I have heard it all. People have said “investing in property is expensive” or “investing in property is only for an elite few.” But this isn’t true. You can build your property investment empire!
Yes, there are many property investors who are currently operating at a loss, but that is simply because they have not followed a strategic plan. Many people jump into property without doing proper research or learning from successful investors in the industry.
When I started investing in property I made the same mistakes. I have lost time and millions of rands in the process. If I could turn back time and change some of my decisions then I would. On reflection, I would employ ten core principles into my investment strategy. I strongly believe that if someone works each one of these principles into their investment strategy they can retire 10 or even 15 years ahead of schedule.
I have seen many unsuccessful investors employ some of these principles, but not all of them. This is significant. These components work together and each serves a specific function. An investor needs to understand and make use of all these steps in order to succeed.
Today, I wish to share these steps with you. I don’t want you to start your property portfolio making a loss or generating meagre returns.
In order to invest in property in South Africa successfully, you will need master the following steps:
CAPTION: The IGrow Group of Companies is built around these ten crucial steps. We can help you master each stage successfully when you invest with us.
1. Step one – Acquire the skills
The first rule of property investment is to invest in your mind first before you invest in property. Please believe me if I tell you 80% of your success as an investor is psychology, the other 20% comes down to skills and execution.
Therefore, I am saying you don’t need to personally learn all the skills immediately. Rather leverage the skills, the qualifications, and the street-smart thinking of a highly qualified investment team.
There is a big learning curve, particularly when you are starting out. It is, therefore, best to not dissipate your efforts by trying to juggle a number of different asset classes. Instead, become a specialist in one particular area.
As Warren Buffet said, “Diversification is a protection against ignorance. It makes very little sense for those who know what they are doing.”
Studying an industry closely allows you to really entrench yourself in its environment. Consequently, it allows you to become an expert in it.
CAPTION: Listen to our podcasts which are available on SoundCloud and Stitcher. In this episode, we explain how you can acquire the right skills in more detail.
Such results are clear. You will make better informed decisions that will lead to more profitable returns rather than hedging your bets across a range of sectors.
Spending time analysing deals and making offers through your investment team is all about learning the skills and putting the investment principles into practice. Great deals are everywhere, you just need to see the opportunities and the many great bargains. Once you find the right bargains, it will become easier to build your property investment empire!
In addition, attending educational seminars, watching online webinars, and understanding your property investment wealth plan are key to your investment success.
Mastering the skills contained in these ten crucial steps will make you a more strategic and intelligent investor. It will allow you to play the property investment game at a whole new level.
However, the great news is that top investment teams already possess the skills and attributes you want to acquire. You need to find the right team members and leverage their knowledge and immediately take action for your personal financial gain. This brings me to my second principle.
2. Step two – Assemble a Team
One of my deepest philosophies is that I shouldn’t be the smartest in my team, but I need to have the smartest team around me. Surround yourself with a good team – if you’re the smartest person in your team then you need to get a new team.
Having a good team reduces your risk, increases your knowledge and gives you access to ideas, opportunities and money you would never have on your own.
I have found that collective knowledge and experience lowers my risk, increases my returns, and motivates me to become better all the time.
So, the property investment entrepreneur doesn’t hand control of his property portfolio over to others. Instead he retains control whilst employing a proficient team who have great systems that achieve repeated and consistent results.
The biggest reason why property investors fail is because they try to do everything by themselves. Never be cheap always pay for your professional investment team, because you don’t just pay them for a service but you pay them for knowledge as well.
The second reason why most investors fail is because they have the wrong team. They think that because their father or friend is an attorney or accountant that they will understand the strategies of investing in property.
People are inherently looking to save money but in the end, it costs them their financial freedom.
Through lots of trial and error, paying the price, and making mistakes I have come to realise that your team is like your family. Like a family, they will help you achieve your dream.
I started without a team and it’s cost me many years, millions of rands in mistakes and lost opportunities. Without them it’s impossible. Without a team, it is impossible to build your property investment empire.
Luckily for you, we have all the specialists you need in your team at the IGrow group of companies. To find out what services we provide, click here.
3. Step three – Devise a Plan
People spend a lot of time planning their holiday. In fact, people spend more time planning a single vacation than planning their financial future.
