Part 3 – Where in the world do you make 100% ROI

There are two more compelling reasons why you should consider property to balance your investment portfolios:

This investment class attracts a tenant who’s rent covers 85% to 100% of the initial running costs of your auction property investment (mortgage repayments, levies, maintenance costs and property management fees). What this means is the tenant pays for your investment and will overtime, pay you an escalating  rental income.

Some do not invest in property because they are afraid of renting to bad tenants. Bad news travels fast and we always hear about the 10 investors who have had bad experiences renting their properties, we rarely hear about the other 90 who have done well through their property investments. Remember, there are no risk free investments.

The second compelling reason is that property has always been a more tax friendly investment class, especially if your property investments are placed in the correct property trust structure. Property bought in a property trust which is setup correctly can save the investor considerably.

For more information email me – clive@ifinplan.com

Part 2 – So where in the world do you make more than 100% ROI?

Now, what happens if I buy an investment property below its real value?

If I purchase a property with an intrinsic market value of R500,000 for R400,000 at an auction. I pay the deposit of R40,000 (10% of the purchase price) plus auction commission and costs of R35,000 for a total investment of R75,000. My gain on this auction property is R150,000 (the R100,000 difference between the market price of R500,000 and the purchase price of  R400,000 plus the 10% growth on the property from R500,000 to R550,000). The R150,000 return on the R75,000 investment is 100%.

Now some will argue that the property market is not performing at 10% growth, and currently they are correct. Yet even at 5% growth, a property purchased below its market value still performs better that other investment classes because of the equity I gain through the discounted price and the leverage I get through a 90% bank mortgage.

While some collective investment schemes boast 30%, 40% and sometimes 50% per annum returns, an educated and experienced property investor can (and do) achieve between 100% to 200% returns on their residential property investments.

Part 3 (final) next week.

Part 1 – Where in the world do you make 100% ROI

When calculating any Return on Investment (ROI), one must compare apples with apples. My investment of R50,000 buys me R50,000 shares whereas the same R50,000 investment can buy me a residential property valued at R500,000 with a 90% bank mortgage. For the sake of this discussion we are going  to presuppose that the shares will grow by 20% and the property by 10% during the same 12 month period. The return on the money I actually invest is remarkable between the two scenarios. Allow me to explain:

If I purchase shares through a collective investment scheme for R50,000 and these shares grow by 20%, the R50,000 investment makes me R10,000. Compare the same R50,000 I invest in property valued at R500,000 which grows by 10% to R550,000. This gain is R50,000. R40,000 more than the shares.

Part 2 next week.

Most middle class South Africans are getting poorer every year.

There are about 9 Million active income earners in South Africa and the average income of all of these income earners is a monthly income of R4,484 (Source BMR 2009). So when Stats SA says that the CPI is currently at 5.7% then they are right – providing that…you are the average income earner, that is – you earn R4,484 a month. Inflation is a lot higher for those who earn more than R 4,484 a month.

In 1972, the Argus newspaper cost 5 cents and now costs R4.80. This works out to be a 13.3% year-on-year inflation every year since 1972. In 1972 Rainbow Chicken cost 50 cents per kilogram and now costs R24.99. This represents 11.2% year-on-year inflation. A BMW 2000 sedan cost the total sum of R3,595 in 1972 and now a BMW 320i costs R315,500 which works out to be 12.9% year-on-year inflation.

Two weeks ago the Times newspaper’s front page article spoke at length about how the cost of living is growing at an alarming rate, thanks to a government that refuses to correctly educate the public properly on financial matters. Now Eskom, and virtually every business and organisation plays catch up with the true rate of inflation.

If your cost of living is increasing year-on-year at 12% and your income and assets are growing at 8% then I am sorry to tell you, but every 18 years your wealth is being halved. You may want to try the 7 Year Wealth Plan™.

Focus on your strengths

Isn’t it amazing! When we did badly in a subject or two at school, our parents and teachers told us to put more time and effort into our failing subjects. Adults taught us to concentrate our time and energy on the areas of our education that we were not interested in. In fact, instead of “focusing” on our strengths, we were taught to “focus” on read more »