Graham van Zyl c www.casaline.co.

za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

THE FASTEST WAY TO BECOME A PROPERTY EXPERT GUARANTEED
How to evaluate the worth of a property without leaving your desk How much you should be paying for the property (the difference between price and value) How you can buy a property that does not have a FOR SALE sign The best deals are created, not sold How to take the emotion out of the purchase How to purchase a property without any risk to you whatsoever This book has been called:

The 7 Step ‘Missing Guide’ for Property Investors by several of its readers

BY GRAHAM VAN ZYL
Financial Planner Investment Consultant Certified Estate Agent with

WYNAND DU TOIT
Certified Financial Planner Editing by Lesley-Caren Johnson Author of The Ultimate South African Business Companion This edition specifically focuses on property investments in South Africa

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 1 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

TABLE OF CONTENTS
1. 2. 3. 4. 5. Foreword.............................................................................................................................................. 4 Determine what it is you actually want ................................................................................................. 5 Investment Strategy ............................................................................................................................. 6 STEP 1: Goal, Identify your personal investment criteria...................................................................... 7 STEP 2: How to structure the deal ....................................................................................................... 8 5.1 Managing risk ................................................................................................................................... 9 6. STEP 3a: Where do you want to buy ................................................................................................. 15 6.1 Area growth.................................................................................................................................... 18 7. STEP 3b: How much should you pay ................................................................................................. 30 7.1 Property Valuation.......................................................................................................................... 30 7.2 Who and what determines the value of property............................................................................. 31 7.3 Initial area investigation .................................................................................................................. 32 7.4 Confirm the rental values in the area .............................................................................................. 36 7.5 Capital Growth................................................................................................................................ 37 7.6 LightStone Automated Valuation Report......................................................................................... 38 7.7 Cash flow ....................................................................................................................................... 44 7.8 Financial Calculations..................................................................................................................... 45 7.9 Financial Terms.............................................................................................................................. 47 7.10 How much are you prepared to pay for the property....................................................................... 49 8. STEP 4: You don’t have to wait for the “FOR SALE” sign .................................................................. 53 8.1 Sales Agreements .......................................................................................................................... 54 8.2 Submit your offer ............................................................................................................................ 57 9. STEP 5: Due Diligence ...................................................................................................................... 58 9.1 General .......................................................................................................................................... 58 9.2 Confirm Income .............................................................................................................................. 59 9.3 Confirm Expenses .......................................................................................................................... 60 9.4 Evaluate the figures and scenarios................................................................................................. 62 10. STEP 6 Confirm the sale.................................................................................................................... 63 10.1 Bond finance .................................................................................................................................. 63 10.2 The seller did not accept your offer................................................................................................. 65 10.3 STEP 7: Property Management...................................................................................................... 66 11. Emotion ............................................................................................................................................. 69 12. Property Cycles.................................................................................................................................. 69 13. Property Title Types........................................................................................................................... 70 13.1 Full Title.......................................................................................................................................... 70 13.2 Sectional Title................................................................................................................................. 71 14. Property Terms .................................................................................................................................. 73 15. Motivated sellers ................................................................................................................................ 78 16. Background........................................................................................................................................ 79 17. How money is made .......................................................................................................................... 80 17.1 Money is an Idea ............................................................................................................................ 80 18. The pie is big enough......................................................................................................................... 81 19. Bad Ideas........................................................................................................................................... 82 20. Your money is losing value ................................................................................................................ 82 21. Keep Your Credit Record Healthy ...................................................................................................... 84 22. Acknowledgements............................................................................................................................ 87
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 2 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za 23.

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Conclusion ......................................................................................................................................... 89

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 3 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

1.

Foreword

No matter which property magazine you pick up, the line “calling all investors” is always there on at least one property listed for sale. Why would you ever need all the investors, you only need one investor. The sad fact is that the best investment property is not found in those advertisements. By the time you have read the advert, it is too late - you are competing with thousands of hopeful “investors”. Basically there are only three methods to really get to know about the great investments out there: 1. You can speak to various competent property brokers who make it their focus in life to be up to date with genuine investment property. 2. You can track potential investments yourself. This obviously involves work, time and effort otherwise there will be no need for property brokers. 3. You can make use of a combination of these two methods. This is the approach that is recommended. The best investments are not necessarily found behind the “FOR SALE” signs, the best investments are not always listed or advertised, the best investments are created by savvy investors. Would you like to be that ONE investor? You can be, if you know what you are looking for and how to go about it. This electronic publication was specifically written to fill in the missing pieces of the puzzle – the information that so many property advisors do not discuss. A lot of property investors would already have been exposed to some form of initial investment training such as seminars, books, online discussions and the like. Yet, most investors cannot say with certainty that they purchased their investment property according to their personal criteria. Most properties are purchased against other peoples criteria. It is often heard that “because my advisor told me it is a good deal, I took it”. But was it really a good deal for the purchaser, or was it simply a good deal for the advisor? The idea for the book came about when the author interviewed hundreds of property investors who had already attended several training seminars, investors who have read several books and investors that are part of formal investment clubs. It was found that there was a major gap in the education and knowledge of these investors. Most of these people had already purchased some sort of investment property but did not exactly know why. This is an interesting situation as youwould presume that if you are about to invest quite a bit of money in any venture, you would certainly do your homework before you simply signed on the proverbial dotted line and handed over the money. Strangely enough, this was not the case. Most people interviewed simply stated that they believed that they were doing things correctly because somebody else told them so. In some instances these investors were fortunate enough that their investments turned out not to be the worst they could have made. Other investors did not fare so well with their advised investment choices. “You don’t have to wait for the FOR SALE sign: The 7 Step ‘Missing Guide’ for Property Investors” was written specifically to bridge the gap left by so many seminars and books as well as training that stops short of
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 4 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

actually showing people how to accurately and correctly evaluate an investment property. This book is for people who are genuinely interested in property investment in its true sense. The book address in a practical step by step approach, the various considerations a potential investor must take cognisance of when looking to invest in property.

2.

Determine what it is you actually want

When I ask people how much money they want to make, they often say “I want to make as much money as possible”. My next question is how much are you willing to risk, to get what you want? The answer is “As little as possible”. These answers are extremely vague. With this next question I get straight to the point when I ask “Do you know what your ideal weight is?” Most people do not reply to my question as they normally do not want to tell other people, but the point is made. If you intend to go on a diet to lose weight, you know exactly what your ideal weight is and it is not “as little as possible”. There is a specific number (or rather a specific weight you would like to be) and you more often than not know by how many kilograms you need to lose to get to that specific weight. To take this thought process a little further, answer the following questions honestly: • • • • How many years should your oldest child spend in grade 10 at school? How much does that new car cost you want to buy? How many girlfriends should your husband have? (For those in doubt, the answer should be zero) What would you like your salary increase to be this year? (You obviously have a minimum number at the back of your mind that you are willing to accept)

The point is simply this, you have no problem getting very specific with almost everything in your life, but when it comes to your finances or investment plans, you suddenly clam up and become rather vague. You leave these important decisions to other people to help or decide for you. If other people decide for you, they might not make the decisions you want them to make. Getting specific is good even if you only decide to buy one investment property every 10 years. That is still better than not doing anything at all. There are many books and media regarding goal setting. My aim here is not to dwell on this, but I do want to leave you with one universal truth, goals must be written. Write down your goal right now, no matter what it is and commit to it. Be realistic about your goal, this way you will not be scared of failure. Commit to your goal by adding a penalty clause for yourself if you do not reach your target within the allocated time.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 5 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

3.

Investment Strategy

Figure 3-1 The 7 Step Investment Process is an illustration of the process which should help you keep track of what the recommended steps are when you evaluate an investment. Figure 3-1 The 7 Step Investment Process

The entire process of property investment can seem a bit overwhelming if you look at it for the first time. There are many new things to learn and you can get lost in the detail. In order to avoid getting caught up in too much detail, it is always a good idea to know where you are going. Figure 3-1 The 7 Step Investment Process above is a good visual guide to assist you through this process. This entire section is devoted to removing the emotion from purchasing investment property. Emotion should not have anything to do with the price of an investment property. Emotion, just adds complications. If you can separate the emotion from the deal, then you are well on your way to becoming a proficient property investor. If you have never purchased a property before, you are probably unsure of what you should accept as your investment criteria. Let’s still take it one step at a time. The process of choosing or defining your investment criteria for me is very similar to dining out. Some people walk into a restaurant knowing exactly what their preference is or what they are going to order, in fact they went to the specific restaurant because of the type of food they would like to have. Other people first need to see the menu, take a little time to decide, and only then do they order their food.
Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 6 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

At first I initially fell into the second category. I needed to see the menu before making a decision as I did not really know what I wanted. Now that I know exactly what I want, I no longer need a menu. In fact, when it comes to property investments, I now ask to speak to the chef directly and create the menu for him. If you already know your investment criteria, this evaluation process should not take you longer than an hour or two to complete. If you do not have a clear idea as yet as to what your specific investment criteria is, this process will however take a little longer. Whether you have an investment criterion or not, this section will take you through the different evaluation steps one by one and in doing so, will help you to identify what your possible investment criteria could be.

4.

STEP 1: Goal, Identify your personal investment criteria

Deciding what you are going to invest in could be a daunting task in itself. There are so many different types of property investments out there, each one bringing a new flavour to the pot. You can easily get stuck here if you start to think too much about it. You can equate this process as similar to choosing a stock to invest in as a trader. The choices are almost infinite and the investment strategies are also seemingly endless. Don’t lose your head here. If the truth be told, you might already have some background with property investment. Most people would first purchase a property to live in, your primary residence - that decision would normally be very emotional, especially if you purchased it with your life partner. The good thing is, if you have already purchased a home, you have some exposure to the process. If you have not yet purchased a home to live in, this is also not a problem as we will be going through the step-bystep process of how to purchase a property.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 7 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

There are several different types of investment property such as: • Residential full title houses • Commercial office space • Residential townhouses • Commercial retail • Residential student housing / communes • Commercial showrooms • Residential blocks of flat • Commercial self storage units This list goes can go on and on…. • Commercial mini factories The one thought I would like to leave you with is that the opportunity is created by you, the investor. Property investing does not need to fit into a box. Each and every deal has the potential to be totally unique. It is up to you to ensure you make it fit to your investment criteria. Investment property need not be nearly as emotional as buying a home to stay in. You can take a more analytical approach. For the purpose of this section, you will look at entry level sectional title units as these units are abundant in South Africa. If you later find that your choice of investment property is not entry level townhouses in security complexes, the steps to evaluate most investment property is similar, so this will be a good base to work from.

5.

STEP 2: How to structure the deal

Here you will get to deal with different investment structures such as buying property in your personal capacity versus trusts and companies. Depending on what you plan to do with the property, whether you plan to keep the property for as long as you can and leave the investment to your grandchildren’s’ grandchildren, or if you are planning to speculate by buying for a bargain price and try to quickly sell it again at a higher price in order to realise a profit. Choosing the correct entity within which to purchase the property into will affect your buying strategy and the amount of tax you could be liable to pay once the property is operating at a positive cash flow level or when you decide to sell the property. You should know why you are buying the property and plan for it accordingly. It is always a good idea to keep at least one investment entity on file, just in case you need to move on a deal. When I have asked people “would you like to make a couple of million rand in the next year or two?” all of them will normally answer a resounding “Yes, I would.” My second question is “are you were willing to lose
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 8 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

everything you have in order to achieve this?” All of them have answered “No, I would not like to lose anything”. How would you then go about ensuring that you have as little as possible risk? The answer lies in legal structures consisting of companies, close corporations and trusts. We will be discussing the most basic of structures and the focus is not to write a legal guide, but rather to set you on the path to helping you choose the correct investment structures for your property or other investments. Have you ever wondered how wealthy families keep their assets within the family for centuries, passing the assets on from one generation to the next? They do it by using different legal structures such as companies and trusts. Strangely they do not necessarily own the assets directly; they simply have the means to make use of the assets as the assets are actually owned by the various companies or trusts. Before you embark on simply purchasing assets either in trust or company structures, I highly recommend that you seek advice from several experts on the subject in order to understand all the benefits and implications of working with companies and trusts. There is nothing to fear, it is simply a subject that can get very complicated very quickly depending on who you speak to. There are several legal and tax implications to consider, but most importantly, you need to know how to work with the different entities. This is not difficult, but I would still recommend that you at least understand it.

5.1

Managing risk

When you accumulate property, or any other asset which will grow significantly in value over time, it is always important to consider the correct entity within which to place the assets. Depending on your goals, it becomes clear that accumulating wealth in your own name might not always be the most cost effective strategy in the long run. Let’s look at some of the considerations. You cannot fail to acknowledge the importance of separating assets from liabilities, either during the accumulation phase or at any other stage for that matter. This simply means that you should always try to safeguard those assets which are unencumbered (without debt) from those which are potential liabilities (such as bonded properties). Why would you go through the process of setting up these structures? You can do this in case of an unforeseen event taking place, like your partner making bad financial decisions which could get your business into serious trouble, or when creditors strike, it is then possible to hedge your losses considerably. There are many myths surrounding the use of trusts, companies and close corporations for investment purposes. You often find that even qualified professionals disagree in terms of preferred entities. It is suggested to consider the purpose, the term, the amount of partners and the nature of the investment or venture before you commit to a specific structure or entity. Let’s take a closer look at some of these entities available to you.
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 9 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

5.1.1

Close Corporations

A close corporation can be used to set up a business where there are normally no more than 10 members. A close corporation is a very simple entity to establish and does not come with all of the expensive and onerous requirements of a company. The member is effectively a shareholder and a director.

5.1.2

Companies

A company is founded in a similar fashion to a close corporation, but is a more formal structure. The shareholders and directors are allocated and appointed separately. Here the director need not be a shareholder and a shareholder does not need to be a director. There are two types of companies namely a private company and a public company. A private company is recognised by the wording “XYZ Company Name (Pty) Ltd”. A public company will not have the (Pty) section listed in the name. In a private company, there can be up to 50 shareholders. There are normally only a few directors appointed for the company. A public company is the type of company that you see listed on the stock exchange. You can obviously have thousands of shareholders for these types of companies. Companies are more strictly governed than close corporations.

5.1.3

Most of the differences are listed in Vital Statistics

Always split your personal life from your business life, it is separate and should remain so. Make sure you understand your needs and explain them to your consultant. Establish what you need not what you want; you can always add more entities later. Choose your beneficiaries carefully. Removing them could trigger taxable events, especially when the assets are financed. Choose your partners carefully and make sure they understand their duties, interview your administrators and make sure they note all resolutions, minutes, taxes and the company deeds. Table 5-1 Business Entity Comparison The focus of this section is not to go into accounting and law practices for entities but merely to highlight some of the various entities available for use. Keep in mind that shareholding in a company and membership in a close corporation are seen as assets in your personal estate and will thus increase the value of your estate at death, which will in turn increase the amount of effective estate duty payable.

5.1.4

Trusts

There are a lot of misconceptions about trusts; therefore I thought it might help to go into some detail regarding trusts. Trusts are entities, created by agreements called a trust deed and registered by a letter of authority with the Master of the High Court. A trust is set up by a founder who makes certain capital available to the trustees of the trust, who are in turn tasked to manage and expand this capital for the benefit of trust beneficiaries. The assets held in trust will not form part of the founder or trustee’s estate. A trust can also be established without the express requirements of annual audits which make trusts a relatively inexpensive entity to manage over time.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 10 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

• Asset Protection A discretionary trust is a trust managed by two or more trustees using their discretion in making decisions. This agreement by the trustees to manage the assets and possible liabilities of the trust for the benefit of the beneficiaries separates the assets from natural persons. This is a very effective way to separate and protect all paid up properties and assets. Resolutions, contractual agreements and minutes are required to formalise these transactions.

5.1.5

Estate Duty

Estate duty is the taxation of wealth, form one person to another person, on death. Estate duty is payable by any person who is a resident in the South Africa at the time of his / her death. Where your assets are located, is irrelevant, your estate duty will be calculated on your total estate at 20%. One of the ways to reduce estate duty is by establishing an inter vivos trust. This is simply a trust established while you are still alive, therefore referred to as “trust of the living”. Careful planning and proper structuring of your vital life cover is extremely important, and with the trust you can ensure that your loved ones will benefit if they are the nominated beneficiaries.

5.1.6

Capital Gains Tax

On your death all your assets are deemed to be sold as you cannot hold onto them in death. When you leave a property to your children, the house might have increased considerably in value from the time you originally purchased it. Your estate will be obliged to pay capital gains tax that could be calculated at as much as 10%.

5.1.7

Private Capacity

Most new property investors choose to purchase residential properties in their own personal name as the entry costs are lower. Don’t forget to consider the long term effects of this decision. Careful planning is needed.

5.1.8

Risk Cover

If you are not a cash investor and will have to apply for a mortgage loan. You must be absolutely certain that nothing will prevent you from meeting your commitments to the lending institutions. This security is normally inexpensively available via life assurance companies who will guarantee a certain payout in the event of your death, disability or severe illness of an insured life. This means that even though you may not be able to work and produce income, you can still receive income or even a large lump sum from an insurer. There are too many examples of investors who lost everything to ignore the correct implementation of a sufficient amount of risk cover. You can even factor the cost of this risk cover into your investment calculations right next to levies, bond payments and management fees. The following table will give you a basic overview of the difference between the various entities one can choose as investment holding vehicle:

5.1.9

Vital Statistics

Always split your personal life from your business life, it is separate and should remain so. Make sure you understand your needs and explain them to your consultant. Establish what you need not what you want; you can always add more entities later.
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 11 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Choose your beneficiaries carefully. Removing them could trigger taxable events, especially when the assets are financed. Choose your partners carefully and make sure they understand their duties, interview your administrators and make sure they note all resolutions, minutes, taxes and the company deeds. Table 5-1 Business Entity Comparison (Year = 2011) Personal Capacity
All assets, liabilities, income, expenses and taxes are directly connected to the individual

Close Corporation
A separate legal entity is formed which can attract rights and obligations on its own.

Company
A separate legal entity is formed which can attract rights & obligations on its own.

Trust
A legal relationship created by a person (founder) through placing assets under control of another person (trustee) for the benefit of a third person (beneficiary) 40% Paid on 50% of gain at tax rate of 40%. Therefore CGT is 20% of gain. The assets held in trust are separate from the estate of the trustee in the case of a discretionary trust.