The importance of creating a blueprint for building your property investment empire cannot be understated.
Do you have an investment plan? A roadmap or blueprint for financial freedom?
If I had to parachute into your life right now, would you be able to show me your plan and tell me the exact amount of net asset value and income stream you have set as a goal for your early retirement?
Would you be able to show me the date at where you will retire?
Most of you would have said no to many of these questions.
CAPTION: When building wealth through property, you need to consider these four steps.
Let me ask you another question. If I were to offer you an investment, promising to give you a 12% return every year would you take it? Would you take 24%? Or 36%?
If you don’t know and can’t say exactly why you don’t have a plan for your money. You don’t know how hard your money should work for you to achieve a certain outcome.
Unless you have a document that clearly states your financial objective you cannot really answer these questions.
This is why IGrow, led by Sean Johnson our General manager of property portfolio planning, have created what we believe is arguably the country’s most best plan to ensure you retire financially free. For more information on this plan click here.
You cannot measure your wealth if you cannot control your wealth. That is why I have built my company around a direct ownership model of investing in buy-to-let property. Therefore, I want you to be in full control of your wealth. I want you to manage the growth and risk.
4. Step four – Provide Structures
Running any business, especially your real estate investment business, is all about wealth creation and wealth protection.
If you want to run a proper property investment business, you have to create the necessary corporate structures to set up a sound and solid foundation for your investment.
If you have a correctly structured buy-to-let business you will effectively separate your assets from your liabilities. So they are never kept in the same entity.
We don’t want paid up and indebted assets all in the same entity. You need to have different compartments for your specific assets. Depending on the risk of the underlying assets which determine how far you need to go to compartmentalise your assets. Different trusts or compartments, as I call them, diversify your risks and assets.
CAPTION: Watch this video to find out how you can make a trust work for you in South Africa.
By creating the correct corporate structures for your property investment business, you immediately alter the rules of the real estate investment game.
We will show you will not own any assets or money with the correct structures in place, because to own nothing means you have nothing to lose. You want to minimise risks while maximising your returns.
From an asset protection point of view, this is advantageous. Most importantly it protects you from the banks, the South African Revenue Services (SARS), and creditors.
As I have said before, a property investment trust is by far the safest and most tax efficient vehicle available.
For example, with the correct corporate structures, you will be able to avoid paying estate duty, capital gains tax, executors’ fees, transfer and registration costs, and many more taxes. This will save approximately 35% of your net wealth upon your death.
By placing the correct structures into your portfolio, you are going to avoid this calamity completely. Play the property investment game with your own set of rules and leave a legacy to your loved ones.
5. Step five – Create leverage
Leverage is the financial tool the wealthy used to build their property investment empire. There is nothing stopping the ordinary person from becoming rich through the same means.
The wealthy use debt and other people’s money to become financially free. The financially illiterate stay in debt and in the rat race by buying depreciating assets with unproductive debt like cars. Be someone who knows how to leverage debt to acquire assets has financial leverage over the investor who does not understand how to make other people’s money and debt work for them.
To be able to apply these principles though, investors need to take the time to financially educate themselves. They need to learn the secrets of how to use debt and other people’s money to become as wealthy as they want to be. Ordinary salary earners can become very wealthy if they commit to learning the different forms of leverage and how to apply it to their lives.
Leverage is a universal principle, it works for everyone, and is available to anyone who wants to tap into its power.
When investing in property this is particularly important when it comes to home loan financing.
The banks have lots of money and would love to give it to you. Their whole business model relies on people using their money.
This is why residential real estate is such a great investment. The banks will allow you to borrow up to 100% of the purchase price from them for you to buy the property.
Banks will not lend you this amount of money to invest in equities, bonds, or cryptocurrencies. But they will lend you money to invest in property.
R100 000 can be leveraged to buy a R1 million property at 90% gearing, which is when you have used 90% of the bank’s money or other people’s money to pay for the property. Therefore you have only covered 10% of the property price yourself, in the form of a deposit.
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Property investing is a financing game. And this is where an investment bond originator, who understands financial institutions and dealing with property investors’ portfolios, is invaluable.
The ordinary salary earner can build a wealthy asset base by choosing to use the bank’s money instead of their own.
