Don’t make a mistake and think that investing in real estate is just buying and selling homes, it’s not. You need to have a strategy and do thorough planning or you WILL lose money. Over the next few weeks we are going to discuss various property investment strategies and share as much information possible to assist you in either choosing the strategy that works for you OR formulating your own strategy.

Buy and Hold

This is a strategy common to rental properties. Some people think becoming a landlord is easy, others think it’s hard. The truth is it’s a bit of both. You find a property, buy it, advertise it in the local newspaper for rent, get a tenant, sign a contract, and wait for the rental income to roll in. Yeah right…

The truth is you find a property and buy it. Transfer takes longer then you realized. Eventually the property is transferred, the transfer fees and costs are paid (by the way, these are two separate costs entirely…) and now you can start your newspaper classifieds campaign. By now you realize that you have already spent a considerable amount of money…well we have to get the place rented out so moving on.

Your lucky and the first week of advertising you get interest in your real estate investment GREAT!!! You organize to meet with your “new” tenant (by the way this person only wants to view the property, you don’t know for sure that they are going to rent the place).

The viewing goes horrible. Why is the place so dirty, is there ADSL? DSTV? And the list goes on… You don’t get the tenant.

So now you start to think that being a landlord was a stupid idea, but wait there is hope. You just need to plan and strategize better. Let’s see if we can help.

The way you should have done it.

The day you decide to become a buy and hold investor you needed to start researching and planning.

Buying costs (bond and transfer costs)

You need to know what the costs are going to be when you buy a property.

Well here is an example:

Property purchase price: R 500,000
Bond/mortgage amount: R 500,000

The following example is on a freehold property bought by a Natural Person.

Bond costs

Bond registration costs (incl. VAT) R 4,560
Stamp duty on bond * R 0
Deeds office levy * R 340
FICA fee (incl. VAT) R 399.00
Post & petties (incl. VAT) * R 399.00
Initiation fee (excl VAT) ** R 5,000.00
Total Bond costs: R 10,698

Transfer Costs

Transfer costs (incl VAT) R 6,840
Transfer duty R 0
Deeds office levy * R 340
Municipal valuation certificate R 100.00
FICA fee (incl VAT) R 399.00
Post & petties (incl VAT) * R 399.00
Total Transfer costs: R 8,078
Total costs: R 18,776

The following example is on a freehold property bought by a Trust, Closes Corporation or Company.

Bond costs

Bond registration costs (incl. VAT) R 4,560
Stamp duty on bond * R 0
Deeds office levy * R 340
FICA fee (incl. VAT) R 399.00
Post & petties (incl. VAT) * R 399.00
Initiation fee (excl VAT) ** R 5,000.00
Total Bond costs: R 10,698

Transfer Costs

Transfer costs (incl VAT) R 6,840
Transfer duty R 40,000
Deeds office levy * R 340
Municipal valuation certificate R 100.00
FICA fee (incl VAT) R 399.00
Post & petties (incl VAT) * R 399.00
Total Transfer costs: R 48,078
Total costs: R 58,776

* Approximation
** This amount could vary, depending on the loan size, but should never exceed R 5000 excl VAT

I am sure you can see the difference in costs from the above examples but don’t be fooled. If you want to be a smart real estate investor you better get used to the high costs because you can not buy in your personal name. The risk of losing everything you own is to great. (to get a better idea of how trusts work read our article on trusts: Trusts: a description in layman’s terms (with a twist of Latin)

Okay, now we have an idea of the buying costs next time we will look at risk management.