Nature

Tax Rate Capital Gains Tax Rate

Sliding scale 18 - 40% Paid on 25% of gain at marginal tax rate. Highest rate is therefore 10% of gain. All assets for a part of the individual’s estate and are taken into account for estate duty calculation.

28% Paid on 50% of gain at tax rate of 28%. Therefore CGT is 14% of gain. The value of the membership is included in the estate of the member.

28% Paid on 50% of gain at tax rate of 28%. Therefore CGT is 14% of gain. The value of shareholding is included in the estate of the shareholder.

Estate Duty

Transfer Duty

Liability of Debts

No transfer duty on the first R500 000, + 5% on the amount between R500 000 and R1 000 000, + 8% on the purchase amount above R1 000 000. The individual is fully As a juristic person The company is liable A trustee would need responsible in his the CC is liable, for its debts and not to provide personal personal capacity although the the shareholders. surety for the liabilities of the trust and will members can become Usually the company jointly and severally directors are required personally be held liable under certain to provide personal responsible if there is conditions securities for insufficient trust company debt and capital to settle debts can thus be personally liable

Although the table above gives some indication of the nature and taxability of the various entities available it is by no means an exhaustive comparison and the decision on which entity to use should still be based on the individual’s needs and strategy.

5.1.10

Protection against creditors

You need to protect your assets against the unfortunate and sometimes unexpected onset of creditor claims. These claims may arise out of legal action, tax claims, divorce orders and negative market conditions such as

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 12 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

rapidly increasing interest rates, which in turn causes a whole range of other challenges for the property investor.

5.1.11

The value of planning ahead

If you’re planning to leave a legacy to future generations, it makes a tremendous amount of sense to consider the cost of transferring assets at death. The following example should explain: Imagine you purchased four investment properties of R500 000 each in your personal capacity. Twenty years later the bonds are settled and the property values have increased by 8% compounded per annum, and are now valued at R9 300 000. The following expenses would become payable on death: Table 5-2 Estate Duty Example Assets held in Personal Capacity
R2 000 000 8% 20 Years R9 300 000 - R371 070 - R730 000

Description

Assets held in Correctly Structured Legal Entities
R2 000 000 8% 20 Years R9 300 000 Does not form part of estate Does not form part of estate The assets are held in structures and do not form part of the estate. The value of the assets are still R9 300 000 and growing Not Applicable R0

Purchase price of 4 properties Average annual growth rate Term Value at death Minus Executor’s fee (3.99%, VAT inclusive) Minus Capital Gains Tax (10% of gain)

Remaining estate

R8 198 930

Less current 4A Estate duty abatement Dutiable estate

- R3 500 000 R4 698 930

Minus Estate duty at 20% Total cost of transfer Remaining Asset Base

- R939 786 R2 040 856 R7 259 144

R0 R0 R9 300 000 and growing unaffected

As you can see from the example given, it clearly makes a lot of sense to plan before you purchase. The costs to your estate would look vastly different if the properties had been purchased into a well thought out structure consisting of companies and / or trusts. Within these entities (if they are correctly structured and maintained), the assets such as property, does not form part of your personal estate. If you have structured your estate correctly, you will not be liable for executor’s fees, capital gains tax or unnecessary estate duty. The benefit of your investments could then be enjoyed by many generations to come.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 13 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

The other factor to remember is that the R2 040 856 is payable in cash. Will you have that amount of money available in cash? The answer to this specific problem is that some of the assets will have to be liquidated or sold to raise the funds needed to cover the costs. It goes to state that you will have to forgo at least one of your investment properties as a result. How is that for a forced sale and you might not even be in financial trouble at the time! Congratulations, you have just become a motivated seller. • Estate Freezing The worst news is still to come. Hold onto your dentures for this one….On your death; your estate will be frozen. This means that your remaining family, husband or wife and the children, will not even have access to your bank accounts or any of the funds in it. This is not possible you say. Oh yes it is, and it happens every single day. Families are left stranded without funds simply because they did not plan ahead. The winding up of your estate can take on average two years or more. That is a long time without money. If your money is held in legal structures and you have structured your estate correctly, your surviving family who are dependant on this income, will be taken care of financially. This example is a very simplistic look at the benefits of structuring your investment criteria. These examples are only to give you a broad overview without getting too technical about it. It is strongly advised that you consult with a licensed and expert financial planner that specialises in these types of structures before you embark on your investment career. The money you will spend here will be your best return on investment if you listen to and heed good advice. As an astute property investor, you will follow a defined set of rules and you will take the business of property investment seriously. You will create an abundance of capital value and passive income over time. You should put as much effort and planning into the structure and risk planning of the investment strategy, as you would put into choosing the correct property. Your structure need not be as complex as any of the examples. Your structure could be as simple as only having established a single company or trust. This will at the very least ensure that at the time of your death, which is unfortunately the only thing we can really be sure of in the investment arena, your assets are protected and that your estate and family is taken care of. • Guardians Fund By law, minor children cannot inherit in South Africa. If both parents pass away and you do not have a will and at minimum a correctly structured testamentary trust, your assets will be liquidated and the proceeds will be allocated to the governmental Guardians Fund. Your children will be taken care of by the government and they will not have access to any of the funds, or what will be left of it, until they are adults. We delve deep into all these issues mentioned above with practical examples of how the correct use of these different entities compliment each other. Please contact us at info@casaline.co.za or through our website www.casline.co.za

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 14 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

6.

STEP 3a: Where do you want to buy

The very first question you will normally ask when it comes to purchasing property is “where do I find good investment properties?” There are lots of different investment strategies, so it stands that there are various answers to this question. One piece of advice is that it is recommended that you buy in areas you are comfortable and familiar with.

I guarantee that in no time at all you will become an expert in your chosen investment area if you only follow these steps once. Most people do not even go through these couple of steps. With the tools and advice given with this book, you can perform these simple steps and become an expert in your chosen investment area. You don’t necessarily have to visit each property before you decide to submit an offer to purchase. I like to buy in areas where there is a proven track record of steady growth which can be sustained. Let’s take the northern suburbs of Johannesburg. Sandton is known for being one of the financial hubs in and around Johannesburg. You do not need to buy the entire Sandton area just yet, but a good start will be if you focussed your attention on an area nearby. If we take the areas near and surrounding the Sandton area, specifically Sunninghill and Paulshof, all we need to start is a map of the area. You can simply use your GPS software which comes with your device to encircle an area that you would like to investigate. In this case, let’s chose a rough 20km² area indicated below and start to work from there.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 15 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Figure 6-1 Map view of target area

Another very useful tool is Google Earth. Simply take your GPS co-ordinates and get a true birds’ eye view of what your target area looks like while you sit comfortably behind your computer. These Google Earth satellite pictures are not always as up to date as you would like them to be, but they do give you a good indication of what the structures and layout are for the target area. An excellent feature is that you can zoom in and out, pan around and change your viewing angles in order to better understand what your target area looks like. These are not the only tools available but you can see that it is very powerful in gathering information by simply sitting at your computer. This is very useful as you can effectively see what the development trend is in an area if you monitor it over time.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 16 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold Figure 6-2 Google Earth view

Source: www.googleearth.com Don’t think for one second that you cannot afford to purchase properties in any specific area. Dolf de Roos has often said “The deal of the decade is available at least once a week”. Everybody’s circumstances change all the time. You are looking for motivated sellers, and they are out there all the time. Why? Because relationships change from loving marriages to ugly separations, people get into financial difficulty, some people immigrate. There are hundreds of reasons; the fact is you only need one reason, for the deal of the decade to present itself. Get to know some of the property sales listing values in your area. Simply search the internet using the area names that you have chosen like “Sunninghill properties for sale”. Hundreds of listings will come your way in no time. Most of them have pictures attached and a full description of the property. These properties are normally described in detail, for instance, “two bedroom, one bathroom unit in secure complex, single carport”. You will also be able to find articles about what is happening in the area such as a new shopping centre might be erected or that a new road is allocated in the area. Now you have enough information to get a “feel” for the area. You can now take a drive around the area to further familiarise yourself with it. This helps you immensely as you can then picture the area where you drove very clearly.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 17 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

The Sunninghill area is well established, it has a lot of sectional title schemes in close proximity to each other, it has a lot of shopping facilities, office parks, recreation, hospitals, entertainment, retail and good access to roads and highways. Big corporate companies are also in the area which is very good thing as these companies do not usually want to move premises too often as this can be very costly. This means that there will be a need for housing for your prospective tenants who want to live close to their place of work. Most of this information can be acquired using just your computer as this information is freely available on the internet. You can simply do an online search on the areas you are looking to investigate.

6.1

Area growth

Did you know that each and every property sale in South Africa is registered in the deeds registration offices. There are several deeds registration offices namely Bloemfontein, Cape Town, Johannesburg, Kimberly, King Williams Town, Pietermaritzburg, Pretoria, Vryburg, Umtata, and Mpumalanga. The information registered in these offices is made available to the public. In order for you to actually perform a comparative market analysis, you will need data sourced from the deeds registration offices. There are several search engines on the market that provide access to the deeds registration office. All deeds office search engines will most likely charge you a monthly subscription fee as they in turn pay for the use of the data. I prefer to use the services from www.LightStone.co.za. What I like about this services provider, is that they have always found the information I needed, I have used most of the search engines available, but not all of them give you all the detail required. For example, in addition to the normal search results that a deeds office search will provide such as the sales price and sales date, you can also find out • What the current registered bond is for the property • How many times a property has been refinanced and to what value it was refinanced to • Which financial institution granted the bond This is very useful information if you intend to apply for a bond as it is a record that the banks already found value for the specific property. You can even go so far as to apply for a bond with the same financial institution. From LightStone, a company that specialises in data aggregation, you can then source the following information regarding the history of the property transfer registrations in the deeds office. LightStone provides property data which tracks median property price in both high and low baskets. The related data clearly shows constant growth for the last 5 years as can you can see in the examples in Figure 6-7 Sunninghill Suburb Trends: Growth and Activity. This means that property values are currently stable in the area and has predictably increased over the last couple of years. This is not necessarily the final valuation for the area but it is a good indication that we are targeting a stable investment area.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 18 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

6.1.1

LightStone Suburb Report The following data were obtained from

www.LightStone.co.za Note: When you subscribe to Lightstone, just mention that you have read this book The Suburb Report is a specialized report developed for investors or homeowners looking to buy in a particular suburb and includes the following elements: • A map showing the suburb boundaries • Sales Activity: A table showing the sales activity for the suburb for the last 3 months and last 12 months respectively by: • Transaction type (new residential sale, repeat residential sale) • Property type (freehold, sectional title, estate) • Price bands (<R400k, R400-800k, R800k-1.5m, R1.5-3.0m, >R3.0m) • Bond market Activity: A table showing the bond registration activity for the suburb for the last 3 months and last 12 months respectively by: • Bond type (ordinary loans, further advances, switches in, total registrations, switches out) • Institution • Suburb Trends Analysis for the last 5 years by property type: • Average prices • Sales volumes

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 19 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Figure 6-3 Sunninghill Suburb Trends Area Map

The Suburb Details section shows a map with the outline of the suburb which assists the user in visually referencing the area.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 20 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Figure 6-4 Sunninghill Suburb Trends: Tenure of Owners

The Tenure of Owners graph depicts the tenure of ownership in the suburb and is a measure of ownership stability.

Figure 6-5 Sunninghill Suburb Trends: Age of Residents

The Age of Residents bar graph shows the age distribution of owners in the suburb and is split into residents and recent sellers.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 21 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Figure 6-6 Sunninghill Suburb Trends: Market Stock

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 22 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Figure 6-7 Sunninghill Suburb Trends: Growth and Activity

The Suburb Trends graphs show the average price and total volume of sales in the suburb by property type for the last 5 years.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 23 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Figure 6-8 Sunninghill Suburb Trends: Lending by Institution

The Lending by Institution graph shows the total bonds registered by bank by year for the past 7 years in the suburb. Figure 6-9 Sunninghill Suburb Trends: Bond Information
Deeds Office Information Up to Aug 2009 Count Bond data ORDINARY LOAN ABSA FNB INVESTEC NEDBANK OTHER OTHER BANK SAHL SBSA Total FURTHER ADVANCE ABSA FNB INVESTEC NEDBANK OTHER SAHL SBSA Total 5 1 2 3 33.3 6.7 13.3 20 0 0 26.7 100 1,008 2,000 1,100 2,200 14.1 28.1 15.4 30.9 0 0 11.5 100 202 2,000 550 733 0 0 205 475 13 11 6 11 2 1 16 60 21.7 18.3 10 18.3 3.3 1.7 26.7 100 4,363 6,540 3,060 5,294 2,150 800 4,708 26,915 16.2 24.3 11.4 19.7 8 3 17.5 100 336 595 510 481 1,075 800 294 449 11 14 7 18 3 2 3 8 66 16.7 21.2 10.6 27.3 4.6 3 4.6 12.1 100 10,050 14,200 7,205 17,182 2,750 980 1,420 7,183 60,970 16.5 23.3 11.8 28.2 4.5 1.6 2.3 11.8 100 914 1,014 1,029 955 917 490 473 898 924 49 42 32 59 13 3 7 55 260 18.8 16.2 12.3 22.7 5 1.2 2.7 21.2 100 38,612 39,172 30,212 50,629 13,643 1,680 3,910 51,897 229,755 16.8 17 13.1 22 5.9 0.7 1.7 22.6 100 788 933 944 858 1,049 560 559 944 884 Last 3 Months % Value % Avg Count *All ZAR Values in R'000 Last 12 Months % Value % Avg

4 15

820 7,128

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 24 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za
Deeds Office Information Up to Aug 2009 Count SWITCH IN ABSA FNB INTEGER INVESTEC NEDBANK OTHER SAHL SBSA Total Bank Totals ABSA FNB INVESTEC NEDBANK OTHER OTHER BANK SAHL SBSA Total bonds registered SWITCH OUT ABSA FNB INVESTEC NEDBANK OTHER SAHL SBSA Total BONDS CANCELLED ABSA FNB Total 0 0 0 4 1 2 2 1 3 13 30.8 7.7 15.4 15.4 7.7 0 23.1 100 2,892 500 2,060 860 2,000 1,683 9,995 20 16 9 24 5 2 5 13 94 21.3 17 9.6 25.5 5.3 2.1 5.3 13.8 100 16,548 17,150 8,305 22,197 3,717 980 2,460 8,759 80,115 3 2 2 1 13 4 1 30.8 7.7 0 0 23.1 15.4 15.4 7.7 100 2,815 967 1,040 756 12,018 5,491 950 %

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold
*All ZAR Values in R'000 Last 12 Months % 45.7 7.9 0 0 23.4 8 8.7 6.3 100 Avg 1,373 950 0 0 938 483 520 756 924 Count 10 15 1 1 8 4 3 1 43 % 23.3 34.9 2.3 2.3 18.6 9.3 7 2.3 100 Value 12,866 14,730 1,200 1,110 7,293 5,867 1,770 756 45,592 % 28.2 32.3 2.6 2.4 16 12.9 3.9 1.7 100 Avg 1,287 982 1,200 1,110 912 1,467 590 756 1,060

Last 3 Months Value

20.7 21.4 10.4 27.7 4.6 1.2 3.1 10.9 100

827 1,072 923 925 743 490 492 674 852

72 68 39 78 19 3 11 72 363

19.8 18.7 10.7 21.5 5.2 0.8 3 19.8 100

55,840 60,442 34,382 63,216 21,660 1,680 6,480 57,361 302,262

18.5 20 11.4 20.9 7.2 0.6 2.1 19 100

776 889 882 810 1,140 560 589 797 833

28.9 5 20.6 8.6 20 0 16.8 100

723 500 1,030 430 2,000 0 561 769

13 4 2 7 4 1 12 43

30.2 9.3 4.7 16.3 9.3 2.3 27.9 100

8,878 4,104 2,060 4,500 3,665 1,500 7,040 31,746

28 12.9 6.5 14.2 11.5 4.7 22.2 100

683 1,026 1,030 643 916 1,500 587 738

0 0 0

0 0 0

1 1 2

50 50 100

70 100 170

41.2 58.8 100

70 100 85

The Bond Information table shows the bonds registered in the suburb split into bond type (ordinary loan, further advance and switch) and institution. The registrations for both the last 3 months and the last 12 months are shown.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 25 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Figure 6-10 Sunninghill Suburb Trends: National, Provincial and Municipal Ranking
National Ranking (Freehold): Suburb LAND EN ZEEZICHT HEUWELSIG THE ISLANDS ESTATE SILVAMONTE DUNVEGAN SUNNINGHILL SCHOONGEZICHT MUCKLENEUK ALBANY GLENADRIENNE EAST LINDEN Provincial Ranking (Freehold): Suburb VANDERBIJLPARK CE 6 HELDERBLOM AH PINEHAVEN SILVAMONTE DUNVEGAN SUNNINGHILL MUCKLENEUK GLENADRIENNE EAST LINDEN PATLYNN AH NORWOOD Municipal Ranking (Freehold): Suburb BRIDLE PARK AH DOUGLASDALE FOURWAYS MILLGATE FARM SILVAMONTE SUNNINGHILL GLENADRIENNE EAST LINDEN PATLYNN AH NORWOOD MOUNTAIN VIEW Number of suburbs: 5178 Rank Mean Valuation (R) 540 541 542 543 544 545 546 547 548 549 550 1,527,802 1,525,920 1,525,842 1,524,845 1,522,117 1,520,178 1,518,797 1,517,019 1,516,250 1,512,667 1,511,098

Municipality CITY OF CAPE TOWN MANGAUNG LOCAL MUNICIPALITY OF MADIBENG CITY OF JOHANNESBURG EKURHULENI METROPOLITAN CITY OF JOHANNESBURG CITY OF CAPE TOWN CITY OF TSHWANE ETHEKWINI CITY OF JOHANNESBURG CITY OF JOHANNESBURG

