Return on Investment

[savas]

5mill gets you not much in UK a property.
Whereas the same, buys you 5 “To Let”, 2 bed townhouses at 800k each average in a decent area.
After transfer costs , you still have 700k in reserve.
After paying rates , levies and agents collection fee, you NETT 30k per month, or 360k annually.
Do the maths on ROI.
You have sight of your investment
Plus Capital growth
Huge shortage of Good renta stock
Over -supply of tenants

Safest & best investment without using too much grey matter

My experience in SA has been exactly in line with this EXCEPT while there are many potential tenants available the ones that either pay or look after the place are few and far between... its nice to put someone in but your margin is quickly eroded having them there for a few months without paying and when you can eventually evict them, repairs again obliterate your returns....

This is why I say, buy only 5, so that one can have a reserve for vacancies. Buying in good areas minimizes risk and vacancies to a degree

[savas]

Or...
invest in a good property based fund which does the worrying for you and go play golf.
Regardless of that - never a bad idea to diversify.
Even with only 5 bar...

Also look at commercial property such as A-grade offices in popular areas. 5 bar should be able to buy you a fair sqm.

Advantage here is good building management usually in place, nothing much to pay for common property upkeep, good income, tenants that tend to be OK as companies usually can't afford a blacklisting, long leases. Of course like with anything - do your homework.

Disagree , as even though 5mill is huge, it’s not a big enough dent for Commercial type, besides I like to have some say in my investments and not leave it up to non-beneficial people making decisions.
Residential is more user friendly, BUT, Commercial is also great you just need to make better and wiser investments decisions

[richard C]

Nothing less than 8, but 10 is the norm

What area Savas ?

Over the last couple of years been lucky to escalate 2 to 4 % (mainly to hang onto good tenants). It all works out in the wash over time, but in spite of the very tough climate, all our properties have been fully let (with a couple of short gaps) over the last three years.

I would think most areas in residential shale get u at least 8, if not find another agency

Sorry Savas - this is not true. National Average Escalation for 2018 was 2.7 %. Even Cape Town is not performing as it had been. I haven't escalated at 8 % for at least 4 or 5 years.

[Fransw]

Your real return (after inflation, taxes - if applicable, fees, buying/selling rates) is pathetic...

What is considered "non-pathetic" given extremely low risk?

Would 1% per month, after fees, but before tax be considered as reasonable and above inflation?

Above real inflation, above money market, for me would be considered "non-pathetic"...

Passive investments have their place in my view but not for someone wanting a real return on their money... tracking funds are different.

If you dispute this then show me a BASKET (considering its easy to show 1 or 2 in hindsight) of unit trusts which have performed consistently year on year which beat inflation, or money market....

Dont say tracker funds, because tracker funds are basically passive and there is not much to do from a fund managers point of view... actual MANAGED funds... bearing in mind that there are over 1200 unit trust funds in SA...

A fund which has appreciated as a result of ZAR depreciation is a different story, because that performance cannot be "fund manager related" and in theory you could put the money in the bank... as a result of actual management...

Falalel, what about a small office to let in London for example. Someone mentioned here residential property in London but by the look of it are the returns on office space much higher!?..

[Fransw]

So I did a little exercise on office property in the UK, and here is what I found:
(Please note this is only my own little exercise I'm no professional!)

There's a small office for sale in Nottingham Uk in a good are. In the so called creative hub. The size is 535ft² for £470k. According to some info the rental offices go for ±£13/ft² per month. But let's be conservative and work at £10/ft² per month.

That is £5350 rental income per month on a £470k property investment. That's exceptionally good!
(Yes I know its before levies and taxes but still..)

What am I missing? Please tear it apart!...

[richard C]

That is an excellent 'yield', even by SA standards.

