The Rules of Property – Grow your Business

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Invest in your businessSouth African business owners are on the back seat as Online marketing has taken advertising to a whole new level. The online directory has replaced the telephone book. Your business advertisement will no longer disappear along with the newspaper but will instead be available online 24/7 to potential customers on the other side of the ocean.

Small business owners need to invest in Digital Marketing to grow their Property Portfolio

Digital marketing can stimulate growth

Growing your current business to fund your Property Portfolio is the is the strategy smart investor use to leverage their current situation to use other peoples money to fund their property portfolio, this is the same strategy Robert Kiyosaki author of Rich Dad, Poor Dad teaches and focus on what he calls “financial education” generating passive income by means of focusing on business and investment opportunities.

As the South African Reserve Bank’s recent interest rate cut of 50 basis points to 5% is aimed at stimulating the economy through consumer spending, but it is unlikely to have any effect on banks’ tough stance on lending, which could inhibit potential growth in the economy.

What’s your asset class of choice?

Business growth, invest in digital marketing

IGrow Wealth Investments is property-biased. It is the single asset class offering a geared return for which banks will lend 90% to 100% of the value.

What attracted you to property?

Your biggest cost – the bond repayment – is relatively fixed, while income escalates.
While I would not consider myself a true investor – like many entrepreneurs I invest everything into my business – I have built my wealth from the property industry.

What do you consider to be the common sense rules of buying?

  • Listen to what people say, but always do your own research and make up your own mind.
  • Always purchase with long-term growth potential in mind, as every time you sell you pay commission to an agent, transfer costs and duty. Try to keep property once the bond is paid off, as this is when it becomes profitable.
  • Notwithstanding your long-term view, always have an exit strategy, by buying property only where you believe there will be lots of purchasers in the future.
  • Buying property is an inflation hedge. The property price will escalate with inflation over time and the bond will devalue in real terms due to that same inflation.
  • When purchasing, buy off-plan where possible. However, even if you trust the developer you need to do your own research to be sure the developer will deliver what it promises. Off-plan may give you a big kick in value as development approaches. In most of my estates there is normally a ‘kick’ of 30% to 35%.
  • Never over-capitalise. Buy a cheap stand in an expensive area.
  • When you invest, do so gradiently to manage the risk.
  • Keep your first property until it breaks even and you no longer need to service the bond – then buy the next and so on.

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If you follow these elementary rules, you will be able to get up to ten properties relatively quickly.

A lower interest rate would normally allow consumers and businesses to capitalise on having more disposable income. For example, consumers who are currently in debt will also benefit from lower interest rates as the cost of paying off a loan is lower. However, this effect may be subdued due to the lending policies of banks.

Negative factors still in play

In order for the economy to grow, banks need to lend money and open their channels to encourage consumer spending and to stimulate the economy. Following the rate cut, commercial banks cut their lending rate to 8,5% from 9%, but with the global economy still in murky waters and economic growth in developed nations slowing, banks are not confident that economic difficulties are over yet and are hesitant to lend.

With the ratio of household debt to disposable income hovering near 78%, banks have been cautioning consumers against borrowing more money. Banks’ lending criteria have also become more stringent as a result of regulatory challenges and high levels of debt in a flaky global market. This means that they aren’t as flexible as they would have been in the past, despite unsecured loans forming their core business strategies.

Asset-based finance

Due to these factors, property investors who require short-term liquidity for commercial purposes are subject to lengthy processing and tougher lending criteria and may not be privy to immediate cash flow. This could jeopardise their business interests while they are further unable to take advantage of lower interest rates.

Because of this, secondary lenders will need to play a key role in providing liquidity to the commercial market as they have the ability to lend money to asset-backed customers who need short-term cash flow.

Secured lenders, such as asset-backed lenders, are able to process applications quicker and provide asset-backed clients with financial solutions with a formal bank guarantee within seven days.

Understand the options

Local property investors should not be deterred from securing finance against their assets as they can continue to grow their businesses, despite resistance from commercial banks.

Most reputable second-tier lenders will be able to secure funding for commercial developments that may not have been approved by a commercial bank.

Investors should consider their options and discuss their requirements with an asset-backed specialist if they are struggling to secure finance from the banks.

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