Province WESTERN CAPE FREE STATE NORTH WEST GAUTENG GAUTENG GAUTENG WESTERN CAPE GAUTENG KWAZULU NATAL GAUTENG GAUTENG

Municipality EMFULENI MOGALE CITY MOGALE CITY CITY OF JOHANNESBURG EKURHULENI METROPOLITAN CITY OF JOHANNESBURG CITY OF TSHWANE CITY OF JOHANNESBURG CITY OF JOHANNESBURG CITY OF JOHANNESBURG CITY OF JOHANNESBURG

Province GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG

Number of suburbs: 1763 Rank Mean Valuation (R) 267 1,537,857 268 1,534,468 269 1,531,131 270 1,524,845 271 1,522,117 272 1,520,178 273 1,517,019 274 1,512,667 275 1,511,098 276 1,511,000 277 1,509,200 Number of suburbs: 637 Rank Mean Valuation (R) 169 1,555,882 170 1,554,879 171 1,548,420 172 1,540,000 173 1,524,845 174 1,520,178 175 1,512,667 176 1,511,098 177 1,511,000 178 1,509,200 179 1,505,000

Municipality CITY OF JOHANNESBURG CITY OF JOHANNESBURG CITY OF JOHANNESBURG CITY OF JOHANNESBURG CITY OF JOHANNESBURG CITY OF JOHANNESBURG CITY OF JOHANNESBURG CITY OF JOHANNESBURG CITY OF JOHANNESBURG CITY OF JOHANNESBURG CITY OF JOHANNESBURG

Province GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 26 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold
Number of suburbs: 1859 Rank Mean Valuation (R) 527 528 529 530 531 532 533 534 535 536 537 722,072 721,918 721,802 721,776 721,470 718,373 718,194 717,826 717,338 717,273 716,757

National Ranking (Sectional Scheme): Suburb Municipality LOCAL MUNICIPALITY OF IFAFI MADIBENG ARBORETUM MANGAUNG CONSTANTIA KLOOF CITY OF JOHANNESBURG ROOIHUISKRAAL NORTH CITY OF TSHWANE SCOTTBURGH CENTRAL SUNNINGHILL MAROELADAL VERMONT FOURWAYS GARDENS SASOLBURG EXT 6 LINKSFIELD UMDONI CITY OF JOHANNESBURG CITY OF JOHANNESBURG OVERSTRAND CITY OF JOHANNESBURG METSIMAHOLO CITY OF JOHANNESBURG

Province NORTH WEST FREE STATE GAUTENG GAUTENG KWAZULU NATAL GAUTENG GAUTENG WESTERN CAPE GAUTENG FREE STATE GAUTENG

Provincial Ranking (Sectional Scheme): Suburb Municipality WAVERLEY CITY OF TSHWANE MORNINGSIDE HILLS CITY OF JOHANNESBURG GLEN ATHOLL EXT 1 CITY OF JOHANNESBURG CONSTANTIA KLOOF CITY OF JOHANNESBURG ROOIHUISKRAAL NORTH CITY OF TSHWANE SUNNINGHILL CITY OF JOHANNESBURG MAROELADAL CITY OF JOHANNESBURG FOURWAYS GARDENS CITY OF JOHANNESBURG LINKSFIELD CITY OF JOHANNESBURG VANDERBIJLPARK SE 2 EMFULENI HONEYDEW RIDGE CITY OF JOHANNESBURG Municipal Ranking (Sectional Scheme): Suburb Municipality PAULSHOF CITY OF JOHANNESBURG BRECKNOCK AH CITY OF JOHANNESBURG MORNINGSIDE HILLS CITY OF JOHANNESBURG GLEN ATHOLL EXT 1 CITY OF JOHANNESBURG CONSTANTIA KLOOF CITY OF JOHANNESBURG SUNNINGHILL CITY OF JOHANNESBURG MAROELADAL CITY OF JOHANNESBURG FOURWAYS GARDENS CITY OF JOHANNESBURG LINKSFIELD CITY OF JOHANNESBURG HONEYDEW RIDGE CITY OF JOHANNESBURG BERGBRON EXT 1 CITY OF JOHANNESBURG

Province GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG

Number of suburbs: 810 Rank Mean Valuation (R) 219 724,776 220 724,095 221 722,558 222 721,802 223 721,776 224 718,373 225 718,194 226 717,338 227 716,757 228 715,614 229 714,106 Number of suburbs: 341 Rank Mean Valuation (R) 115 728,397 116 726,500 117 724,095 118 722,558 119 721,802 120 718,373 121 718,194 122 717,338 123 716,757 124 714,106 125 712,857

Province GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG GAUTENG

The Suburb Ranking tables enable users to identify those suburbs most similar in average price to the subject suburb. The ranking is provided against other suburbs in the municipality, province and country

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 27 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Figure 6-11 Sunninghill Suburb Trends: Transfer Information
Property Transfer Information Count Property Data NEW EST R0 - R400000 R400000 - R800000 R800000 - R1.5mil R1.5mil - R3mil Greater than R3mil Total FH R0 - R400000 R400000 - R800000 R800000 - R1.5mil R1.5mil - R3mil Greater than R3mil Total SS R0 - R400000 R400000 - R800000 R800000 - R1.5mil R1.5mil - R3mil Greater than R3mil Total 1 2 2 5 0 20 40 40 0 100 685 2,245 4,330 7,260 0 9.4 30.9 59.6 0 100 0 685 1,123 2,165 0 1,452 4 3 2 9 0 44.4 33.3 22.2 0 100 3,085 3,060 4,330 10,475 0 29.5 29.2 41.3 0 100 0 771 1,020 2,165 0 1,164 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 0 50 50 0 0 100 575 1,175 0 32.9 67.1 0 0 100 0 575 1,175 0 0 875 1 2 2 20 40 40 0 0 100 400 1,150 2,025 11.2 32.2 56.6 0 0 100 400 575 1,013 0 0 715 Last 3 Months % Value % Avg Count % *All ZAR Values in R'000 Last 12 Months Value % Avg

2

1,750

5

3,575

REPEAT EST R0 - R400000 R400000 - R800000 R800000 - R1.5mil R1.5mil - R3mil Greater than R3mil Total FH R0 - R400000 R400000 - R800000 R800000 - R1.5mil R1.5mil - R3mil Greater than R3mil Total 1 1 3 2 7 14.3 14.3 42.9 28.6 0 100 291 725 3,815 4,160 8,991 3.2 8.1 42.4 46.3 0 100 291 725 1,272 2,080 0 1,284 3 3 13 13 32 9.4 9.4 40.6 40.6 0 100 892 2,025 16,174 25,560 44,651 2 4.5 36.2 57.2 0 100 297 675 1,244 1,966 0 1,395 1 7 8 16 0 6.3 43.8 50 0 100 570 8,085 14,875 23,530 0 2.4 34.4 63.2 0 100 0 570 1,155 1,859 0 1,471 1 2 46 26 75 1.3 2.7 61.3 34.7 0 100 245 1,040 54,029 46,420 101,734 0.2 1 53.1 45.6 0 100 245 520 1,175 1,785 0 1,356

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 28 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za
Property Transfer Information Count SS R0 - R400000 R400000 - R800000 R800000 - R1.5mil R1.5mil - R3mil Greater than R3mil Total Totals Per Price band R0 - R400000 R400000 - R800000 R800000 - R1.5mil R1.5mil - R3mil Greater than R3mil Total Transfers 1 34 23 12 70 1.4 48.6 32.9 17.1 0 100 30 10 0 75 25 0 0 100 %

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold
*All ZAR Values in R'000 Last 3 Months Value % 0 19,393 10,503 64.9 35.1 0 0 100 Avg 0 646 1,050 0 0 747 Count 4 118 49 % 2.3 69 28.7 0 0 100 Last 12 Months Value % 520 77,135 47,452 0.4 61.7 37.9 0 0 100 Avg 130 654 968 0 0 732

40

29,896

171

125,107

291 21,948 25,823 23,365 71,426

0.4 30.7 36.2 32.7 0 100

291 646 1,123 1,947 0 1,020

9 129 113 41 292

3.1 44.2 38.7 14 0 100

2,058 84,435 122,740 76,310 285,542

0.7 29.6 43 26.7 0 100

229 655 1,086 1,861 0 978

The Transfer Information shows the number of property transfers for the suburb split into New (first time registrations) and Repeat sales. The new and repeat data is further split into free hold (FH), sectional scheme (SS) and Estates (EST) shown in a 3 month and 12 month view.
Please note that LightStone obtains data from a broad range of 3rd party sources and – despite the application of proprietary data cleaning processes – cannot guarantee the accuracy of the information provided in this report. It is expressly recorded that information provided in this report is not intended to constitute legal, financial, accounting, tax, investment, consulting or other professional advice. LightStone reports do not contain any confidential information relating to the property owner or any owners residing in the suburb. All bond, home loan and property registration information in the reports is from the Deeds Office where information on all property registrations, property transfers as well as all registered bonds / home loans are kept. This is public domain information and accessible by any person.

How to best use and analyse the data in these reports are discussed in detail in our workshops. Note that these are workshops and not seminars. The intent is to interact with each other and ask all the questions that are needed to get a full and comprehensive interpretation and understanding of the data in order for you to analyse any potential investment according to your specific investment criteria. We work through very specific real world investment examples which include at least one commercial and one residential property evaluation. To attend of one of our workshops, please book through www.casaline.co.za

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 29 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

7.
7.1

STEP 3b: How much should you pay
Property Valuation

There are several different ways which you can use to determine the value of a property. The most commonly used method to value a property is called a comparative market analysis. The intention of a property valuation is to stipulate in clear tangible facts what the investor is actually purchasing. This should be your goal also.

7.1.1

Estate Agents

A professional Estate Agent can add a lot of value to your transaction. Estate agents are a workforce that can help you find many investment possibilities. You have to find someone or a team of people that you are comfortable working with. In most cases, it is the function of the estate agent to fetch as high a price for the seller as he possibly can. Estate agents are paid on a commission basis which is all fair and well as he deserves to be paid for adding value to the deal. Make sure that the estate agent you deal with also has your interests as the investor at heart. I have personally never seen the bank valuation of any property increase because of the type of bathroom tiles installed in the property. Valuations are based on several tangible factors, like latest sale values for comparative units in the area. If an estate agent is focussed on the needs of the investor, which in my opinion is helping you as the purchaser make an informed decision based on the investment figures, the goal should then be to help you take the emotion out of the sale in order for you to make an informed decision based on the facts. Try this, next time you speak to an estate agent who is marketing you an investment property, just ask these few questions in order to determine who you are dealing with: 1. 2. 3. 4. 5. How much money am I going to make when I buy this property? How big is the unit in m²? What is the comparative market rental for a similar unit size in the area? Why is this property a good investment? Where do you prefer to buy your investment properties?

If the estate agent is confused by these questions, then he/she might not understand your specific needs as an investor and you might want the talk to somebody you can trust to guide you with your investment property.
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 30 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

If you were purchasing shares on the stock exchange, your first question would be "how much money is this going to make me". The broker will give you at least an average percentage growth for the last couple of weeks or months. He will also tell you to only hold onto the shares for so long and then sell to realise a profit. This is at the very minimum tangible advice with at least some sort of plan to realise profit. It should be the intention of the evaluation to help clarify in real terms the investment criteria and to remove any emotion there might be with the purchase. Buying an investment property is a business deal, nothing more. If you buy it only based on your emotion, you are already in trouble. If you make contact with the right team of real estate agents, you will have an endless supply of investment property. A professional estate agent will know his area he works in like you know your car, your spouse and your job. An estate agent that overflows with useful information about the goings on of any given area is definitely somebody you should talk to.

7.2

Who and what determines the value of property

When the question is asked “who and what determines the value of property”, often people say that the bank determines the value of a property. Some say that they themselves start with the listing price or the asking price and then work their way back from there. The value of a property has always been primarily determined as a transaction between a willing buyer and a willing seller. Don’t forget that the prospective seller also has the right to refuse an offer he feels is too low. Therefore you, the buyer in association with a willing seller, determine the value of the property. The banks are in effect insurance against this decision as they will underwrite this by confirmation of a mortgage bond, if you applied for it. In an established area, you have a historical record to use as reference. If you look at the information registered in the deeds office, it gives you historical figures for the purchases that took place in the various areas. A historical model by itself cannot predict the future; it can only show you the past performance up until the present day. So now you can take the historical values and you can effectively manipulate these figures by projecting the growth in the areas to determine that the value of property should be. The figure you achieve should obviously be close to a figure you are comfortable with. As there is a track record, you can now substantiate your findings with facts.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 31 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

7.3

Initial area investigation

If you take the Sunninghill area, and you search the deeds registration offices (using www.Lightstone.co.za) for sectional title schemes in this suburb, the result should be a list similar to this one. Not all the sectional title schemes in Sunninghill are listed in the following example but it should give you an idea of what the process is. List of Sectional Tiltle Schemes registered in Sunninghill
ANTIGO FALLS, SUNNINGHILL, SUNNINGHILL EXT 52 ASHLEY, SUNNINGHILL, SUNNINGHILL BANGALORE MEWS, SUNNINGHILL, SUNNINGHILL EXT 128 BARINGO, SUNNINGHILL, SUNNINGHILL EXT 125 CEDAR VALLEY, SUNNINGHILL, SUNNINGHILL EXT 74 CLUB GRACE, SUNNINGHILL, SUNNINGHILL DUNA MANOR, SUNNINGHILL, SUNNINGHILL EXT 21 EALINGTON, SUNNINGHILL, SUNNINGHILL EXT 156 ELMWOOD, SUNNINGHILL, SUNNINGHILL GRACE AVENUE, SUNNINGHILL, SUNNINGHILL EXT 7 GRACE LANE, SUNNINGHILL, SUNNINGHILL EXT 7 GRACE PARK, SUNNINGHILL, SUNNINGHILL EXT 7 GRACELAND TWO, SUNNINGHILL, SUNNINGHILL INYANGA, SUNNINGHILL, SUNNINGHILL EXT 155 KEARSNEY, SUNNINGHILL, SUNNINGHILL EXT 158 KESWICK, SUNNINGHILL, SUNNINGHILL EXT 159 LA GARITTA, SUNNINGHILL, SUNNINGHILL EXT 124 LISA PLACE, SUNNINGHILL, SUNNINGHILL EXT 2 MAROELA-JAKARANDA-PALM, SUNNINGHILL, SUNNINGHILL SABI SANDS, SUNNINGHILL, SUNNINGHILL EXT 21 SAN LORENZA 2, SUNNINGHILL, SUNNINGHILL EXT 86 SAN VITTO, SUNNINGHILL, SUNNINGHILL EXT 67 SERENGETI SANDS, SUNNINGHILL, SUNNINGHILL EXT 102 SHIMBALI SANDS, SUNNINGHILL, SUNNINGHILL EXT 149 SINGATI SANDS, SUNNINGHILL, SUNNINGHILL EXT 130 SUNNINGHILL GATE, SUNNINGHILL, SUNNINGHILL EXT 115 THE CREST, SUNNINGHILL, SUNNINGHILL EXT 120 TUDOR ROSE LODGE, SUNNINGHILL, SUNNINGHILL EXT 76 TURKANA, SUNNINGHILL, SUNNINGHILL EXT 153 VIA AVELLANO, SUNNINGHILL, SUNNINGHILL EXT 121 VIA VERCELLI, SUNNINGHILL, SUNNINGHILL EXT 148 VILLA ROSETO, SUNNINGHILL, SUNNINGHILL EXT 131 VILLA TOBAGO, SUNNINGHILL, SUNNINGHILL VILLA TORRE, SUNNINGHILL, SUNNINGHILL EXT 150

As an example, I could have picked any of these sectional title schemes in the area. In an effort to avoid that the unit owners of a specific complex be inundated with phone calls from potential buyers, I have chosen not to name a specific scheme for the example. The example will simply be stipulated as “Townhouse Complex”. The figures used in the examples are however based on actual transactions. The information supplied by the deeds search engine is listed below. Note: Just to be fair, not all deeds search engines give all the correct or latest information, there are certain search engines that have great functionality and accuracy of data while others do not.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 32 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

The deeds search engine provides the following information for each of the units in the scheme: 1. The sale price 2. The unit number 3. The unit size in m² 4. The calculated Rand paid per m² 5. The name of the purchaser 6. The name of the seller 7. The sale date 8. The registration date Table: 7-1 Townhouse complex deeds office registrations TOWNHOUSE COMPLEX, SUNNINGHILL, SUNNINGHILL
Sales Price Unit number: 1 R 510,000 R 350,000 Unit number: 2 R 430,000 R 235,000 Unit number: 3 R 370,000 Unit number: 4 R 690,000 R 580,000 R 300,000 Unit number: 5 R 245,000 Unit number: 6 R 580,000 R 360,000 Unit number: 7 R 675,000 R 350,000 Unit number: 8 R 525,000 R 435,000 R 235,000 Unit number: 9 R 630,000 R 350,000 Unit number: 10 R 370,000 Unit number: 11 R 235,000 Unit number: 12 R 712,000 R 580,000 R 450,000 R 370,000 96 96 96 96 7,416 6,041 4,687 3,854 THANTHONY KAMLANATHAN NOVEVE NOSIPHO SHEILLA NHLAPO NKOSANA ALFRED BAY TOWER PROP 60 CC NOVEVE NOSIPHO SHEILLA NHLAPO NKOSANA ALFRED BAY TOWER PROP 60 CC ERF 80 KELVIN CC 2007/10/03 2005/05/13 2004/07/01 2003/04/10 2008/01/17 2006/02/06 2005/08/24 2005/08/24 63 3,730 MCNEIL KIRSTY HELEN ERF 80 KELVIN CC 2003/04/10 2005/08/24 96 3,854 HARDING CHRISTINA ERF 80 KELVIN CC 2005/12/02 2006/09/20 96 96 6,562 3,645 KRIEL SPENCER CAMERON ABREU VANESSA SHEILA DE VIGLIOTTA ANTONIO ERF 80 KELVIN CC 2006/05/06 2004/04/15 2006/08/16 2005/08/24 63 63 63 8,333 6,904 3,730 MEDICO ANTONIO FRANCO DAL MCCALLUM KABELO JAMES MOKHINE SALZWEDEL VINCENT SEARLE MCCALLUM KABELO JAMES MOKHINE SALZWEDEL VINCENT SEARLE ERF 80 KELVIN CC 2007/03/15 2005/10/05 2003/04/10 2007/07/11 2006/01/23 2005/08/24 96 96 7,031 3,645 NAIDOO KREAN N D DYER FAMILY TRUST N D DYER FAMILY TRUST ERF 80 KELVIN CC 2007/10/15 2003/11/15 2008/02/15 2005/08/24 96 96 6,041 3,750 POONAN ASHLIN CRABB HENRY DAVID EDWARD CRABB HENRY DAVID EDWARD ERF 80 KELVIN CC 2005/08/30 2003/04/22 2005/11/28 2005/08/24 63 3,888 DAVIES PETER JOHN ERF 80 KELVIN CC 2003/04/23 2005/08/24 96 96 96 7,187 6,041 3,125 BREEDT GERHARDUS CHRISTIAAN GOVENDER REENA ROYAL JOYCE GOVENDER PREMANATHAN ROYAL JOYCE ERF 80 KELVIN CC 2006/05/17 2005/01/13 2004/11/15 2006/09/21 2005/08/24 2005/08/24 96 3,854 HARDING CHAD ERF 80 KELVIN CC 2003/04/23 2005/08/24 63 63 6,825 3,730 KOK AREND MOUNTJOY KEVIN MOUNTJOY KEVIN ERF 80 KELVIN CC 2006/01/19 2003/04/15 2006/06/26 2005/08/24 96 96 5,312 3,645 FERREIRA CHARL DOBLE RUSSELL KEITH DOBLE RUSSELL KEITH ERF 80 KELVIN CC 2006/08/16 2003/04/10 2006/11/16 2005/08/24 Unit Size R/m2 Purchaser Seller Sale Date Transfer Date