We normally are hoping to get roughly 1 percent of value per month - ie R 10 000/pm off a R 1 000 000 property. Astonishingly, regular investors (guys who buy up Balwin housing stock 5 or 10 at a time for example) are happy to get half that, allowing 5 years of subsidization before the escalations allows the property to break-even. Thereafter, in perpetuity, it just pays you money.

Creating your own opportunities, and bringing your own value, can make a property investment 'profitable' from day one. Especially if you fill it with your own lease.

Also, as Eddie correctly pointed out, the point of this exercise is NEVER to sell (unless the value in the area goes to hell), no matter how sweet the offer. To re-invest is going to cost you a lot in taxes, commissions and transfer costs, thus rendering a sale a valueless proposition.

[Falafel]

Risks as an SA investor...

1. Property stands empty... I would be weary simply because i dont know about the commercial market in the UK nothing else... there is alot of office space in London (sum total of my frequent visits)... Brexit etc...

2. Repairs and maintenance in GBP

3. Finance - you would need to pay cash - unless someone can point me in the right direction banks are becoming increasingly weary with foreigners

4. Collecting rent and maintenance - managing from afar is going to cost you an agency... get a good one!

However... If you have the cash flow then I would look at it seriously... but if you buy for GBP400k, make sure you have another GBP50-GBP100 sitting around for unforeseens... my biggest fear would be buying something and even if its a good deal, not being able to afford the hiccup along the way to wealth and riches.... that would be rather sad... obviously I dont know you financial situation so noting this

[Fransw]

Thanks Fafalel! It was only a fun exercise...

There's an afrikaans saying that goes: "Ver van jou beleggings, naby aan jou skade!". Goggle translate..

[Falafel]

Thanks Fafalel! It was only a fun exercise...

There's an afrikaans saying that goes: "Ver van jou beleggings, naby aan jou skade!". Goggle translate..

No problem... believe me i have thought about it.... regularly!

Basically I always come down to residential... I figure people will move their offices home and stop paying for offices sooner than they will put themselves out of a place to sleep... just me!

Seriously toying with a small business... just havent dipped my toe in the water... was offered a small coffee shop, nett about R240k per annum and selling price was around R300k... looked great on paper and that was my worry... I also didnt want to end up cooking toasted sandwhiches whilst my real business was left wanting...

Ideal is, as always the people... there are some great workers out there and hard workers who need funding... just need to find one who wants to do something and then should be ok... on the flip side I find millenials dont see value in ownership... so offering someone shares in a business doesnt seem appealling any longer in lieu of a lower salary... long term value seems a thing of the past...

[Jack Welles]

I've found that the concept "stick to your knitting" is a good one to do business by.

I would always suggest that the investor tries to get involved in something that they already know something about or which is ancillary to their existing business/speciality. So, for example, the accountant that tries his hand (as a side hustle) at property development can easily end up being burnt. School fees virtually always have to be paid.

Know of a few attorneys (and professional sportsmen) that have tried to own restuarants as an additional investment vehicle and in almost every case they've got out again ASAP.

For many years I was a big fan of fix and flip (if capital restricted) or keep/rent out (if want to postpone tax on profit) residential property but not any more. The PIE Act and the soft approach the court adopts to non-paying tenants is a pain in the left ventricle and can blow years of profit. Like commercial because those limitations don't apply but it's more costly and don't believe in being the "next-stage" investor in a commercial sectional title scheme because the developer is already taking a big chunk of the new development profit. Also leary of "group" funded commercial developments where you don't have constant insight into who is doing what to whom. So that means to control the deal you need a fair amount of loot to get involved in developing commercial property.

[savas]

I've found that the concept "stick to your knitting" is a good one to do business by.

I would always suggest that the investor tries to get involved in something that they already know something about or which is ancillary to their existing business/speciality. So, for example, the accountant that tries his hand (as a side hustle) at property development can easily end up being burnt. School fees virtually always have to be paid.

Know of a few attorneys (and professional sportsmen) that have tried to own restuarants as an additional investment vehicle and in almost every case they've got out again ASAP.

