ACQUIRING: The business of buy-to-let investment in South Africa
A tried-and-tested business model for Property Investors
While most people consider buy-to-let property as only an investment alternative, it is far more: buy-to-let property investment is a low risk, but highly profitable, business opportunity.
The success of the buy-to-let property business model is clearly evidenced by the ongoing stellar results produced by the listed property companies, which are essentially large-scale, buy-to-let specialists operating mainly in the commercial property sector, although some listed companies have residential property portfolios.
Understanding the business model of Buy to Let Investment
The business model used by listed property companies is quite simple. These companies acquire a quality portfolio of properties and rent these properties out to tenants. The acquisition of the properties is often financed through property finance. Professional property and asset managers are appointed to place and manage the tenants, as well as the properties. The monthly rentals generate an ongoing income, while the escalation clauses in the lease agreements ensure inflation-hedged income growth. The long-term capital appreciation of the properties increase the asset value of the portfolio.
Replicating the business model of Buy to Let Property Investment
Average income-earning South Africans replicate this business model by fi-nancing a residential buy-to-let property via a home loan or mortgage bond. The property is then rented out to a tenant and the monthly rentals generate an ongoing, passive income, while the annual rental increases ensure infla-tion-hedged income growth. Meanwhile, the capital appreciation of the prop-erty increases the equity (the difference between the outstanding bond amount and the value of the property) year after year. Like listed companies, private buy-to-let business owners can outsource the management of the tenant and the property to a reputable rental management agent.
As with all businesses, the owner of a new buy-to-let property investment business may have to fund certain start-up costs and business expenses, for example, a deposit may be required to obtain a mortgage bond and possibly an initial shortfall between the rental income and the property expenses. However, if the right property – in a good area with high rental demand – is selected, the monthly rental generated by the property must cover most, if not all, of the monthly property expenses, including the bond repayments. When there is a shortfall between the rental income and the property expenses, this is soon eliminated as the annual rental increases and the main expense – the bond repayments – remains static. This means the total out-of-pocket investment required is very little, compared to any other business.
Business growth model for But to Let Property Investment
Given the simplicity of the buy-to-let property investment business model, the minimal amount of time and the relatively small out-of-pocket financial investment it requires, as well as the fact that each property generates not only a monthly income but also capital appreciation. The system can be duplicated easily to acquire further residential buy-to-let properties.
As the income and asset value of the property portfolio grows, it can even be extended to include small commercial properties. In this way, ordinary South Africans can replicate the success of the listed property companies by build-ing up, steadily and responsibly, a small but highly profitable business with a portfolio of well-selected and well-managed properties. These properties will generate an inflation-linked monthly income and capital growth for as long as the properties are held.
How to get started in By to Let Property Investment in South Africa
You can start your own small, but successful and sustainable, property in-vestment business today, with no capital, no infrastructure, no experience, no qualifications and very little time to spare. You do not need premises, equipment, machinery, staff, stock, marketing, sales or promotions. You do not need a lump sum to invest with or even a monthly investment that is more than your current retirement savings. You do not have to quit your job, rein-vent yourself or change your lifestyle.
All that is required is to implement the fail-proof buy-to-let property investment business model, which will not only bring true financial independence but also the ultimate freedom from ‘working for a living.’
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