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 33 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Not all the transfers registered for the scheme is printed in this book but the information given here should be enough to illustrate the exercise. • What to do with this information Armed with this information you can now use it to see what the actual sales values are in the scheme. The information could now simply be transferred to a spreadsheet which you can utilise to manipulate figures that will help make sense of all of this for you. Remember that you do not have any formal information on this scheme as yet, like sales contracts, plans or lease agreements. You are looking down the rabbit hole in order to determine if this is a scheme you will consider investing in., but rest assured, once you are done with this process, you will be an expert regarding the scheme and you will also have set the ground work to becoming an expert in the area, this I guarantee. • The number of units in the scheme You can also see that there are 90 units registered in this scheme. This information could be very useful and can even influence your investment strategy. The more units there are in the scheme, the better chance there is that somebody might sell their unit. • Who were the developers From the sales listings, you can clearly see that the first registered owner of these sections were in fact a company called “ERF 80 KELVIN CC”. This was obviously the company used by the developer of the scheme. If you like, the members of this closed corporation could also be traced in order to verify who actually built this. For your purposes here, this will however not be necessary. The first registration date for sales from this development is shown as August 2005. All the units of a sectional title scheme are registered simultaneously in the deeds registration office. Therefore it is fair to presume that the developer handed these units over for occupation close to August 2005. • Know the m² Did you notice that all sales are listed in m²? This is important as it is an extremely useful measurement and in fact it is a standard used worldwide. If you get to know your average figures per m² in an area, there isn’t an estate agent, developer, seller, buyer, in fact anybody in the real estate industry that can pull the wool over your eyes. It is very useful to see what the last recorded sales for the previous year were, this should also give you the highest values paid for these properties. For instance you will find out that according to the information given in this example, you can then determine that the average sale per m² in this complex since 2007 is R7810/m². You could also determine that the highest value paid for a property in this scheme was R9127/m².

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 34 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

• Why you should know m² Knowing this information allows you to determine that there are various property sizes registered. This gives you more insight into the types of units that are in this scheme. There are two property sizes registered according to the deeds records and they are 63m² and 96m² sized units. You can also deduce from these statistics that the majority of the units built in this scheme could be a two or a three bedroom townhouse and that a third of the scheme most likely consists of one or two bedroom units. All this and you have not even visited the site as yet! With a little more effort, you can easily refine the data even further and group the different unit types together with their respective data. You can also take the previous year or two’s figures as this gives you better accuracy when it comes to estimating the current values of the different property sizes within the scheme. Table: 7-2 Townhouse Complex average sale values since 2007 Townhouse Complex average sale values since 2007 Unit Size = No of Units in Complex = % of Scheme = Average = Median = Max = 63/m² 30 33% R 7,345/m² R 8,294/m² R 9,127/m² 96/m² 60 66% R 6,819/m² R 7,458/m² R 8,125/m² Scheme 90 100% R 7,810/m² R 7,750/m² R 9,127/m²

• Size does matter Interestingly enough, you will also notice that larger units sell for less R/m² than smaller units. I have a theory about this and I can assure you with all the sectional title units I have investigated, this little phenomenon is constant. I believe that one of the factors that influence the higher sale prices of smaller units are when potential new or even first time buyers purchase property, they obviously want the very best their money can buy. The larger units do sell for a higher price, but very few first time home owners investigate the R/m² of a property, they mostly purchase purely on emotion. They see the higher priced units and aspire to live in them one day but for now, they will accept a slightly lesser unit, they might rationalize that the property they are looking to purchase is only one bedroom smaller. They think they are only paying for one bedroom less, where in reality they are actually paying more per m² every time. Therefore the sale prices of smaller units are higher per m² than that of larger units. • Buy to Sell OR Buy to Let? The above phenomenon goes even further in that value and capital growth for the smaller units in the scheme grows at a higher rate than that of the bigger units because of it. If your plan is to buy for speculation, smaller units are always the better option. If you are buying for capital growth, then the smaller units are still the better option. If you are buying for cash flow, your chances that the rental received is closer to the expenses, also in most cases are again better with

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 35 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

the smaller units. This is good news for investors. Knowledge is power only if you apply it. At least now you know this little fact. How you apply it is up to you. • Where to apply for a loan? In addition to the normal search results that most deeds office search engines will provide such as sales price and sales date, LightStone will also give you all the bond registrations. This means that you can see what the highest registered bond is for the scheme. This is especially useful if properties have already been refinanced by the existing owners. It shows you which financial institutions have already found value in the scheme. This is excellent ammunition if you intend to apply for a bond as it is a record that the banks have already found value for the specific property. You can even go so far as to apply for a bond with the same financial institution. In fact, the banks make use of www.Lightstone.co.za technology to help them valuate properties.

7.4

Confirm the rental values in the area

This is quite simple to do. You can simply contact a couple of rental agents in the area and ask what the rental for a two bedroom unit in and around your target property is. The rental agents will most likely give you a standard answer of say anything between R4000 and R5000 for the type of property you are looking for. Just keep asking and searching for answers using the internet, contacting rental agents in the area and cross referencing your target property with similar properties. More often than not, when you simply type in the name of your target property on a search engine, you will get quite a few listings related to the scheme. From here you can easily see what the actual requested rentals are. Simply follow the links provided with the listing, phone the owners or estate agents and they will gladly share information with you. One such 63m² unit investigated was confirmed to be a one bedroom unit listed for rental of R4800. It is recommended that you look at a “worst case scenario” when you are evaluating investment property. Having said that, let’s look at a worst case scenario in case the landlord was too optimistic when he listed the property for rent. If you knock this rental down to R4500 it could be more realistic. You will confirm this figure with your correspondence with the various rental agents in the area. If you take the rental of R4500 for a 63m² unit, it equates to R71/m² for the rental of this unit. Rental per m² = Unit rental divided by unit size Rental per m² = R4500 / 63m² Rental per m² = R71/m² This seems fair as other investigations done for this area showed an average rental for these types of units fall between R65/m² and R75/m². You must confirm the true rental income by comparing all the information received from your investigations. It is also a clear example of how useful the m² comparisons can be. Now you have the initial facts regarding this scheme, already you are an expert in the value paid per m² and the average rental achievable in the area per m².
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 36 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

7.5

Capital Growth

As you can see from the information obtained from the deeds office (in section 6.1 Area growth), over time the value of property increases if the correct conditions are prevalent. You can track these figures by simply accessing the deeds registration information available. Good capital growth areas are normally associated with a steady stream of new development, expansion and improvement of the existing infrastructures such as the addition of new shopping malls, road and access infrastructure upgrading on a regular basis as well as businesses being established in the area. All these, and a lot more factors, ensure that people want to stay near and in areas. If an area is well maintained and it is close to everything people need and want, it is only natural that people would want to stay there. You can measure the capital growth in the annual average price increase for properties in the area. Usually the average size of properties in an area does not increase dramatically but the value of the property is perceived to be more. It is quite simply supply and demand. As the demand goes up for certain types of properties in the area, so does the price for the properties increase as people are willing to pay more to stay in the area. Table: 7-3 Townhouse Complex unit 8 sales TOWNHOUSE COMPLEX, SUNNINGHILL, SUNNINGHILL
Sales Price Unit number: 8 R 525,000 R 435,000 R 235,000 63 63 63 8,333 6,904 3,730 MEDICO ANTONIO FRANCO DAL MCCALLUM KABELO JAMES MOKHINE SALZWEDEL VINCENT SEARLE MCCALLUM KABELO JAMES MOKHINE SALZWEDEL VINCENT SEARLE ERF 80 KELVIN CC 2007/03/15 2005/10/05 2003/04/10 2007/07/11 2006/01/23 2005/08/24 Unit Size R/m2 Purchaser Seller Sale Date Transfer Date

If you take the specific case of unit no 8 in Townhouse complex, the developer sold the 63m² unit in 2003 for R245 000 which equated to R3730/m². Two years later, that same unit was sold for R435 000 which equated to R6904/m². In 2007 the same unit was sold for R525 000 or R8333/m². If you further compare the R8333/m² with the figures averaged using the entire scheme as shown in Table: 7-2, this initial valuation of the property seems to be fair enough. Table: 7-4 Townhouse complex 8 sales percentages UNIT 8: TOWNHOUSE COMPLEX, SUNNINGHILL, SUNNINGHILL
YEAR Sales Price R/m² Increase from last sale Accumulated increase from 2003 2003 R 235 000 R 3 730/m² 2004 2005 R 435 000 R 6 904/m² 85.11% 2006 2007 R 525 000 R 8 333/m² 20.69% 2008 R582 750 R 9 250/m² 11%

123.40%

147.97%

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 37 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Up until 2007, the unit shows a 123% increase in price over five years. There aren’t too many other investments that grow at this particular rate. If you further project that the average growth for the Sunninghill area is currently calculated at 11%, simply project 11% for 2008 on top of R525 000. This then shows that you could theoretically achieve more than R585 000 for this unit. If you compare the example of unit 8 Townhouse Complex with the average statistics derived for the Sunninghill area (Table: 7-2), it is clear that the specific unit number 8 in Townhouse Complex is outperforming the average sales increases in the area. Table: 7-5 Sunninghill average sectional title sales for the last 5 years AVERAGE SECTIONAL TITLE SALES VALUES FOR SUNNINGHILL FOR THE LAST 5 YEARS
YEAR Ave Sale Yearly increase 5 year increase 2002 / 2003 R 380 000 2003 / 2004 R 472 000 24.21% 2004 / 2005 R 550 000 16.53% 2005 / 2006 R 625 500 13.73% 2006 / 2007 R 675 000 7.91% 2007 / 2008 R 750 000 11.11% 97.37%

These steps are all designed to help you determine the true market value of a property. There are many other factors that influence the value of property but as a guideline, these few steps, if followed, should be enough to give you a clear idea of what the property is currently valued at. Note: When you subscribe to Lightstone, just mention that you have read this book

7.6

LightStone Automated Valuation Report

LightStone is a company that specializes in property data. They have developed some very useful tools to assist with the valuation of property. In the LightStone Automated Valuation Report, there are various items that I am specifically interested in. The LightStone Valuation Report is a comprehensive report that helps agents, buyers and sellers to establish the fair value of a property. The report contains the following information (where available): • Property details • Title deed number • Erf/unit details (as per the South African Deeds Registry) • Street address details • Erf/unit size • Lat/long coordinates • • Owner details (as per the South African Deeds Registry) Valuation details • Last sales date and last sales price • Estimated value – a statistically generated estimate of the value of the property based on information obtained from the Surveyor General, the Deeds Office, banks, estate agents and other sources
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 38 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za • • •

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Safety score – the statistical probability that the property would sell for more than 90% of the estimated value. In simple terms, the probability that the estimated value is not an over-prediction Accuracy score – the statistical probability that the property would sell for within 20% of the estimated value. In simple terms, the probability that the estimated value is correct Expected high and expected low - the statistically generated upper and lower bound within which the property is expected to transact

Municipal valuation details • Assessed rates value and date of rates valuation • Zoning/usage of property Aerial/satellite image showing the property and the 15 most recent comparable sales A table showing the details of the 15 most recent comparable sales Graphs showing suburb price and volume trends

• • •

LightStone has also made it very easy to cross reference any data in connection with the specific property your interested in. For instance, the search mechanisms to find a specific property include any of the following information such as: • The owners name. Any part of the name would be sufficient such as • Only the first name or • Only the surname or • Only the middle name or • ID number If it is a legal entity, you can initiate the search by either providing the • Company name or • Company registration number If you have some of the property details you can even search by providing any of the following : • Province • Municipality • Deedtown • Estate name • Erf and/or portion • Sectional title name • Sectional scheme umber • And unit number Or if you only have a street address, you can start your search by simply providing any of the following: • Street name • Suburb • And street number Any of the above mentioned items will give you a starting point to search for any property you might be interested in. Once you have identified and selected your target property, all the data above for your specific

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 39 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

target property will be made available. It is truly a tremendous search facility that puts unequalled power at your fingertips. The following are extracts from the LightStone Automated Valuation Report as an example of what information is instantly available to you. In an effort to avoid that the unit owners of a specific complex be inundated with phone calls from potential buyers, I have chosen not to name a specific scheme for the example. The example will simply be stipulated as “Townhouse Complex”, further this, I have also altered a couple of the property details in an effort to maintain a certain amount of anonymity. I do however believe that there is enough data here to show you how easy it really is to get detailed information on any potential property. Figure 7-1 LightStone Valuation Report: Property Details
Property Details: Property Type: Province: Township: Erf #: SS Name: Suburb: Street #: Last Sales Date: Size (Registered): Size (Cadastral): SS GAUTENG SUNNINGHILL 1545 SS COMPLEX SUNNINGHILL 312 20070315 63 Not recorded in Deeds Registry Last Sales Price: Coordinates (Lat\ Long): R 525,000 -26.0126, 28.0631 Portion #: SS Unit #: Street: 0 8 ENDYMION ROAD Municipality: CITY OF JOHANNESBURG

7.6.1

Municipal Valuation

Property rates are used by the municipality to provide services, such as roads, street lighting, storm water infrastructure and parks, which are shared by everyone and which are not used to raise revenue. These rates are levied in terms of a rates policy. The rates policy determines how the various categories of property will be treated for rates and which categories will receive rebates. The actual amount that will be paid by each property owner is determined as cent-in-the-rand based on the value of each property as contained in the valuation roll. This is done in the city’s annual budget. Prior to July 2007 all levy payments were comprised of the rates and taxes of the scheme, the insurance payment for the replacement value of the buildings and any other charges as listed by the body corporate. Therefore the levy payment incorporated your rates and taxes amount due to city council. City councils have now changed the manner in which rates and taxes for sectional titles are calculated and recovered. They are now implementing individual assessments and billing for sectional title properties. It simply means that each property will now be billed on its associated market value and not as a percentage share of the entire scheme. Owners are now individually liable for their rates and taxes and not the scheme as a whole. As per the Municipal Property Rates Act 2004, properties were duly valued, and should be re-valued at least every five years, in order to take into account changes in the market value of properties. This should ensure that the valuation roll stays up to date and that property rates are levied in a fair and equitable manner.
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 40 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Figure 7-2 LightStone Valuation Report: Municipal Valuation
Valuation: Zoning/Usage: R500 000 SECTIONAL TITLE Year of Valuation: 2007

The Municipal Valuation Details are the valuation details provided by the relevant municipality and represent the market value assessed for rates purposes as at the date of valuation. The Usage (Zoning) refers to the purpose for which the property can be used. Figure 7-3 LightStone Valuation Report: Valuation Details
Valuation Details: Estimated Value: Safety Score: Estimated High: Risk Quality Grade: R 530,000 94% R 620,000 69 % Accuracy Score: Estimated Low Distressed Sales Factor: 88% R 470,000 68%

The Estimated Value is a statistically generated estimate of the value of the property based on information obtained from the Surveyor General, the Deeds Office, banks, estate agents and other sources. It should be seen as a guide to the value of the property only and should be used in conjunction with other factors – such as the extent of improvement or deterioration since the last sale – to determine the fair value of the property. The Safety Score is the statistical probability that the property would sell for more than 90% of the estimated value. In simple terms, it is the probability that the estimated value is not an over-prediction. The Accuracy Score is the statistical probability that the property would sell for within 20% of the estimated value. In simple terms, it is the probability that the estimated value is correct. The Expected High and Expected Low are the statistically generated upper and lower bounds of the range within which the property is expected to transact. The range should be seen as a guide only and changes in the condition of the property or area should be taken into account.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 41 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Figure 7-4 LightStone Valuation Report: Aerial Photograph

The Aerial/Satellite Imagery obtained from both the relevant municipality (where available) and from Google. Both images offer zooming and panning functionality that enables users to examine the property and the area in detail. The municipal imagery offers measurement functionality that enables users to determine the distance between points or the area under roof. The municipal imagery also shows the location of the comparable sales referred to in the comparable sales and enables accurate comparative analysis. Note: When you subscribe to Lightstone, just mention that you have read this book

Figure 7-5 LightStone Valuation Report: Comparable Sales

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 42 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za
# 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Suburb SUNNINGHILL SUNNINGHILL SUNNINGHILL SUNNINGHILL SUNNINGHILL SUNNINGHILL SUNNINGHILL SUNNINGHILL SUNNINGHILL SUNNINGHILL SUNNINGHILL SUNNINGHILL SUNNINGHILL SUNNINGHILL SUNNINGHILL Street ENDYMION ENDYMION ENDYMION ENDYMION ENDYMION ENDYMION ENDYMION ENDYMION ENDYMION ENDYMION ENDYMION ENDYMION ENDYMION ENDYMION ENDYMION Number 312 312 312 312 312 312 312 312 312 312 312 312 312 312 312 Erf 1545 1545 1545 1545 1545 1545 1545 1545 1545 1545 1545 1545 1545 1545 1545

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold
Sectional Title SS COMPLEX SS COMPLEX SS COMPLEX SS COMPLEX SS COMPLEX SS COMPLEX SS COMPLEX SS COMPLEX SS COMPLEX SS COMPLEX SS COMPLEX SS COMPLEX SS COMPLEX SS COMPLEX SS COMPLEX Unit 20 36 35 32 41 38 27 54 68 28 59 61 52 77 7 Sales Date
20090519 20090518 20090304 20090115 20090112 20080922 20080825 20080819 20080513 20080406 20080209 20080114 20071205 20071018 20071015

Transfer Date 20090911 20090820 20090619 20090325 20090318 20081209 20081202 20081120 20080905 20080623 20080331 20080425 20080326 20080222 20080215

Sales Price 300,000 675,000 580,000 520,000 570,000 500,000 710,000 650,000 500,000 750,000 575,000 738,000 725,000 497,000 675,000

Size (m2) 63 96 63 63 63 63 96 96 96 96 63 96 96 63 96

R/m2 4762 7031 9206 8254 9048 7937 7396 6771 5208 7812 9127 7688 7552 7889 7031

Offer to purchase

Average Sales Price:

R 597,667

The Comparable Sales Table shows the details of the 15 most relevant comparable sales and the Comparable Sales Map shows where these comparable sales are in relation to the subject property.