Many first-time investors are getting 100% financing from the banks, negating the need to pay deposits, Meanwhile experienced investors are using existing properties to fund deposits to buy other investment properties. These are geared at 90% or 80% financing.
Leveraging other people’s money allows you to achieve growth rates of return that are high enough to build a major property portfolio.
You may assume that you can achieve these kinds of returns through alternative investment vehicles. It’s all about how hard your money is working for you in the respective investment and in relation to your money invested.
The real kicker here is that the ability to finance or leverage is much more important than its return in either growth or yield.
By strategically leveraging other people’s money, you dramatically improve your return on investment.
The more of the banks’ money you are using in your property, the higher you are geared. This means the lower your invested capital in relation to your borrowings the higher your potential return.
Property investment is a financing game, by using other people’s money. As a result, it’s possible to achieve rates of return that no financial institution can offer you.
Plus, you own your investment properties directly and exert complete control over your assets, instead of relying on a financial advisor to invest your money wisely for you.
The more you can borrow, the more assets you can leverage for capital growth, rental income and tax advantages. The more you build your asset base, the more your assets compound, the more equity you create to roll over, tax-free, to be able to buy the next investment properties. Through this process you can start successfully building your property investment empire in South Africa.
6. Step six – Buy the right type of property
On average, property doubles in value every seven to 10 years. That’s why correct property selection is so critical.
To choose where to buy property, you need to consider the province, town, suburb and location. These factors are all indications for providing a proven track record for outperforming market averages in term of capital growth and rental income.
Demographics play a major role in the sustainable capital growth of an area. And remember, it’s the capital growth that will make you wealthy as a real estate investor, not the rental income. I talk about this in depth in some of my other videos and at our live seminars.
Demographics underpin a sustainable rental income stream. But, more importantly, they will ensure high demand, and high demand for the right type of properties equals capital growth.
CAPTION: There are four considerations you need to make before you decide to invest in a particular property.
Buy properties in high demand from both tenants and owner occupiers – this is indicative of a good, solid growth area.
People underpin the housing demand – lifestyle dictates housing demands and preferences. If you want to predict the housing trend you have to have an understanding of the lifestyle of your prospective tenants. Where do they want to live, play and work?
Different types of properties attract different demographics, or to put it another way, different demographic groups have different ways of living and different housing needs. Locations, where wage growth outperforms the average, are where you will find capital growth in properties.
People in the area must have sufficient disposable income to afford the rent and want to live there because of the lifestyle and leisure the area offers. There must be shopping malls, sports fields, hospitals and other recreational facilities. There must be a high level of security but also be relatively easy to commute to work.
In some suburbs, you will find capital growth equaling 50% to 100 % or more per year, while others have very low, almost no capital growth. That is why it is critical to do your research into an area’s growth history before deciding to purchase there.
Buy in areas that have a strong history of capital growth that will outperform the average area or location. These areas will help you build your property investment empire.
7. Step seven – Other People’s Systems
Any successful business must have systems in place and your real estate investment business is no different. What I mean by “Other people’s systems” is to make use of the systems put in place by people who have already done what you’re just starting out to do.
CAPTION: Before investing in property, it is best to ask yourself the following questions.
One example of a system is a software programme. By purchasing an IGrow Wealth Plan you can make use of our own software programme which is designed to work for property investors. This software calculates your predicted return on investment over a set number of years, capital appreciation, and rental income.
Why do you need this system? Simply, if you can’t control your numbers, then you can’t control the business. If you can’t measure it, you can’t manage it. With 27 different variables in property, each one of these will have an effect on your bottom line return on investment.
The central question is, how do you know which property to buy if you have five properties to choose from, each with different capital growth rates, inflation rates, rental incomes, vacancy rates, interest rates, not to mention different purchase prices and deposits? All these variables have a direct impact on your financial outcome for the specific investment.
8. Step eight – Make SARS Your Partner
Have you ever wondered how some investors are becoming wealthier through tax incentives?
In terms of Section 13sex of the Income Tax Act was created as the government realised they needed to provide more affordable new housing, as per their mandate, however, they were falling short of their targets. There is a massive backlog and shortage of affordable housing that needs to be taken care of.
They also recognised the needs of the group of the population who qualify for a housing subsidy, and those who are earning enough to be able to afford a bond. This group in the middle cannot afford a bond. However, they need affordable housing to rent.
