Real estate investing can be a fun experience if you know and understand what you are doing and can be somewhat unpleasant if you act recklessly. We studied a number of people who are experienced and know how to invest in property.
The truth about investment in Properties ?
They say real estate is the easiest investment field where your returns are absolutely guaranteed.
This may not be the case as there are many factors that need to be considered. To begin with, factors such as location, amount of investment, property type, characteristics of the property, real estate market conditions, etc need to be accounted for.
It is argued that real estate investing is a science but there is a certain extent of practical and intellectual behavior that needs to take place before you start cashing in on your investments in property.
Unfortunately, many South Africans think that the moment you have some money, you just buy properties and start making money.
As a real estate investor, you are bound to make mistakes and those mistakes will cost you. Especially as a beginner, you will probably make some which you will call stupid in your later years.
The truth has to be told, I have seen people jumping from one seminar to another to quickly learn how to make money investing in properties. The truth is you need to read widely to understand what real estate investing is.
Read about people’s experiences about how they first started in real estate, there are many books that offer detailed strategies on real estate investing.
The state of South African Real Estate Market
In South Africa, the real estate market is still booming and there are ways to capitalise, I will share them in detail in this article.
In Quater One of 2019, ABSA reported that the nominal house prices in South Africa rose by 3.96%. However, when the pricing was adjusted for inflation they declined – by 0.51%. This reflects the ongoing pressure on incomes per household and a depressed macroeconomic environment, according to FNB’s analyst Siphamandla Mkhwanazi.
Starting your investment in properties can be a challenge considering the amount of capital needed to start.
Is it necessary to quit your job to start your real estate investing? The answer is no. In fact, you can do better if you are employed as a real estate investor. Your monthly salary can go a long way towards earning you that passive income you have always desired especially at the inception stage, your salary will make a huge difference. For example, you may undervalue the amount needed to revamp the property you bought so your salary can cover such expenses.
I believe this article will soothe or shut your fears of starting your investment in properties. I have listed 10 ways to get started in real estate investing:
1. Jot down your goals ✍
You are not a kid anymore what you do with your money is important. You need to write down all your goals. Writing down what your goals are, will not only make you remember what you want to accomplish but also increases the level of seriousness in what you are doing.
Your goals are important and they are the main reason why you are getting into investing in properties.
Your goals ought to be sustainable, measurable, attainable, relevant and time-bound. If you want to own a stand that costs R500,000.00 in Midrand to start developing small apartments on the stand you need to be specific about it.
Write how you are going to get the 500k need to buy the land. Include how long it will take to gather such funds and also include a detailed analysis of how you will get the money.
The R500,000.00 that you need to buy land should be a dream, make it a reality.
It’s either you do what you have to do to get to the results you want or your dreams will be doomed for they even materialise.
2. Identify your financial stage ?
You need to know and acknowledge where you stand financially. Knowing your financial stage will help you understand the feasibility of attaining your set goals.
Knowing your financial stage will also help you in determining the right time to quit your job, whether there is a need of engaging a financial institution to kickstart the investments or if there is a need to court a partner. It is possible to start your real estate with little or no money, however, you need to know what to do first.
If you know your financial stage you will know where to start as a real estate investor otherwise being in oblivion will prevent you from starting.
3. Choose a real investing strategy ?
You need to read widely. When I started investing in real estate it took me nearly three years of studying going from library to library in Pretoria reading on real estate, business management, and entrepreneurship.
I made fairly bad decisions when I started because of confusion in strategy. You need to pick your real estate investing strategy and that comes with knowledge.
Many real estate gurus have written books on real estate investing and you can pick some knowledge from them.
The book that I favor most is ‘The Book on Investing in Real Estate with No (and Low) Money Down: Real-Life Strategies for Investing in Real Estate Using Other People’s Money Paperback ‘ by Brandon Turner. In this book, Turner gives out strategies of starting a real estate portfolio by using different methods of investing.
Whether you have money to start, little money or no money, Brandon Turner offers solutions. This book uses US analysis and this analysis help in any market including South Africa.
I recommend before buying any property buy this book and take a few hours to read the flipping strategies therein.
At this stage, you need to choose one simple strategy that will help you move from your current financial stage to the next.
Draw up a strategic plan and make deadlines and then stick to those deadlines.
4. Pick your target market ?
You can’t build a block of student accommodation apartments in a business zone. You need to know your target market before you get started with investing in real estate. What you are buying or building should be well fit for your target market.
There shouldn’t be talks like “doesn’t that block of apartments, look like office building?” or “have you seen those apartments? they are partitioned like office space.” You need to be exact, your targeted market needs to be satisfied with what you are offering them.
A questionnaire is the easiest way to deal with your target market. Your questionnaire will provide information about your target market and what it really wants. For instance, thinking that they want accommodation yet they are looking for a convenient place to sell fresh produce. it is crucial to do extensive research through the use of a questionnaire.
A questionnaire will give you a more objective overview of your target market and it should be a tool that you for a first-time property buyer.
Consider investing in real estate near where you live because you know the place so well. If you stay say in Soweto it’s easier to invest in any Soweto township since you understand the lifestyle of the people.