Figure 7-6 LightStone Valuation Report: Bond Details
Bond Details: INSTITUTION ABSA BOND AMOUNT R 505,000.00 BOND NUMBER SB117753/2007 REGISTRATION DATE 20070711

Figure 7-7 LightStone Valuation Report: Amenities
Amenities: Amenity SUNHILL CENTRE CHILLI LANE SHOPPING CENTRE THE SQUARE SHOPPING CENTRE SUNNINGHILL THE CORE SHOPPING CENTRE CAMBRIDGE CROSSING SUNNINGHILL SHOPPING CENTRE PETERVALE CENTRE MUTUAL MEWS
Copyright © 2008 Graham van Zyl All rights reserved

Suburb SUNNINGHILL RIVONIA ROAD SUNNINGHILL SUNNINGHILL PAULSHOF SUNNINGHILL PETERVALE RIVONIA
ISBN: 978-0-620-43690-8

Distance (km) 0.6 0.8 1.1 1.4 1.9 2.3 2.5 2.5
Second Edition 2009 Page 43 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

The Amenities listing shows the closest amenities to the subject property including the suburb they are in and distance from the subject property.
Please note that LightStone obtains data from a broad range of 3rd party sources and – despite the application of proprietary data cleaning processes – cannot guarantee the accuracy of the information provided in this report. It is expressly recorded that information provided in this report is not intended to constitute legal, financial, accounting, tax, investment, consulting or other professional advice. LightStone reports do not contain any confidential information relating to the property owner or any owners residing in the suburb. All bond, home loan and property registration information in the reports is from the Deeds Office where information on all property registrations, property transfers as well as all registered bonds / home loans are kept. This is public domain information and accessible by any person.

www.LightStone.co.za Note: When you subscribe to Lightstone, just mention that you have read this book You can clearly see how easy it is to obtain accurate and very specific information about any subject property you might want to investigate. Most of our clients will first search their own properties to get a good “feel” for what the reports give them. Once they are comfortable with the data that is provided, they then start to focus on potential investment properties.

7.7

Cash flow

You can choose to focus on the cash flow generated by the property. Properties that are cash flow positive from the outset are more scarce and harder to find. The number of offers you will submit will most likely be a lot more than if you only purchased properties for their capital growth. If you take the example of unit 8 in Townhouse Complex, the rental income generated at R4500 per month will most likely not even cover the bond repayment if you purchased the property at R585 000. Therefore if you are looking to purchase the property at a rate equal or close to the income generated by the property, you will definitely get more resistance from the sellers. There is always one or two sellers that really need to sell their property and the amount they owe on the property could be very little. In these instances, your chances of realising a sale are still good. Just know that you will be working harder to find these bargain sales, but they are most definitely worth the effort. In the event that you do purchase a property that is cash flow positive from day one, you also still get the huge advantage of benefiting from the ongoing capital gain. If everybody purchased bargains all the time, the capital gain would stagnate, but the market has always been a healthy supply of very few bargains and a lot of property sold closer to true value. Therefore your property will increase in value by default as long as there are only a few properties purchased at bargain rates. Property owners are very educated these days as to the value of their property. That means that you as an investor will have to do more work to find the bargains, but I can tell you they are out there and when you find them, not if you find them, when you find them, the deal of the decade is always spectacular.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 44 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

7.8

Financial Calculations

When planning your investment property purchases, performing the necessary financial calculations are some of the most important activities that you should be doing when evaluating investment property. For centuries it has been clearly established that the wealthiest people in the world either found their wealth in property or they are safeguarding and keeping their wealth by investing in property. It is possible that some of them were lucky with a “gut feel” approach, but it is more likely that the people that succeed are informed about their decisions. It is recommended that you also be informed about what you are buying. What is not always communicated as clearly is how they achieved this. Most people are afraid of taking the first step towards investment, because of the lack of knowledge or understanding. The aim of this section is to clarify for you what sometimes seems like complicated calculations. Here you will see that it is as simple as can be. • • • Wouldn’t you like to know how much money you will make with a specific property before you purchase the property? How will that specific property investment affect your other investments in your property investment portfolio? How will your investments affect your personal budget?

If you do not have the correct tools to help you calculate and answer these questions, you will most probably never purchase investment property. I believe that all investors need to ask these questions before they purchase a property. With the right calculations, your task of planning your property investments is made infinitely easier. There are many people that have written their own investment software on a spreadsheet to help them plan their financial needs. You should know that it can get very complicated very quickly, especially if you bring refinancing into the equation. Most people can work out fairly easily how much the bond payment is and what the rental income is going to be for a specific property. They add the levy payment as an expense and get a warm fuzzy feeling that the investment is going to be a good one for them. Most of these “do-it-alone” people seem to forget a couple of things though, like: • • • • • • • • • • • How do you know if you are paying to much for the property according to your investment criteria Have you allowed a vacancy factor Do you factor in that there will be costs to maintain the property Are you going to manage the property yourself or are you going to pay a rental agent to provide this service Have you taken inflation into consideration Do you know how much the property is expected to increase in value by, if at all Did you allow for transfer and registration costs Did you allow for expenses associated with refinancing the property Are there any capital costs, like repairs that need to be affected What is the rent / value / income ratios and is this acceptable What happens when you pay a deposit and is it worthwhile to pay a deposit
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 45 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za • • • • • • •

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

What is the effect on the deal when the purchase price and the bond amount is not the same What will the annual and monthly shortfall payments be, if any When does this property break even (no more shortfalls) When do you start to make money If you are planning to sell the property within a few years, what will the potential profit be When is the right time to refinance the property and how much should be refinanced What is the return on investment

You need to analyse, structure and present your offer to purchase for the property in order to get the best results. It is of the utmost importance that every transaction is treated in a scientific and calculated manner. If you want to succeed, you cannot simply go on your “gut feel”. You need to use calculations and software. I have also previously done a lot of things on gut feel and I can assure you that knowing the figures for a property you are about to purchase, makes your decision a lot more calculated. If you do not take the time to perform your financial calculations, you will limit your growth and it is most likely that you will not operate on a very large scale either. To buy one or two properties as an investment and to make the calculations yourself is very easy. However, it is often seen that people with small portfolios stagnate. They think they have reached their limit in terms of affordability and available time. When these investors discover financial calculations through a software tool like a Microsoft Excel spreadsheet or other software, suddenly there is no stopping them. The sky is the limit. In all businesses, computers and software serve to make life a lot more comfortable. Businessmen use custom built software to help them to make thorough analyses and projections, guiding them to make the right business decisions. Property investment is a business and should be approached like one in order to get the maximum returns. What are the important factors that influence your decisions as a property investor? Here are a few: • Bond payments • Cash flow • Capital growth • Rental income • Expenses It would be easy to monitor these variables if youved in a world where nothing changes. However the world seems to constantly change. Consider what you think the following effects will be on your cash flow if you only go on gut feel. • • What happens if the interest rate goes up or you lose a tenant or the capital value of the property decreases? What is the effect if some of these things happen at the same time?

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 46 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za •

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Are you aware of the capital growth of the investment and the possibility of using that to expand your portfolio? In other words, do you know how to implement safe and profitable refinancing in order to enjoy the fruits of your labour in your own lifetime?

Don’t react, respond! Plan for your worst case scenario and then simply deal with the situation when it arises. You have planned for it, so simply execute your plan.

7.9

Financial Terms

There are several financial indicators that can be used in order to determine investment criteria. You can get very technical about the financial figures. As an investor, you purchase investment property for various reasons, therefore there are various strategies. You need to find your own strategy that you are comfortable with. Do not get bogged down by getting too technical about things. Once you have determined your own investment criteria, simply evaluate your investment options and go from there. There is an expression called “Analysis paralyses” and it applies to you if you over analyse situations to the point that you will most likely not commit to an endeavour. These terms are stated here in order to help you understand the process and the mindset needed to evaluate an investment property. They are not intended to be the “be all and end all” when it comes to property investment evaluation. Please keep these words in mind when you evaluate a property for investment purposes.

7.9.1

Yield

The word yield is very often used by property investors. It is the very first indicator some investors use to determine if a property is even worth investigating. The yield is also known as the “Internal Rate of Return” (IRR) and is expressed as a percentage of the amount invested in the property, rather than the property’s value. Yield can also be thought of as a general term that refers to income in relation to the cost of the investment. It is therefore also an indicator of the efficiency or quality of an investment. A property might be a good investment proposition if its yield is greater than the rate of return that could be earned by alternate investments of equal risk such as investing in other similar properties. You can compare all their investment returns against putting your money in an interest bearing bank account. Although this method of comparison clearly does not operate on the same level risk, the argument is if the bank gives you a better return than investing in a property, you simply do not invest in the property. There are all sorts of comparisons similar to the one mentioned above. You can compare against shares and fixed deposit returns. No matter what your criteria is, there are a couple of terms used in the property investment industry that is a good idea to familiarise yourself with. There are several different applications and implementations of the yield. There is for instance a net yield and a gross yield: • a gross yield is simply the percentage amount derived by dividing the annual income by the amount invested

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 47 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za •

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

a net yield is the return shown as a percentage after costs such as rental agents fees, levies, rates and taxes, and the like

Mathematically the yield could be shown as: a. (Gross) Yield = Annual income Purchase price

This is the yield that is very often used by investors as there are no frills associated with the calculation. You simply take the annual rental income and divide it by the proposed purchase price. If the figure is not something you can live with, then either look for quick ways to improve the income generated by the property or lower the purchase price. An example of this is: (Gross) Yield = (R4500 x 12) R550 000 = 9,81% b. (Net) Yield = Annual income minus expenses Total amount invested x 100

The representation of the net yield takes a bit more work to confirm as you will now take a closer look at improving the income. The expenses are also brought into the calculation which means that the total amount needed for the investment could vary depending on if / how you can minimise expenses. These different variations of cost cutting on expenses will influence the calculation result. If you are more interested in cash flow, then the yield of a property will most likely be your focus point. A low yield would indicate a high price paid for the property in relation to the income generated by the property. A high yield would then also indicate a low price paid for the property in relation to the income generated.

7.9.2

Return on Investment (ROI)

The return on investment indicator is mostly used to include the capital growth that is associated with a property. Therefore ROI is more influenced by the potential earnings than that of the immediate earnings as is the case with yield. Return on Investment = _____Net Return_____ Total amount invested

The Net Return can be expressed as the equity available for the property after a period of time minus any capital expenses incurred and the shortfall payments for the year. Net Return = Equity growth – (Accumulated shortfall for the year + Capital expenditure) Note: Although the transfer duty payable is a cash expense, it is also tax and does not normally form part of this Net Return calculation.
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 48 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

If you are more interested in the future property value than the cash flow aspects of an investment, you would most likely want a good ROI and might be less concerned with a lower yield figure. In most cases, this is what property investors in entry level sectional title townhouses are looking for, a good Return on Investment. As you can see, it could be very easy for somebody to manipulate a figure to reflect what they want to show. If you know what you are looking for and understand what it means, then it does not matter how an indicator such as the yield or the ROI is shown. You will be able to calculate and confirm it for yourself. In fact, in all cases it is highly recommended that you do confirm all the investment figures for yourself before you commit to a purchase.

7.10

How much are you prepared to pay for the property

How much you are prepared to pay for a property depends on what your investment plan is. If you are buying for capital growth you might be willing to pay a little more for a property than if you were buying it for cash flow purposes only. Each person has his own internal set of parameters he is willing to accept. For a long time, with every single property I purchased, as I signed the offer, I was thinking “I am paying too much”. Maybe it is just me, but even if I buy the bargain of the century my thoughts are drawn towards the thinking that I am paying too much for the property. I have purchased some real bargains and there was still a small part of me that believed I could have negotiated a better deal. This was because I did not do the correct homework to ensure that I knew what is happening in the area and with the property. I also did not have clear goals of what I was looking for nor had I defined my purchase criteria. I simply purchased based on information given to me by sales agents. There is no need to guess any more, as you will now know why you are buying property and how much you are willing to pay. When you start investing in property with clear goals and defined parameters; the feeling of “I am paying too much for this property” will be eliminated. It will become a prepared document delivery function, a proposal if you like, that you deliver to a customer. If the customer does not accept your proposal, you have a choice of changing the proposal to suit the customers’ needs, or you can prospect another customer. These are all just business deals, there is very little emotion attached to it. The best advice I heard from a very famous real estate author called Dolf de Roos was “Never fall in love with the property, fall in love with the deal”. These words have been stuck in my head every single time I look at purchasing a property.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 49 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

7.10.1

Initial property parameters

You need to evaluate what your personal investment criteria are before you submit an offer on the property. This section will help you understand what the impact is of changing the different investment criteria. The question you should be asking yourself the whole time is, “Will you buy this property?” If the answer is “No, I will not”, then you need to ask “What do you need to change here in order for you to purchase the property?” The following table lists the initial investment criteria entered in order to evaluate the potential purchase: Table: 7-6 Initial property evaluation inputs INVESTMENT PROPERTY EVALUATION 63 m² TOWNHOUSE COMPLEX UNIT
PROPERTY INFORMATION EXPLANATION

Valuation Purchase Price Mortgage Expected Capital Expenditure Interest Rate on Loan Term of Loan: Vacancy/Collection losses Rental Management Repairs/Maintenance Annual Increase of Income Annual Increase of Expenses Annual Appreciation Rate Approximate Transfer Costs Buildings Area

R 580,000 R 550,000 R 550,000 R0 10 % p.a. 20 Yrs. 4 % of Rental 10 % of Rental 4 % of Rental 10 % p.a. 10 % p.a. 15 % p.a. 10 % of total 63 m²

This is the current estimated value of the property The proposed purchase price The total loan from the bank If you needed to replace carpets, paint the unit The in interest rate issued against the bank loan. This will vary from time to time. This is the bond term, in some cases the term could be extended to 30 years The % of time the unit will be vacant. (4% = half a month) The % of the monthly rental income that will be paid to a rental agent as a fee for managing the unit on your behalf The % of rental income that will be allocated to repairing the unit per annum (4% = half a month’s rental) The amount by which the rental income will increase each year The amount by which the property expenses will increase every year Capital growth rate Let’s assume that you purchased this property in a trust, therefore 8% transfer duty is payable plus another 2% was added for transfer and registration costs The size of the property in square meters

You will have to make some assumptions in order to get an understanding of what the potential investment figures look like. Remember the idea at this point in time is not to be as accurate as possible. The point of this exercise is to evaluate if this is your type of property investment. Now is the time to play around with the different scenarios in order to gain an understanding of what your specific investment criteria could be. Over time, your investment criteria could obviously change, remember that this is just a starting point. The figures entered here are projected into different calculations as can be seen in Table: 7-7 Initial property evaluation results. The income statement is projected for the monthly income and expenses.
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 50 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za 7.10.1.1 Income

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

With residential rental income there is normally only one source of income namely the monthly rental amount. • Rental Income Monthly rental is paid by the tenant occupying the premises. The actual rental income currently being paid by the existing tenant might not be market related. As stipulated earlier, do your homework on this to ensure that you are confident about the true rental achievable for the property. • Vacancy Losses It is very likely that your property will be empty sooner or later, even if it is just tenants moving in and out. Rather than it taking you by surprise, factor it into your financial calculations as a loss of income. This is often referred to as a vacancy factor and is expressed in a percentage of the monthly rental. 7.10.1.2 Expenses

Most of the expenses are self explanatory. • Bond Payment Every month the bond, or the mortgage as it is sometimes referred to, is payable to the bank. This is the loan amount granted by a financial institution. • Rental Management If you have contracted a rental agent, this is the monthly fee payable to the agency. It is also normally calculated as a percentage of the rental income received. • Administration If you have internal staff, other than the rental agency contracted, that help you monitor your investment properties, you could list those expenses under administration. 7.10.1.3 Shortfall

The monthly income for this property is calculated at R4 320. The expenses for running this property are calculated at R 6,697.62. The difference between these two figures is R2 377.62. This is called the monthly shortfall. Every month, the property will need a cash injection of R2 377.62 in order to break even. This can also be seen as your monthly investment contribution to the property.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 51 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Table: 7-7 Initial property evaluation results INVESTMENT PROPERTY EVALUATION 63 m² TOWNHOUSE COMPLEX UNIT Income Statement Income Description
Rental Minus Vacancy Losses

Expenses Amount
R 4,500.00 R -180.00

Description
Bond Payment Rental Management Repairs/Maintenance Property taxes / Levy Insurance Electricity Water Refuse Advertising Security Garden Services Fire Protection Administration

Amount
R 5,307.62 R 450.00 R 180.00 R 760.00

Total
*

R 4,320.00
ACQUISITION DATA

R 6,697.62

Purchase Price Mortgage Transfer Costs Capital Expenditure Deposit Purchase Value Property Value Equity Purchased

R 550,000 R 550,000 R 55,000 R0 R0 R 8,730.2 m² R 9,206.3 m² * R 30,000

* *

Monthly Shortfall 1st years cash investment Gross Yield 1st years Net Return Return on Capital Rent / Bond Ratio Rent / Purchase Ratio Rental Value

* R 2,378 * R 83,531 * * * * * * 9.82% R 130,463 156.18% 84.78% 0.82% R 71.4 m²

Note: These values are calculated using the Property Evaluation Software available from www.casaline.co.za Comparing the proposed price of R8730/m² to be paid for the 63m² unit, it is still below the maximum of R9127/m². R8730/m² is also between the average and the median prices paid over the last two years. Whatever your criteria are, these figures are only here to assist you in making your decisions.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 52 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

8.

