prices in the area
7 - in a few years, take out the deposit amount you paid from the original purchase via your flexible bond account. Now you are using only the bank's money (not your own). Watch out for the rent again - dont want to increase your bond repayment to more than what you get in on rent. Another factor you did not consider in your calc
8 - Take 2 months' deposit where you can. And inspect to make sure the property is maintained (yep, the tenant maintains, you maintain the large ticket items, which if it fails e.g. geyser, you could claim from your insurance anyway and write off against tax)
9 - remember that you make your money at the time of purchase. Always make an offer, dont just buy at the listed price. Bank Repo even better. Save on transfer duties (only applicable if property cost more than R500K, so if you could find those, twice better)
10 - Dont sell. Fix, renovate, re-rent, re-loan, but keep it (in a Trust)
11 - always look out for properties with more than one unit for more than one rental income or the potential to add another unit
There is so much more I could say about properties, but then we'll have to publish the book. So in a nutshell... Should you consider to invest in properties? It has worked for me. I "retired" at 34 and can easily live on my property income if I needed to (I have a business other than the property). The first (two) house I bought I sold 2 years later at double the price I paid for it. Shouldnt have sold. Ever since, whatever we have bought, we rent out. Every time I look at house prices I have heart failure and think how expensive it is, but I know in 5 years, that will have been a bargain price.
Examples: Bought a property in 1987 for R75000. Current value (low estimate) R1,8M. Rental income R12000p.m. Rates exp: R453
Bought a property in 2000 for R450000. Current value R2,2M. Rental income R17500 (it was converted into 3 units, renting out 2, parents live in the 3rd). Rates exp. R395
You do the math (remember, it is the bank's money, not mine - I took out my R65000 for that 2nd one in 2006, and the first one was done with a 100% loan)

It is more difficult today than 20 years ago, but in my view - my maths worked out and yep, I make some losses, but then the taxman does not mind to allow that as a tax deduction...

[Basment Dweller]

^^^ This is why I like coming to online forums for info...post a thread and knowledge bombs get dropped out of nowhere...

There's a lot to absorb here...

reuphk I'm curious to know more about your 'don't sell' policy...I hear this a lot from property investors about how they regret disposing properties...also about property trusts, how do you structure your trusts? Do you transfer property directly into the trust or into a company that the trust holds shares in?