You know how zoning is structured in Soweto, how schools are positioned, churches, shopping malls, residential areas, and how parks are positioned. You know how rent is collected and charged.
As a small property owner, you may not be able to take legal action because of the cost to take such action over troublesome tenant(s).
5. Decide on your investment property criteria ?
Choose on which type of property investment you want to focus on. You can’t tackle the whole real estate market on your own as you need to specify the type of property you want to invest in.
Choosing a property criteria will help you to focus and not worry about things that are out of your control. If you want to involve partners or investors, it is important to pick property criteria as this will make things less complicated and understandable.
You will need to have this in writing. On your investment property criteria, you will need to have two categories that need to be answered. First, your target property then second, your target terms of the property.
For your second category, you need to show number. These numbers will include the desired amount you project to make on the targeted property and also the rate and taxes that come with the property.
6. Construct a team ?♀️
You will need to build a team and in that team, you are the chair and the captain. This is not a team of full-time employees but a team that will comprise of your selected construction company, conveyances, and other experts in law or property development who will help you in their areas of expertise.
This means you will know who to contact whenever you need help. If you are flipping a property you will need your chosen construction company to check the building and run with you how much it will cost you to get the property to its desired shape.
Your team will include three groups namely inner circle, support circle, and service circle.
- The inner-circle includes those that will be with you every step of the way regardless of the situation; these are your partners, mentors, and spouse.
- Your support circle is your critical relationship in real estate. These constitute your lenders, attorneys in property and accountants.
- Last but not least your service circle will be composed of your functional relationships which include home inspectors, electricians, plumber, painter etc.
7. Get finance for your real estate investing ?
You may need a financial facility to start your real estate investing. If you are working, accessing finance from major financial services providers can be a better option.
Depending on how much you are earning and your credit rating, it won’t be difficult to acquire a property loan. You have four options to acquire lending for property:
- As a sole trader: You can apply for a personal property loan to buy or build the property that you want. If you are working and paying your taxes, this option is most suitable for you. This type of lending is easier to manage. Check out RateWeb Personal Loan Calculator.
- As a sole proprietor: as a sole proprietor you are the business. If you have side work that you are doing or employed part-time you can apply as a sole proprietor.
- As a partnership: if you don’t have enough money to start or don’t qualify for a mortgage loan, you can get into a partnership with someone who has a good credit rating and is employed. As a partnership, you will share the loan liabilities according to your partnership interest. It is advisable to draft a partnership agreement before going this route because if you don’t it is assumed that partnership interest is equally shared.
- As a company: you can start a company and apply for a building loan. This requires some financial activity in the business and is non-negotiable by top banks in South Africa. Banks will require that your company should be 2 years or older to qualify and make a certain revenue in one financial year. This option is probably one of the most lengthy to take.
8. Put money away for a down payment ?
In real estate, you can easily make money from other people’s money however you shouldn’t count on this fact. You may need money for a down payment especially if you are a high-risk borrower so banks will want a certain percentage of the purchase price to be paid by you.
Here are some of the ways that you can use to put a down payment
- Save- You can save money for a down payment from your salary earnings or from passive income. It is the best way to start for many including myself. Know your targeted loan amount and save accordingly. Have your money in an interest-earning savings account to earn interest. You can earn up to 6.5% on your savings per annum.
- Get it from a partner: Get a partner to make a down payment for the property you want to purchase. You will need to entice them but rather don’t make promises that you cannot keep. Tell them the whole truth about the investment that they are getting into. A partnership can be very strategic since you will be in a position to get advice from another person who is committed to the project just as you are.
- Borrow: You can borrow the down payment money. You need to understand the risk attached to this option before moving with it. You can borrow if you know well that you will be able to pay off the amount owed as agreed and on time. If you borrow yet the property is still going to stay a few months either vacant or under upgrades then this is a bad option. Rather save up and pay the down payment with your own money.
9. Create a plan to find deals ?
Great real estate deals won’t come knocking at your door, you need to formulate a plan to get deals. This may require funds depending on how you go about it.
There are many auction houses here in South Africa that you can utilize to find good deals. First, you need to list auctions that you want to visit and choose those that you think you can use. From these, you should be able to find the best deals.
Alternatively, you can make use of estates agents such as Pam holdings or smaller ones.
10. Get your priorities straight ☑
If your priorities are straight you won’t have a problem with procrastination. You will be able to divide your duties.
You will know when to run your real estate business and when to be with family and friends and when to work if you are employed.
In your real estate business, your priorities should include identifying your next actions and projects. This way you will keep up with the market.
Make your billions investing in Real Estate
We have seen people getting wealthy in real estate, Sol Kerner who made hundreds of millions of Rands if not billions is a case in point.
Anyone can succeed in real estate investing whether you want to start from humble beginnings like building back rooms in your house or starting with a block of apartments, it is all possible even if you want to start from rural or urban.
One thing that will set you apart from an ordinary real estate investor is you reading as many books as possible. Knowledge will build your business acumen, so you need to invest in it.