STEP 4: You don’t have to wait for the “FOR SALE” sign

You don’t have to wait for the “FOR SALE” sign to go up when you want to purchase property. You have already determined where you would like to buy properties, so you can simply use the tools courtesy of the information age to help you find the registered owners of these properties. Once you have their details, submit an offer to purchase with the special “conditions precedent due diligence” clause, which allows you at the very minimum two weeks to investigate whether you actually want to commit to the property or not. The intention is not to submit an offer to purchase to every person that lives in the Sunninghill area. You have already determined what type of unit you are looking for, therefore target those units that specifically meet your criteria. In this example, let’s look at the 63m² units in Townhouse Complex. Obviously you would like to get the best deal out there, but I recommend that you make a decent offer for a property and not a silly figure as a sales price. Use the information links available through our website www.casaline.co.za to isolate the unit types you would like to invest in. Most property owners (sellers) do not actually know the true value of their property and not all people are ready to sell their property. I have had a lot of offers accepted, but I had a lot more offers rejected. You have already determined what you are willing to pay for property in the area. The next step is to contact the owner and make an offer. It is not recommended to give verbal offers on the phone as this normally starts the emotions up on the other side of the line. Rather get all the prospective sellers’ details and submit a written offer to him. This way you avoid discussing the price telephonically. The offer is received by the prospective seller on paper and he has time to evaluate the offer and deal with his thoughts regarding the potential sale. It is a good idea to wait a day or two before you contact the prospective seller again. Simply enquire about the status of the offer and if everything was in order. If the prospective seller wishes to make changes, ask him to substantiate the proposed changes with supporting documentation. For instance if the owner tells you that the property is worth more than you are offering, do not argue, simply ask him to send you the rental contract that substantiates the increase in asking price.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 53 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

I believe that a lot of people just need to be reminded that they can sell their property.

8.1

Sales Agreements

The sales agreement or offer to purchase is a written and signed agreement whereby the seller agrees to sell a property to the purchaser at an agreed purchase price. This agreement is a legally binding document once singed by both the seller and the purchaser so take care of what you sign. Once you have signed the offer to purchase, the seller can hold you responsible to perform to what was agreed to in the offer. It is not necessary to be overly technical with regard to contracts, but it is a very good idea to familiarise yourself with some of the key aspects of contracts. Contracts are written in a language all of their own and some of them can be extremely confusing. Legalese need not be painful, in most cases, it is actually just a higher form of English. Just read a contract slowly and at your own pace. If you really do not understand what the writer is trying to say, contact an attorney who will be able to clarify the detail. No matter what, be sure that you understand the contents of the contract and more importantly, be sure to understand what the consequences of not keeping to the contract conditions are, before you commit to a sale. An offer to purchase basically only needs four things to be binding for the sale of immovable property, these are: • Identify the SELLER • Identify the PURCHASER • Identify the PROPERTY • Confirm the SALES PRICE • All the other information contained in the sales agreement adds further conditions to these four major requirements. Let’s take a closer look at some of them. In general there are a few points to consider when signing a sales agreement. • Witness It is always a good idea to get witnesses to confirm your contract. In the sales agreement there are specific places provided for the witnesses to actually witness the signatures of the buyer and the seller. • Open spaces Do not leave any open spaces in the contract. Either complete these empty spaces in the sentences with words or delete them. This is to ensure that the other party does not fill them in for you. If there are changes to the contract or the empty spaces have been filled in, initial all of these amendments, insertions and deletions. By signing your initials next to these changes, you in effect confirm that you have read and understood them. • Be specific The sales agreement must be unambiguous and clear. Do not use statements like “to be determined or agreed at a later date” - be specific such as “occupation will be taken on registration”.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 54 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

• Retain a copy Make sure you always get a copy of the contract even if the seller has not yet signed it. This is always good for record keeping purposes. If there is a dispute later on, at least you have a copy of the document as you signed it.

8.1.1

The parties

The parties to the sales agreement are the buyer and the seller. If there is an estate agent involved in the deal, the estate agent is not a party to the agreement. It is important to take this into consideration as the conditions of the sales agreement are related to the parties (buyer and seller) and not the estate agent as the estate agent merely facilitates the transaction. Here is an example of the parties’ details section of the sales agreement: 1. PARTIES Make sure that the person you are dealing with is actually the registered owner of the property. This is easily achieved by simply referencing your deeds search results. The parties to this Agreement are: 1.1 Name………………………………The sellers details.………………………………………….…….. ID/CC/PTY/Trust………………………….……………………………………………..……………….. Address……………………………………….………………………………………………………..…. Postal. ...………………………………………….………………………………………………………. (hereinafter referred to as “the Seller”), and Name…………………Your company name / trust name / you personally………………….…….. ID/CC/PTY/Trust………………………….……………………………………………..……………….. Address……………………………………….………………………………………………………..…. Postal. ...………………………………………….………………………………………………………. (hereinafter referred to as “the Purchaser”).

1.2

8.1.2

The property

Ensure that you are actually purchasing the correct property. There have been many cases of the owner not really knowing what his section is. The section is normally confused with the door number. The door number might be 21 but the section could be identified in the sectional plan as section 5. This often happens as the owners don’t normally pay attention to this. If this is the case, you will lose the sale as the contract will not be valid. It is a very simple procedure to cross reference and check with your deed search results. The property must be identified and normally looks something like this.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 55 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

2. DESCRIPTION OF PROPERTY If it is a full title property: • a) Freehold Stand No …278.... in the Township of …Sunninghill…… in the District of…Sandton.… being Street Address ……112 Naivaisha rd, Sunninghill….. • If it is a sectional title property: • b) A UNIT CONSISTING OF Section/s…21.…being Flat/Townhouse/Door No…..5……in the Scheme known as
…..TOWNHOUSE COMPLEX…, SS No …123/2005 (Pretoria)… Stand No…1876/0….. Township…Sunninghill … and the Seller’s right of exclusive use of the following areas ………………………………………………………..… together with all and any fixed improvements (if any)

NOTE: The door number might not be the same as the registered section number for the scheme.

8.1.3

The purchase price and bond application

You must stipulate the purchase price you are willing to offer for the property. Don’t just write the offer number value, it is best to confirm the number amount written by writing the purchase price in words as well. If there is ever a dispute regarding the purchase price, the words will carry the most weight in order to clarify the dispute. Therefore write clearly, legibly and concisely. Note that the purchase price is stated as R550 000 and that a bond of R550 000 is requested. Therefore you are asking for a 100% loan amount from the bank. If you wish to put a deposit down for the sale, it is recommended that you pay the deposit to the conveyencer and not the seller or an estate agent. Paying a deposit is not a legal requirement for a sales transaction. Nowadays the financial institutions will most likely ask for a deposit but it is still not a contractual obligation to pay a deposit for second hand property. When you apply for finance with the banks, simply arrange the required deposits with the bank. In the sales agreement, the purchase price and finance normally looks like this: 3. PURCHASE 3.1.The purchase price payable by the Purchaser to the Seller shall be the amount of R.…550 000…… (……Five hundred and fifty thousand rand……) payable as follows: R..0…… (……zero.…) to be deposited with the Conveyancer within 30 days of acceptance of this offer. The conveyancer shall deposit this sum in an interest bearing trust account for the benefit of the Purchaser. The balance of R..…550 000…… (……Five hundred and fifty thousand rand……) shall be paid to the Seller upon registration of transfer of the Property into the name of the Purchaser and shall be secured by means of a bankers or other guarantee. 3.2 This sale is subject to the conditions in section 20 of this document being fulfilled, further this, the sale is also subject to the condition that the Purchaser is able to raise a loan of … R..…550 000…… (……Five hundred and fifty thousand rand……)....upon the security of a first mortgage bond to be passed over the property at prevailing building society or bank terms and conditions within 35 (thirty five) days after the notice of acceptance as per section 20 of this document.
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 56 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

8.1.4

Occupation

It is recommended that you stipulate occupation on registration, unless you know exactly why and when you would like to take occupation if this date is to be before the date of registration of the property. You can always later on reach agreement with the seller regarding occupation by simply using an addendum to the sales agreement.

8.1.5

Conditions precedent: due diligence and approval

In all the offers that I submit, I add a conditions precedent clause. These are four simple paragraphs which enables you the purchaser to take two weeks to investigate the property and at the end of the two weeks, if you determine that the purchase price is too high, or that the property expenses are not suitable to you, or if you just feel that the deal is not for you, you can simply walk away from the deal as this is clearly stipulated in the sales agreement. The full due diligence clause is stipulated in the Sales Agreement which is made available through our website

www.casaline.co.za.
8.2 Submit your offer

Understand that you will be following a step by step method to determine if you are comfortable with the investment purchase. You will have more than enough time to get all the information you would need in order to make a decision. It is almost like a “money back guarantee”. Once you have determined your initial offer price, simply submit the offer in writing to the seller. If the seller agrees in writing to the sales agreement you submitted by signing the sales agreement in full, then you can continue your due diligence investigation.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 57 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

9.

STEP 5: Due Diligence

Due diligence is a phrase meaning “the needed investigation” that will prove that the property is worth purchasing. You should add a special due diligence clause to the sales contract stipulating that the purchaser reserves the right to conduct a due diligence for a period of 14 days. During this period, the due diligence investigation will be performed. If the results of the investigation are not satisfactory to purchaser, then the sale is simply cancelled or a new contract is drawn up to reflect the changes you wish to implement.

9.1

General

It is always a good idea to visit the property yourself as soon as you possibly can. Arrange with the tenant to access the unit in order for you to get a good impression of what the property and the tenant are actually like.

9.1.1

Confirm Ownership

It is advisable to request a copy of the title deed of the property. You can simply request this through your deeds search engine. A copy of the title deed will normally be emailed to your requested email address within a couple of days. Reading through the title deed, be sure to confirm the ownership, the size of the unit and if there are any servitudes restrictions registered against the property.

9.1.2

Confirm who the managing agent is

The managing agent is specialist management company appointed by the body corporate to help with the daily running of the scheme. Find out who the managing agents are, and if there are indeed managing agents appointed. Sometimes the body corporate prefers to do things themselves. You would normally be able to find this out by simply looking at the monthly levy statement.

9.1.3

Confirm the sectional title scheme’s financial position

Ask the seller if he has a copy of the latest financials for the scheme. If the seller cannot provide you with the latest audited financials for the scheme, you can simply contact the managing agent yourself, say that you are a potential buyer and ask for a copy. Some bodies corporate will charge you a fee before they issue the financials, only a few hundred rand normally, but it is highly recommended that you do see what the financial position is of the body corporate that you will be buying into. Remember, that if you buy the property, you will be liable for your percentage share or participation quota of the financial position of the body corporate. Check that the body corporate financials are acceptable for your purposes. Financial statements can be very complicated, but you are checking to ensure that the body corporate does not have any major debt. If fact, what you would like to see is that the financials reflect that there is a surplus of funds.
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 58 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

9.1.4

3rd Party property inspection

It is strongly advised to use a third party property inspector to inspect the property. Even if you have personally visited the property already, it is still recommended that you appoint a third party inspector to go and inspect the property on your behalf. Up until a few years ago, these property inspectors were basically unheard of in South Africa. Nowadays there are many active property inspection franchises operating in most of the major cities. These inspectors are trained to see problems that the average investor would overlook. Every property I have purchased in the last couple of years was inspected by a third party inspector, even if I visited the property myself. This independent property inspection will give you a totally unbiased report of the condition of the property. It will also give you the necessary information to decide if any serious maintenance will be needed in order for you to factor this into your projections and if need be, adjust the sales agreement accordingly. One of the main objectives of such a 3rd party property inspection is to determine the structural integrity of the individual property. They should also evaluate the cosmetic aspects and specifically observe the following: • Structural • Roofing • Internal and external walls • Foundations • Basic electrical • Basic plumbing • Moisture build-up and damp • • • • • • • • Cosmetic Condition of paint on the internal walls Condition of the plaster Status of floor and wall tiles Installation / condition of cupboards Installation of showers, basin and baths Functionality of taps, lights and if applicable intercoms etc Installation of all doors and windows

As you can see, these reports are quite comprehensive and well worth the cost.

9.2 9.2.1

Confirm Income
Rental Agreements

Confirm the rental income for the property by obtaining the rental contract. It is also advisable that you contact the rental agent if there is a rental agent involved. Ask for the last six months worth of monthly rental statements for the unit to be faxed to you. This will confirm whether or not payments were in fact made by the tenant and also what date each month payment was made. Keep in mind that when you purchase property, you also purchase the tenant with the property. This is a very important consideration. In your due diligence investigations you will find out if there is an existing lease agreement and get a copy of the existing lease agreement. You will also do more background work to find out if this is a good paying tenant. If it is a bad paying tenant, you will be buying this problem as part of the deal. It is not a big problem and there are many ways around it.
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 59 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Let’s look at the implications of a tenant occupying the premises. In the Chapter 14.1.3 Occupation and Registration, we referred to the fact that when you purchase a property, you in effect also purchase the tenant. If you find that the tenant who is currently occupying the premises is a bad paying tenant, and you do not want that tenant to also be a problem for you, you could simply change your offer to purchase agreement accordingly. One thing you could do if your investigation finds that the existing tenant is not a tenant you wish to have the pleasure of dealing with, simply state in your offer to purchase agreement that occupation and registration must only be submitted once the existing tenant has vacated the premises. This will ensure that the conveyencer cannot submit for registration before the existing tenant has removed himself from the premises, therefore ensuring that your problem tenant is no longer a problem. You will however now have to place a new tenant, but with the old one gone, this should not take long at all.

9.3 9.3.1

Confirm Expenses
Levies, Rates and Taxes

Each property is subject to rates and taxes. In the case of a sectional title unit or a unit forming part of a home owners association, there will also be a levy charged by the body corporate. Get this information from the owner in the form of the actual statement issued by the company that collects the rates and taxes and the levies.

9.3.2

Insurance

Some properties will need additional insurance, but is highly unlikely that a residential sectional title unit will need additional insurance cover.

9.3.3

Bond Repayment

This is simply a financial calculation which takes the following into consideration • The current interest rate • The total loan amount • The term of the loan (i.e. 20 years) The result is a monthly payment amount payable to the bank

9.3.4

Maintenance

Every property will require some maintenance sooner or later. Remember that although the tenant is liable for breakages, you as the owner are still responsible for basic wear and tear. It is very likely that every couple of years you will need to replace the carpets, give the place a coat of paint, service the plumbing and so forth. The easiest way to ensure the availability of funds as and when maintenance requirements crop up, is to away on a monthly basis, a percentage of the rental income as a provisional fund which will effectively be used to cover the eventual expenses.

9.3.5

Vacancy

You must accept that your property will be vacant sooner or later. It is best to make a provision for this also. Now that you know about this, simply provide for the event. The vacancy is normally expressed as a factor or a percentage. For instance, you could allocate a 4% per annum vacancy which equates to half a month for the year that you expect the property to be vacant.
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 60 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

9.3.6

Other

There could be other expenses associated with the property such as gardening services and the like. Once again, just make sure that you are aware of these and factor them into your calculations.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 61 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

9.4

Evaluate the figures and scenarios

Once you have gathered all the necessary information and figures, capture the data into your investment software calculator and start to play with the various scenarios. Let’s assume that the due diligence proved that the: • rental income is only R4000 and not R4500 • that the levy payable is on R610 and not R760 as estimated The provisional projection could be adjusted accordingly as shown in Table: 9-1 Due diligence property evaluation results. Just as an example, the purchase price was reduced from R550 000 to R500 000 in order to adjust the investment to the reduced rental income confirmed by the due diligence investigation. Table: 9-1 Due diligence property evaluation results INVESTMENT PROPERTY EVALUATION 63 m² TOWNHOUSE COMPLEX UNIT Income Statement Income
Description Rental Minus Vacancy Losses Amount R 4,000.00 R -160.00

Expenses
Description Bond Payment Rental Management Repairs/Maintenance Property taxes / Levy Insurance Electricity Water Refuse Advertising Security Garden Services Fire Protection Administration Amount R 4,825.11 R 400.00 R 160.00 R 610.00

Total

R 3,840.00
ACQUISITION DATA

R 5,995.11

Purchase Price Mortgage Transfer Costs Capital Expenditure Deposit Purchase Value Property Value Equity Purchased

R 500,000 R 500,000 R 50,000 R0 R0 R 7,936.5 m² R 9,206.3 m² R 80,000

Monthly Shortfall 1st years cash investment Gross Yield 1st years Net Return Return on Capital Rent / Bond Ratio Rent / Purchase Ratio Rental Value

* R 2,155 * R 75,861 * 9.60% * R 182,306 * 240.31% * 82.90% * 0.80% * R 63.5 m²

* Note: These values are calculated using the Free Property Evaluation Software available from

www.casaline.co.za.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 62 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Comparing the new proposed price of R7936/m² to be paid for this 63m² unit is still below the maximum of R9127/m² and still between the average and the median prices paid over the course of the last two years. Notice that the yield is now closer to a 10% gross yield, which is a gross yield indicator that is used by many investors. These figures are not in place here to set a benchmark for purchasing investment property, the figures are simply an illustration in order to clarify the example.

10.

STEP 6 Confirm the sale

At this point, your initial offer will need to be changed to reflect your findings. Contact the owner formally in writing informing him that you will not be concluding on the offer submitted to him, and issue him a new offer to purchase for his perusal. This must all be done in writing If you chose not to amend the original offer and wish to proceed with the sale as is, then you can also inform the seller of your intentions. In either case, if the seller accepts your offer, congratulations, you have completed the first step in securing your investment property. The work is not over yet, but you are well on your way.