For many years I was a big fan of fix and flip (if capital restricted) or keep/rent out (if want to postpone tax on profit) residential property but not any more. The PIE Act and the soft approach the court adopts to non-paying tenants is a pain in the left ventricle and can blow years of profit. Like commercial because those limitations don't apply but it's more costly and don't believe in being the "next-stage" investor in a commercial sectional title scheme because the developer is already taking a big chunk of the new development profit. Also leary of "group" funded commercial developments where you don't have constant insight into who is doing what to whom. So that means to control the deal you need a fair amount of loot to get involved in developing commercial property.

Good advice here Jack, stick to your “what you know “ method , or in case of Residential , even Commercial , employ the right managing agent to , collect your rentals.Dont get involved in that process to save 8/10% collection fees.
Yes you will have the Odd bad tenant here and there, but hey Show me a business with ZERO risk and I’m there.

[Brand]

Thanks guys - your input makes for fascinating reading.

[jandub]

Good morning

Any thoughts on buying property in a well run full title retirement village. You propably will have a more reliable tenant profile, albeit one with a somewhat higher turnover due to natural causes. These complexes are popular , especialy those in a good area with good facilities.

Jandub

[Swartbok]

I've found that the concept "stick to your knitting" is a good one to do business by.

I would always suggest that the investor tries to get involved in something that they already know something about or which is ancillary to their existing business/speciality. So, for example, the accountant that tries his hand (as a side hustle) at property development can easily end up being burnt. School fees virtually always have to be paid.

Know of a few attorneys (and professional sportsmen) that have tried to own restuarants as an additional investment vehicle and in almost every case they've got out again ASAP.

For many years I was a big fan of fix and flip (if capital restricted) or keep/rent out (if want to postpone tax on profit) residential property but not any more. The PIE Act and the soft approach the court adopts to non-paying tenants is a pain in the left ventricle and can blow years of profit. Like commercial because those limitations don't apply but it's more costly and don't believe in being the "next-stage" investor in a commercial sectional title scheme because the developer is already taking a big chunk of the new development profit. Also leary of "group" funded commercial developments where you don't have constant insight into who is doing what to whom. So that means to control the deal you need a fair amount of loot to get involved in developing commercial property.

Good advice here Jack, stick to your “what you know “ method , or in case of Residential , even Commercial , employ the right managing agent to , collect your rentals.Dont get involved in that process to save 8/10% collection fees.
Yes you will have the Odd bad tenant here and there, but hey Show me a business with ZERO risk and I’m there.

Agreed, 5 Res properties in different areas etc.
The chances of all 5 going empty at the same time is minimal.

If you keep your rent a couple of hundred bucks less than the area average you should have longer term tenants = less fixing of broken stuff. (mitigating some costs)
If 1 doesn’t work, you have 4 others to carry it.
After it’s paid off by the tenants, it’s all pure profit and less risk to lose 1.
The down side is, you’re gonna have to run around between them all or pay an agent, yet, per property you only need to invest 20%, the tenant over 20 years invests the other 80% on your behalf into your investment.
Diversify to keep the Rand growth and $ or £ stability
I am assuming the investment is 20 yrs + for your old age and children’s future. It has an effect after 5 years but I can highly commend my dad for sticking to it for 40 yrs, and it’s worked.

Stick to what you know, because you know it.

[richard C]

Good morning

Any thoughts on buying property in a well run full title retirement village. You propably will have a more reliable tenant profile, albeit one with a somewhat higher turnover due to natural causes. These complexes are popular , especialy those in a good area with good facilities.

Jandub

A growing industry in which we are very heavily involved (as architects) at the moment.

Check the purchase conditions regarding age and rules regarding occupation. Also keep in mind that most retirees end up living on a fixed income. As monthly levies rise (a big portion of costs in a village where a lot of facilities are on offer), your aging tenant may find themselves unable to cover escalating rentals, and unable to move.