You make your money when you BUY!
Meet Fred, an amateur property investor. Fred believes that property in the right location in any shape or form is a good investment. Fred watches the weekend papers like a hawk and finally, he spots an opportunity to invest in an off plan apartment in Greenstone.
“Greenstone!” he thinks…”Perfect! Location is fabulous, easy highway access, close to Greenstone Shopping Centre with plenty of near-by restaurants. Lifestyle centre with pool, gym, squash court, games room, restaurant, spa facilities and wifi lounge. Pet Friendly. 24 hr security. Love it! Done deal!”
The property ticks ALL the boxes for Fred.
Fred heads down to the on site sales office and snaps up a lovely two-bedroom, one bathroom apartment off plan for just R1,200,000. Six months later, he is the proud owner of a brand new flat! He puts down a R100,000 deposit, pays transfer fees of R45,383 and finances the balance of R1,100,000. His monthly bond repayments are R10,798.
Now to find a tenant!
Fred starts to investigate the rental market and to his dismay, discovers that rental income is waaay below his monthly bond repayments. The best he can hope to rent his new apartment out for is R8500. And to make matters worse, there are another 10 units in the SAME complex available to rent for that price! Gulp!
Three months later, still no tenant. Fred is forced to drop the rental and ends up finding a tenant who is prepared to pay R8000 per month. What does that mean for Fred financially?
Let’s take a closer look:
As Fred pays the R4,630 over every month, he gives himself a little pep talk. “Consider the capital growth, consider the asset that I now own and consider that perhaps in the future, I can sell the property and make some money. Besides, it is like a forced savings every month! Yes! This makes sense!”
Perhaps he muses, perhaps the tenant will pay off the bond and the property won’t cost him as much on a monthly basis.
Perhaps indeed…but in the meantime, the property leans heavily on his wallet, reducing his monthly cash flow and severely limiting his ability to invest in more properties.
I only invest in property that puts money IN my pocket at the end of every month. My tenants fund MY lifestyle, not the other way around. This change in focus helps train your brain to spot the perfect opportunity. In order for that to happen, you ne