10.1

Bond finance

In most instances the sale will also be conditional upon the purchaser arranging suitable finance. The sales agreement that accompanies this book includes such a suspensive condition of finance. There are several different views on how to obtain finance with banks. Some people like to try and get pre-approved for a loan, while others only look at finance once the deal is on the table. Once again these are personal preferences that you will become more comfortable with as your investment career progresses. The last couple of years saw a new industry take hold in the South African market with regard to bond finance. That industry is commonly referred to as “Bond Origination”. The function of the bond originator is to apply for finance on your behalf. They are third party companies that essentially submit the application and the supporting documentation for the deal, on your behalf, to the bank. These agents and agencies work mostly on a commission basis only. Therefore, they are motivated to get you the finance as they will earn commission on the transaction. In some cases I prefer to deal directly with the banking institutions. I don’t mean to speak to some telephone jockey either, I mean building relationships within the banking industry. Yes, you can still do that. It takes a

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 63 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

little more time and effort to do so, but the results are much better than simply submitting a finance application to some unknown person at a bank branch. The personal touch cannot be beaten. • Prepare your application Each bank has unique products regarding finance. Find out from each of the banks how their different products work and decide how this will best suit your needs. The banks also have different application procedures and you will get to know them as you go along. These procedures also change from time to time. Good advice is to be prepared and diligent in your application and don’t rush the job. It takes time for credit control to go through all their criteria. Be patient and follow up ever week or two, but don’t rush them, just follow up. I have found that just following up without rushing the result, produces very good results. • Interest rate The interest paid on your bond is normally the biggest expense when it comes to investment property. Always try to get the best interest rate you possibly can, this will minimise expenses. Typically the banks will lend money at prime rate minus 1 – 1.5%. I have seen cases where the banks issued prime minus 2.5% and more but this is not the norm for most applications.

10.1.1

National Credit Act

Since the NCA (National Credit Act) came into effect, property investment has changed dramatically from a lending perspective. Prior to the act, it was extremely easy to obtain a loan from the various financial institutions. Many people I know of managed to get several mortgage loans they did not actually qualify for, strictly speaking. There are many experts on the NCA and just as much information available regarding the act and the implications it has on financials institutions. Just go to any of the major banking institution websites such as ABSA, Nedbank, FNB and Standard Bank and you will find reference to the NCA. The basic rule of thumb is that the NCA was established to regulate reckless lending. In other words, to a large degree, the onus is on the financial institution lending you the money, to ensure that you can actually afford to repay the loan. The act itself is much more intricate but this is the definitive item for our purposes here. The lending criteria were extremely strict when the act came into effect. Since then, the finance houses have seen what the actual implication of the act is and how they can work in conjunction with the act. When the act first came into effect, almost every mortgage application I know of was declined. As time went by and the lenders got to understand the act better, and obviously the various panels of attorneys that advise these lenders, more mortgage bonds were approved. There are still not nearly as many mortgage bonds being approved as before the NCA though. The banks are simply being cautious. The catch phrase these days are “affordability” or “disposable income”. Each bank has set their own criteria for this but basically your disposable income is the money you have left over after you have covered all your monthly costs. As an example, if you earn R20 000 per month and all your monthly expenses comes to R12,000, you have R8,000 as disposable income. If you truthfully declare all your earnings and spending to the bank and your disposable income is indeed
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 64 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

R8 000 per month, you could then service a bond to the value of R8 000 monthly. At an interest rate of 10% per annum and a twenty year loan term, you would theoretically be able to service a bond amount of R960,000. The banks do however have the last say. The various banks also have different products available now. Some are more progressive than others. The ideal situation is to sit down with a capable adviser and assess what loan amounts you would be able to qualify for. Always take your personal interests into consideration when making financial decisions. It is after all your money, not the advisers’ money you are dealing with. Having said all this, I would like to state that in very simple terms, the bank makes money by earning interest on payments made from the people they lend money to. There are of course many more aspects to banking but simply put, a bank exists to lend you and me money. We pay interest on the amount borrowed, and the bank makes income because we repay the loan in most cases to a very high profit margin for the bank. All is fair in business. Without people borrowing money, the banks essentially do not have an income. Therefore the banks must still issue loans, the only difference now is that they are much stricter during the application process to ensure they don’t end up paying for their own loan.

10.2

The seller did not accept your offer

It is highly likely that many of the properties you investigate, you will not necessarily finalise as a purchase. Simply keep these owners and property details on record. You never know when you might be interested in one of these properties at a later stage or when these potential sellers might contact you again. A lot of the owners will also keep your details on record. If you have conducted yourself in a professional manner, these owners will surely want to deal with you in future transactions. Never burn a bridge where there is no need to. If the offer was not acceptable to you and the seller, then simply move onto the next property. You will most likely be dealing with many other property investors, if the owner does not want to sell the particular unit you contacted him for, it could be that the owner has several different properties. Sooner or later all property investors are looking to sell some property as different deals come their way, their focus might change and their property investment portfolio will therefore be adjusted accordingly.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 65 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

10.3

STEP 7: Property Management

Property Management is one of the most important aspects of investment in property. Without this, your constant stream of income to help support your investment choice, will not succeed. By far the biggest fear most people have when it comes to property investment is bad tenants. I think the reason for this is that this is the most unpredictable of all the factors influencing your investment. Everyone knows about some horror story regarding tenants.

Rental agents are the answer to your fears here. The only good rental agent is somebody that has been referred to you. The sad fact is that the rental agency you chose is only as good as the rental agents working there. Rental agents do change agencies often as this is the most thankless job I have done, or see anybody do. It has always been strange to me why people would try to bargain with their rental agent. As I said, being a rental agent is the most thankless job I have ever come across. I have placed my share of tenants for my own properties and even on behalf of other people’s properties. I do not bargain with the rental agents I appoint. I pay them exactly what they ask for. If the agency does not perform or deliver service, I simply change the agency. The tenant most certainly thinks that he is paying too much for the monthly rental. Remember that tenants are savvy shoppers too. They will screen the various adverts in the news papers, on the internet and also drive past the various “TO LET” signs. They phone all these adverts and confirm if this is where they would like to stay. There are also “professional tenants” as I call them. These people normally only pay the rental deposit and the first month’s rental. They seem good on paper, but as soon as they have moved into the property, they do not pay any longer. It is normally followed by a long and very painful and costly process to get these people out of your property. I have a standing order with my rental agents, and I have several rental agents working for me. My standing order is that the tenant will also be screened by me personally, before they are allowed access to my units. I use various credit services and the Tenant Application Form made available with this book to help evaluate my tenants. Prevention is the only remedy against bad tenants. How do you distinguish a bad tenant from a good tenant? You can perform several financial and other background checks and draw up a profile of what your ideal tenant should be. Doing background checks always helps, but you cannot predict the future, you can only use the
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 66 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

past to determine if this potential tenant will be a good payer or not. An experienced rental agent with a solid track record can help you enormously when it comes to property management. Most owners still want to manage or be part of the management process of their property. Specifically, they want to have some control over the tenant. I think it is human nature to some degree that people would still like to have control or at least perceived control. It has been my experience that when first time property owners do their own tenant administration, they invariably get the shorter end of the stick as some tenants are experts at emotional manipulation. The process normally follows the following pattern. The owner places an advertisement for the rental of his property or he starts canvassing friends / family / colleagues to let them know that there is an excellent rental unit that is in need of a tenant. At this stage the owner is already emotionally tied to the process, because there is effort involved with “selling” the rental of his property. The owner receives a couple of calls, some are from referrals and if you are lucky a couple more from the advertisement that you placed in the local newspaper. Now you have a different problem, you need to meet these people and interview them. In some cases owners want to do background checks on these potential tenants, but the landlord does not have the tools nor does he know of some of the legal pitfalls that exist if you do background checks without proper authorisation. The owners are not sure of the typical tenant profile that is expected to occupy a unit such as theirs and therefore do not know if they should first speak to the single mother, the retired gentleman, the student looking to get away from home or the bachelor who has just landed his first real job at a nearby company. The result is that they show all these people the unit and listen to each one of the potential tenants’ reasons for wanting to occupy this particular unit. The potential tenant also has questions and queries about the lease agreement that you purchased from the nearest stationary shop, the rental escalation and the option to renew. The owner instantly needs to become a legal expert and good judge of character, because he does not want to make the wrong choice here. Of course this process has now taken more than two weeks, because not all the tenants could get to the unit at the time you first made the appointment. You rescheduled and the tenants have rescheduled the appointments. Some of the tenants even told you that they are looking at other units in the area which made you even more nervous to get the place rented. The problem that you are faced with is that you are already too emotionally involved in the process. You cannot make an objective decision. You also now start to think that if you do not place the tenant soon, that you will be losing a lot of money therefore you make a hasty decision and place one of your candidate tenants. The deposit is paid and the first month’s rental is paid in advance and you feel good. The second month though the tenant phones you to let you know that his cash flow is a bit tight this month and he asks if you cannot take the deposit as the rental this month. This is where your problems start. The deposit is never recouped, there is damage to the unit and the tenant starts running behind on the rent. These are some of the reasons why owners who want to be property investors should not manage their own properties. When owners are playing manager for their properties, they normally do not have the time to focus
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 67 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

on the business of property investment, which is where the big money is made, not the few rand you save on tenant administration. I highly recommend that you make use of rental agencies to help you manage your investment properties. The right rental agents will make your investment property career infinitely easier. Keep in mind that rental agencies have one of the highest staff turnover statistics when it comes to people dealing with tenants. In choosing a rental agent, the best advice here is to use agents that are recommended by people in the investment industry. If you feel that you would like to manage your first couple of investments, go for it. I speak from experience when I say keep in mind that if you get bogged down with tenant issues, your focus will most definitely be on the management of tenants, instead of the management of property investments. Just work it out for yourself; you normally pay much more in levies, rates and taxes than you pay your rental agent. The money you pay your rental agent is a small amount to pay for somebody else to take all the hassles off your shoulders. Now you have lots of time available to buy more property. Saving a few Rand on property management has never made anybody rich; rather use your rental agent to ensure that you can leverage your income. Pay a little bit now to make a lot later! Tenant administration is the biggest risk, if you can get to grips with this risk, your return on investment be almost unlimited as you can effectively make solid investment decisions which will not be based on emotion. Rent is normally payable by the tenant by the first day of the month. In a lot of cases this does not happen. The management company still has to double check payments; follow up on non payments and all sorts of administrative tasks. Your rental can take as long as 7 days to be confirmed and paid over to you depending on the company. Therefore, expect that in some cases your rental agent will only be able to pay you your rental due by the 10th of the month. This is a reality of property management. Rental payments do sometimes come in late. To assist with your cash flow management, it may be preferable to have your bond debit order scheduled for the 15th of the month. This allows for a couple of days in the case the rental is paid late.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 68 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

11.

Emotion

As soon as you think about property, you become very emotional. I think a lot of this has to do with the way you were raised. Property after all equates to security in most people’s opinion. It symbolises safety and comfort. Whenever I have been on a long trip, I start to miss home. It is strange that this happens, but home is not just the bricks and mortar, home is actually all the happy memories associated with the structure. I would think about my wife, my children, my dog, the lawn, the driveway, the colour scheme, and so on. It is not the room I miss, it is the people I care about that stay there and the loving memory I have of them in the various places in the house. My youngest son is such an active little guy. At three years old, he had so much energy that even though I put him to bed at 19h30, sometimes at 22h00 at night he was still running up and down the passage of the house. It is not the passage I miss or his room, but the memory of my energetic son, running as quick as he can through the house. I also do not miss mowing the lawn at all. I miss the times I would relax with my family outside on the freshly cut lawn, playing with the waterslides and entertaining friends. This is what home is for most people and when they go look at buying investment property, these emotions instinctively come along with the territory of brick and mortar. Fear is often the biggest factor that will prevent any person from taking the first step towards investing. The unknown has always caused doubt which actually leads to fear. It is only natural that you do not want to lose our hard earned income. In order for this healthy fear not to paralyze you as an investor, many people would look around for a strong partner who is experienced and financially sound, rather than go it alone. Property investment, like any other investment mechanism, can be very emotional. There is an inborn highly emotional connection when it comes to property. Let’s face it, wars have been fought over land on many occasions. Most of these wars are well documented. It is quite simple, he who owns the land controls what happens on that land. Now I do not recommend that you invest in war zones. Remember what I said in the beginning of the book, I am a very cautious investor. I recommend that you invest in very safe established areas where the growth has proven to be sustainable. Fear exists because questions are not answered in a satisfactory manner. The question we get most often is obviously, “Can I afford the property and what happens if there are changes in the market conditions?” It is recommended that with any business decision you do not let your emotions guide you, rather let your intellect guide you. The numbers must add up. If the numbers make sense, a lot of the emotion will be removed from the deal. Property investment and purchasing a home that you plan to live in, are two very different things. Don’t get emotional about the property you purchase for investment. If you cannot overcome your fear, it will paralyze you and it will physically prevent you from making good unemotional decisions. How do you overcome fear? You do the thing you are afraid to do. Just start, you will see what I mean.

12.

Property Cycles

All investments work in cycles. The stock market even has trends that are updated to the second. Property cycles are fortunately much slower than the stock market. It takes years to adapt to various cycles. If you can
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 69 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

start to identify the industry indicators including that of property cycles, you can position yourself to take advantage of them. Property investment, like all other investments are influenced by certain factors. These various factors, as with any other growth industry, can be used to indicate market cycle changes. These cycles are dependant on a number of factors and the biggest factors contributing to these cycles are: • When interest rates are high, people are less inclined to invest in property as it costs a lot more to keep the investment. You pay the bank more for the money that you borrowed from them. This contributes to drive the demand for property down and as this happens, property prices stagnate and in some cases diminish to negative growth for certain types of properties. If interest rates are low, the cost of a loan is much less which means that for the same amount of repayment to the bank, you could now afford two properties in stead of one. As people buy more property, the demand for property increases which invariably increases the price of property. Other influences are the rate of the population growth, the supply and demand for property and specifically certain types of property at specific times, the country and the worlds economic situation, inflation rate and legislation. Obviously there are more reasons than just what was mentioned here that influence property and any investment cycles but these are some of the factors that will affect the markets directly.

13.

Property Title Types

There are basically only two types of property in South Africa namely Full Title property and Sectional Title property. All properties whether they are full title or sectional title are registered in the relevant deeds registration offices around the country.

13.1

Full Title

Full title property can be defined as basically owning the piece of land including the soil and everything on it like water, all permanent improvements for example buildings, its associated permanent fittings and everything growing on the piece of land that has a root system attached to the land. For instance, the title deed for a full title property will not specify that there is a 450m² house, with three bedrooms and two bathrooms on the property. The title deed only states that the property is 890m² and that the purchase price is registered at R1,2 million. In other words, the house that is built on the property is regarded as a permanent fixture of the land and therefore will form part of the sale. Some properties form part of an estate. An easy example of such properties is golf estates. Houses are built all around the golf course and while the houses are mostly purchases as full title, these estates usually have a home owners association that governs the do’s and don’ts on the whole premises. These associations have rules that must be complied with such as nominating a few real estate agents who will be allowed to list properties for sale in the estate and if the case may be, lease the properties to prospective tenants. They will also then nominate and manage the general upkeep of the property which will include the gardening services and the security in the estate. Regular meetings will be held and there will also be a levy charged by the home owners association which covers the expenses incurred.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 70 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

13.2

Sectional Title

The Sectional Titles Act states that a unit, being a sectional title unit comprising of a section and an undivided share in the common property as apportioned by the participation quota, is deemed to be land. This is a second type of title to land which came into effect in 1973 whereby ownership of sectional title buildings are now measured in the horizontal and vertical strata. Therefore two or more different owners can now own separate units situated in the same building. This does sound complex but it is quite simple. Before the sectional titles act came to be, if you wanted to buy unit 12 on the second floor, you needed to buy the entire building. You could not separate unit 12 from the rest of the building, you had to purchase the whole building as one entity for say R5 million. Once the sectional title act came into force and if the building was duly sectionalised, you could purchase unit 12 on the second floor without paying for the entire building. Now we are able to purchase a section of the building at say R500 000 and have your ownership rights to only unit 12 registered. If you are an owner of a sectional title unit, you need to remember that the occupants form part of a community and the living areas are normally much more densely populated. Therefore stricter rules were written to avoid chaos in these so called townhouse complexes. There are also a couple of naming conventions a sectional title owner should be familiar with. These are: • Section Every sectional title scheme has a sectional plan. The sectional plan is in effect the general layout of the scheme which shows all the different properties or sections. Each one of these sections has a unique number that identifies it on the plan layout. This section is the number that is registered on the title deed. This normally includes your townhouse (number 12 on the second floor) and the garage situated on the ground floor, if you bought it. Take note that the section number on the plan might not be the same as the door number of your unit. It happens quite regularly that the section numbers do not co-inside with the door numbers. The boundaries of your section are the midpoint of all the walls, floor and ceiling. Effectively you only own the half from the midpoint of each of the boundary walls of your section, the half from the midpoint of the floor towards your section and half from the midpoint of the ceiling that form the boundaries of your property. The roof is not part of your section, it is part of the common property. So is the outer half from the midpoint of your ceiling, floor and boundary walls are in fact part of the common property. • Unit A unit consists of your section plus your undivided share of the common property. If your geyser is not situated in your section, but for instance situated in the ceiling space of the scheme, the geyser still forms part of your section and the sectional titles act specifically makes provision for this. • Common Property The common property includes all the land, walkways, hallways, stairs, foundations, swimming pool, lapa, all the parts of the buildings, driveways, roofs, parking areas and the like that is not owned as a section by another owner. The common property is also owned by each owner of a section

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 71 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

• Exclusive use rights Exclusive use rights are your right as the owner of a section, to exclusively use a specific area like a carport / garden which actually forms part of the common property. • Body Corporate The body corporate consists of all the owners of units in the scheme. If you are an owner of a sectional title unit, you are the body corporate. It is an association which exists to represent the scheme. • Levy The levy is an administrative fund which is required by law to be set up by the body corporate. All owners of sections contribute to this fund in accordance with their participation quota. This contribution to the fund is commonly referred to as the levy. All the expenses of the scheme are paid from this fund. • Trustees The trustees are elected by the owners and are responsible for the daily tasks of running the scheme. They must manage the scheme in accordance with the law. They will hold regular meetings to discuss these tasks and action what is needed • Participation Quota (PQ) The participation quota is the percentage share you have in the common property. This is a direct relationship between the floor size of your section(s) in relation to the total floor size of all the sections in the scheme. It is calculated in a very simple mathematical formula as follows: Your Participation Quota = (Floor area of your section / Total floor area of all sections) x 100 If there were 50 units in the scheme, each one measuring 100m² and you owned one unit then Your Participation Quota = (Floor area of your section / Total floor area of all sections) x 100 Your Participation Quota = (100m² / (50 x 100m²)) x 100 Your Participation Quota = 2% • Managing Agent The managing agent (which is different from a letting agent) is employed by the Trustees to help administer the daily tasks of running the scheme. The managing agent normally collects all levies, performs the book keeping function and oversees the maintenance of the common property.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 72 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

14.