To encourage investors to help create affordable housing, they offer investors an incentive to invest in property. Investors can claim a deduction against their personal income tax up to 55% of the total cost (acquisition price) of the unit, over a 20-year period.
CAPTION: Subscribe to our YouTube channel and keep up to date with all other advice we offer. In this video we explain the Section13 sex income tax act in more detail. VIDEO: YouTube/IGrow Wealth Investments.
This is how the rich real estate investors become rich. They legally leverage the tax act in their favour to get the receiver to pay them millions back into their buy-to-let property portfolios.
If you are willing to make SARS an active role player and partner within your real estate investment business you can get them to pay you money back over your real estate career.
Tax incentives by the government act as an economic stimulus to keep the wheels of the economy aligned, to create more opportunities where there is a huge demand, a shortage of infrastructure and economic activity. The receiver is encouraging certain activities that benefit the economy and promote social policy. In that case, it’s our job to take advantage of these tax laws.
So, what I am saying to you is that the receiver is actually on your side – the side of the buy-to-let investor. They really want us to pay less in taxes and build our property investment empire.
By applying what I call the ‘stackable tax effect’ – using the allowable SARS deductions, rebates, concessions, and incentives as a strategic way to reduce your tax – you will create a compounding tax effect within your portfolio and build substantial wealth at the same time.
SARS is there to make you rich in real estate, especially if you follow the rules of the rich. If you would like to find out more about this income tax act, read my other article here.
9. Step nine – Rental Management
Step nine is to appoint top managers to run your real estate investment business. You need to get a brilliant rental management company to take care of the day-to-day running of the properties in your portfolio, to free up your time to focus on the bigger picture – namely strategically building your portfolio and with it, your future financial freedom.
You will always be the CEO of your portfolio. Your rental managers will report to you and your tenants will report to your rental managers. Therefore, you need never meet your tenants – it’s just not part of your job. Rather, build a good relationship with your rental manager and make sure they do their job.
CAPTION: Your rental manager has seven key responsibilities.
These are the core functions of a comprehensive end-to-end rental management service. The rental manager’s role is to ensure that you don’t get involved in the admin side of things but rather focus on the strategy and expansion of your portfolio. Wouldn’t you prefer to spend the time planning that next deal rather than dealing with tenant admin?
At the IGrow group of companies, I have ensured we have one company to manage your rental portfolio. To find out how you can use their services, click here.
10. Step ten – Scaling Your Business
Once you have implemented the previous nine steps as discussed, you will have built up equity within your portfolio.
You will be able to prove that the company, or trust structure holding and owning the properties, is self-sustainable and will not require you to stand surety anymore.
When this is proven to the banks by your accountants the portfolio can stand surety for itself. This means the sureties in your personal capacity will be cancelled and waived.
This opens up an opportunity to duplicate the process in your own name. Consequently, you will grow so much faster than the average investor who bought all his properties in his personal name. And so the process repeats itself, it will create unbelievable wealth for you and your loved ones.
There you have it – the 10 steps you need to take to build your property investment empire.
Furthermore, this is all based upon practical, real-life experience, and demonstrates how anyone can become a highly successful investor by:
- Acquiring the necessary skills;
- Assembling a team of experts;
- Creating a property investor’s blueprint plan;
- Setting up structures in which to invest;
- Leveraging other people’s time, money effort, experience and systems;
- Selecting the right types of properties;
- Leveraging tax laws in their favour;
- Employing the services of a great rental manager; and
- Scaling their business to allow them to acquire more properties, thereby growing their portfolio exponentially.
While this all may sound a bit daunting, I have some good news for you. The IGrow Group of Companies has all the services you need, under one roof. We can offer you a team of experts:
- Our portfolio planning division to create your unique IGrow Wealth Plan – your blueprint and roadmap to financial freedom.
- IGrow Trusts will set up and register your trust and company structures, and act as the independent trustee you need.
- Property investment strategists to help source your ideal buy-to-let investment properties.
- IGrow Chartered Accountants to ensure your balance sheets and tax affairs are in order.
- IGrow Rentals to manage your tenants for you in your growing portfolio.
It all starts with a consultation. That’s how you can invest in property in South Africa successfully. Speak to one of our advisors today to help guide you through the process by clicking here.