Property Terms

Let’s get a little more technical about some of the terms associated with property. It is always good to understand some of the fundamental terminology used when speaking to people. Obviously these terms listed here are not all the terms that are associated with investment property, but it will give you a good head start. • Property value = the market value of the property The market value of the property is not necessarily the purchase price. There are formally trained property valuators who will peg the market value for property. The banking institutions also employ valuators to determine the market value of a property. There are also replacement values for property. This is the value normally used by insurance companies in order to issue an assurance policy for the replacement value of the property. The replacement value is not the market value of the property, but rather the costs that would need to be incurred to replace the property if something happened such as a major fire. For the purposes of this book, we will always refer to the market value of the property. • Purchase price = the amount paid for a property The purchase price paid for a property is not necessarily the market value of the property. Let’s take a closer look at this statement. If somebody urgently needs to sell a property, the seller might not ask a potential purchaser to pay true market related value for the property. The seller will most likely sell the property to the first cash offer at a greatly reduced amount. Therefore the purchase price in this instance does not necessarily reflect market value. • Bond Amount = the amount of money the bank will lend you for the purchase of the property Banks are willing to lend you money in order to purchase property. The naming convention of this type of loan is called a mortgage bond. These are normally 20 year or longer loans granted by the financial institution. Each bank has its own set of lending criteria. • Transfer duty = this is basically a form of sales tax payable on second hand property. The transfer duty is calculated for each property sale as per a schedule adjusted by the minister of finance. The scale as determined in 2011 is as follows: This example of the calculation is taken from the Transfer Duty Handbook (www.sars.gov.za): From 1 March 2011 Natural persons on the first R500 000 of value on the value from R500 000 to R1 000 000 on the value exceeding R1 000 000

0% 5% 8%

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 73 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Purchase price = R875 000 Duty @ 0% on the first R500 000 = R nil Duty @ 5% on R375 000 (R875 000 minus R500 000) = R18 750 Duty @ 8% on the amount greater than R1 000 000 = R nil_____ Total transfer duty payable = R18 750 Transfer duty is only applicable for properties that do not attract VAT. There are normally at least three attorneys involved in the sale of a property. They are: 1. Transferring Attorney or the so called conveyencer. It is the function of the conveyencer to ensure that the property is transferred and registered in the name of the purchaser. 2. Bond Registration Attorney This is the attorney that will register the bond on behalf of the bank. In some cases, the conveyencer and the bond registration attorney could be the same firm. Each one of these attorneys will charge you a fee for their services. The fee charged is normally between 1 -2 % of the value of the sale or the bond being registered. There is also a recommended scale detailing what these attorneys should be charging. All the above amounts such as the transfer duty, conveyencer and bond registration fees are payable in cash. In some instances, for first time buyers, some banks include some / all of these fees in their products, but the bottom line is that it will need to be paid before registration takes place. 3. Bond Cancellation Attorney There is a third attorney involved which is the bond cancellation attorney. The bond cancellation attorney works on behalf of the bank which holds the current bond for the seller. There should not be a charge to you as the purchaser, as the charges for cancelling the existing bond are for the seller’s account. • Rental = the monthly rental payable by the tenant occupying the property. Tenants pay rental normally on a monthly basis. This income from the property you can use to help cover the expenses of maintaining the premises and the payment of the mortgage bond.

14.1.1

Servitude

A servitude is a “limited real right” registered in the title deed of a property, for the benefit of another person other than the legal owner. A servitude will normally restrict the use of a property to its full potential. An example of a servitude imposed on land use is the right of way on a service road that grants access to several properties. The owners of the properties will not be allowed to build or obstruct the road as doing so will limit the use of the road for the neighbours. This type of servitude is normally common on farm land. The properties are sold with this servitude in place, therefore you are purchasing the road, but you are limited in the way you are allowed to use it. If there are Eskom power lines crossing the property, it is also very likely that a servitude was registered in favour of Eskom in order for them to service the power lines.
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 74 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

• Usufruct A usufruct is a personal servitude which grants a person who is not the owner of the property, the right to occupy the property and enjoy the “fruits” of the property. This right will endure until the person’s death or if the person gives up the usufruct right. For our discussions the important issue is that the usufruct holder is entitled to the rental income from a property. The usufruct holder can also choose to occupy the property, which could complicate the sale.

14.1.2

Permanent Fixtures

A permanent fixture includes everything that was intended to be a permanent fixture or movable items needed in a permanent service to the property such as plants, trees (everything attached to the land that has a root system), swimming pool, bore hole, keys to the house, gate remotes, gate access codes (as this is needed to access the premises), even matching bar stools if it was specifically designed for the bar. It is however always best to specifically stipulate all items included in the sale agreement if there is any doubt if these items will be removed from the premises.

14.1.3

Occupation and Registration

• Registration This is the date that the property is registered in the deeds registration office in the name of the purchaser. On this date, the purchaser will effectively claim ownership of the property. • Occupation Occupation is the date on which you the purchaser will take legal responsibility for all property. This includes the risk and profit associated with the property. The conditions and the date of occupation should be stipulated in the sales agreement. When occupation is taken, you the purchaser, effectively takes control of the entire property. If there is a tenant paying rent to the existing owner, when you take occupation, you will be entitled to that rental income. If there are expenses associated with the property like rates and taxes, levies, maintenance and upkeep, when you take occupation you will also be liable for these. In addition to this, the seller will normally claim what is commonly referred to as “occupational rental”. The more formal term is occupational interest. This is basically money paid to the seller for the beneficial use of the property prior it being transferred to the purchaser. It was previously accepted that occupation rent payable should be roughly about 1% of the purchase price. Therefore if you purchased the property for R500 000, you would have been liable to pay occupational rental of R5000 per month. As with any contract, these conditions can be changed and agreed upon prior to signature of the agreement. If the rental amount paid by the existing tenant is only R3500 per month, why should you the purchaser agree to R5000 occupational rental? If you have done your background checks before you submitted an offer to purchase on the property, you would have known that the rental is only R3500 for the unit. Why not stipulate this rental amount of R3500 as the occupation rental for the property.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 75 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

• How does occupation work? Occupation is normally stipulated in the sales contract as “On Registration”. This is normally done by investors as to ensure that you don’t take on expenses before you have title rights to the property. There are a couple of scenario’s that need to be highlighted in order for you to make the best decision for your investment. • Do you know the exact date when this unit will transfer? In most cases, transfer and registration takes approximately 3 – 6 months from the date of sale if everything goes smoothly. In my experience these dates have always fluctuated and you cannot bargain on a specific date. Knowing this though can help you adjust and manage your expectations. • Can your rental agent work on an unconfirmed future date? The rental agent that is appointed to ensure that the life blood of this investment property is paid in every month, cannot place a tenant on an unconfirmed future date. Tenants are people too - they are families with children, they need to move jobs, put their children in different schools, move furniture and all the good things associated with moving house. Tenants cannot book moving vans on unconfirmed future dates; they need to know the exact date when they will be moving. Your rental agent will also not be able to place a tenant if there isn’t a date stipulated for moving into to the premises. Let’s take a closer look at the different scenario’s in a graphical context. These illustrations are designed to help you understand a timeline situation. As stipulated earlier, the exact date of registration is not known. • Scenario 1: The unit is occupied by the existing owner The property is occupied by the existing owner, therefore there isn’t a tenant in the unit, nor is a formal rental contract in place. The sales contract stipulates that the purchaser will take occupation on registration date. The sales contract will normally state that “whomever has occupation and enjoys possession of the property while the property is registered in the other party’s name, shall be liable to pay the occupation rental to the other party” meaning that if the seller stays in the property after registration, the seller is liable to pay the occupation rental to you the new owner. It is recommended that the owner moves out of the unit before registration date. The reason is simple; you don’t have a track record for this owner as a tenant. Think about it for a second, if you take occupation of this property before registration, you have just paid the future tenant the purchase price of say R650 000 to stay in his own home. His incentive to pay monthly rental is not as good as a qualified tenant – one that is willing to rent. Figure 14-1 Occupation Timeline: Seller moves out after registration
Jan Feb Mar Apr Possible Occupation Timeline May June Jul Aug Sep Oct Nov Dec

Purchase Date

Registration Date

Seller’s future moving date

• Scenario 2: The owner moves out before registration This is the better option. If the seller moves out of his property before registration, it has cleared the way for you as the investor. The unit is now empty, you don’t have any expenses to pay as yet and your rental agent
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 76 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

can now actively market the unit. It is your choice whether you want to take occupation or not, the best is to refer to the contract and verify the conditions that you agreed upon. I normally agree with the seller that as soon as a tenant is placed, occupational rental will be paid to the seller. Remember that on registration of the property, you are now the official new owner of the property. You will need to settle the expenses associated with the property. If you already have a paying tenant in your unit, you already have an income stream for this property. Figure 14-2 Occupation Timeline: Seller moves out before registration
Jan Feb Mar Apr Possible Occupation Timeline May June Jul Aug Sep Oct Nov Dec

Purchase Date

Seller’s moving date

Registration Date

• Scenario 3: There is an existing tenant in the unit Can you take occupation before registration if there is a tenant in the unit? Yes you can. The only difference between this scenario and that of the seller occupying the property is that there is a tenant in the unit. In the timeline example, you will notice the dotted line as the tenant’s lease contract. The lease contract is from the beginning of February and ends the last day of September. There is one very important aspect to take into consideration and that is the old Roman Dutch law still applicable to sales agreements with existing leases, it is called “Huur gaat voor koop” or ‘Lease goes before sale’. This simply states that where leased premises are sold before the lease has expired, the tenant may in terms of the “huur gaat voor koop” rule, remain in occupancy of the premises until the lease expires. Therefore lease agreements cannot simply be cancelled because you bought the property. This also means that you just purchased the tenant with the property. This is a very important consideration. In your due diligence investigations you will find out if there is an existing lease agreement and get a copy of the existing lease agreement. You will also do more background work to find out if this is a good paying tenant. If it is a bad paying tenant, you will also be buying this problem. It is not a big problem and there are many ways around it. We will deal in more detail with the due diligence investigation in Chapter 9, but let’s look at the implications of a tenant occupying the premises. Firstly the tenant can stay in the unit after you take occupation. Why would you take occupation before registration? If the rental for the property is R5000 and the occupational rental agreed to in the sales contract is say R2500, then you stand to gain from this arrangement. The current tenant will pay you R5000 while you only need to pay the seller R2500, which means that you have R2500 extra in your pocket every month.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 77 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Figure 14-3 Occupation Timeline: Existing tenant occupying the unit
Jan Feb Mar Apr Possible Occupation Timeline June Jul Aug May Sep Oct Nov Dec

Tenant Lease Period

Purchase Date

Occupation Date

Registration Date

• When is the rental payable to you the purchaser? As soon as you take occupation of the property, the rental should be paid to you as the purchaser. Once again there are a couple of scenario’s you need to take into consideration • Scenario 3a: The tenant is currently paying rental directly to the existing landlord, the seller. This is by far the trickiest of all situations. The tenant might have been a very loyal paying individual. All his payment references are set up to pay the existing owner (the seller) directly. You would need to inform the tenant that you are the new owner and that rental is now payable to you directly. If the tenant continues to pay the old owner (the seller), you will most likely have a hard time getting that rental payment from the seller. The best way to avoid this situation is by making sure the tenant understands the full impact of him not paying rental to you. • Scenario 3b: The property is administered by a registered rental agency This is the better scenario. A professional rental agent is under obligation to ensure that you as the new owner of the property receive the rental due to you. It is quite simple, get a letter from your conveyencer stating that the property is now submitted for registration and issue this to the rental agent. The agent will be obliged to pay you the rental proceeds. There are obviously other variations of occupation and registration but these examples cover the basics. The idea here is to understand the concept and to know how it will affect your investment.

15.

Motivated sellers

Every day there are more properties listed for sale. Some people buy bigger houses like I did when my children came along and I had a bigger family. To list just one or two reasons why people sell their properties will not do justice to the various reasons why people need or want to sell their properties. I did think it necessary to list some of the forced reasons why people sell properties. • Judgments It is possible to access all the latest judgments country wide for property owners that have defaulted on their bond payments. It is even possible to contact these owners before these properties go to auction. Simply go through these properties one by one, determine if you are interested in purchasing the property and submit an offer. It is as simple as that. A judgment relating to credit is a ruling by a court of law stating that a person failed to pay debt that should have been paid within the agreed period of time. When a judgment is issued, the court of law has in fact ordered the default payer to make payment for the outstanding amount of money owed.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 78 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

A judgment in favour of the plaintive can also give the plaintive access to attach the defaulting payers’ goods in order to settle the debt. Therefore, if the person defaulted on paying his bond, the bank has the option of repossessing the property. This is normally done by selling the property by means of an auction. This is where you can actually step in and make an offer on the property before it goes to auction. This is perfectly legal and actually done all the time. The same process followed for making an offer on target property is applicable here. There is no difference. It is simply a case of making the offer to the seller in the same format as you have done all along. • Divorce As an example of a property sold at a bargain price, I purchased a property at a lesser amount than what the seller purchased it for two years prior. How did this happen? By asking the right questions, I found out that the seller is actually right smack in the middle of an ugly divorce and he was not in the mood for his soon to be ex wife to profit any more than what she already was from the liquidation of their joint estate.

16.

Background

If you asked a group of people what investing means to them, many will tell you that investing is as easy as leaving their cash in an interest bearing account at the bank. Savvy investing however, is actually ensuring that your resources can at the very least sustain itself against inflation. Money loses value every year but I have yet to see that things get less expensive as time goes on. Therefore the first target I recommend that you aim for is to at least keep up with inflation and the loss of monitory value over time. Further to this, if you can find a method that actually makes you more money than what the loss of value of money and inflation is, you have just started to print your own money. When people ask me “What do you do for a living?” I often tell them “I have a printing press that prints money.” At this point, I usually get a very shocked response of “ Are you really printing money?” and I would normally reply “Yes, of course I print my own money, depending on the day I sometimes print R200 notes, but mostly I like the R100 notes, they work the best for me”. I would carry on with the conversation as if I had said nothing wrong. Only later would they realise that I am not counterfeiting money as that is illegal, but that I create opportunities to generate more money, which I call “printing money”. As I did not previously have this new money, why not call it “printing money”, for this is exactly what it boils down to. The average man in the street has been taught that investing is only for the rich. Some people believe that you first need to be rich before you can invest, that you need money in order to make more money. I have seen that it is certainly easier for wealthy people to create more wealth, but I don’t think it’s because they are rich or wealthy to start off with, I think it is because they already think differently about money. Understanding investing and the various methods of investing, differs from person to person - some people may be very comfortable with taking high risks, while others might not be willing to take any risk whatsoever. I personally prefer as little risk as possible. I look for investments where the potential to lose money is very limited. Sadly though, I have lost money in some of my investments, so even a very cautious approach shows you that you need to be prepared for bad news from time to time. To me it simply means that there isn’t an investment that is totally without risk.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 79 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

The important point to remember is that you can structure your risk in such a manner as to limit the impact of any possible failures. How do you achieve this? I recommend that you speak to a capable advisor but basically the idea is to make use of a combination of legal entities. There are pro’s and con’s to whatever structure you choose. One of your goals should be to understand the limitations of the system. What is it that you should not be doing? This will assist you in reducing the chances of getting yourself into a situation that you cannot get out of. For many years I have actively searched for investments and practical investment techniques. What I found was that there is no singular answer. It was always a combination of several sources of information, such as the obvious internet research, speaking to people, paying for consultations, going on seminars, reading books, listening to audio and so on and so forth. This was also a learning curve for me. I had to learn, similar to a university course, what property investing was and how to practically make use of it in order to profit from it. I do not believe that one book, or one seminar, will give you all the information you need to know about property investment, but I do believe that this specific book will be your most practical guide to becoming a proficient property investor. With this book, you are provided you with the tools you need that are very often so difficult to come by. The most frequently asked question in property investing is “but how do you do that?” That is exactly what you are shown in this book. In this book you have gone through them one by one. Please remember that these are only tools, and like any other tool, it is only as good as how you apply and utilise it.

17.

How money is made

True investors actually create money out of thin air. This is truer than you would like it to be. The most successful investors in this world literally create money from their ideas. The true investor is able to realise value where there previously was no value. How do you create value where there was none? Take an idea and peg a price on it. If people are willing to pay for it, then you have just created money where there previously was none. Another way of looking at this concept is to ask “Would you have invested in Microsoft or Anglo American as a company when it started way back all those years ago, if you knew what you know about those companies today?”

17.1

Money is an Idea

How often have you heard somebody say “I need to make some money” or “I am going to make a fortune” with this idea. People say that they are going to ‘make’ money but they don’t believe their own words. In the book, Rich Dad Poor Dad, Robert Kiyosaki teaches us in Lesson 5 that “The Rich Invent Money”. This statement is so true. How many interviews have you seen on television or read in an article, where the people being interviewed stated something along the lines of “You know, it all started with me just calling my friend one evening. I said to my friend, I have an idea…… and it all just took off from there”. There are thousands of stories that start just like this, stories that turned out to be fantastic ideas that made a lot of money for the people that dared to dream.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 80 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

You too can create your own wealth! Remember that these stories you get to hear about, mostly focus on people’s successes. The truth is that these people fail often before they succeed. They chose however to focus only on the positive. It is also then rather obvious that the people who have failed have indeed learned from their mistakes, picked themselves up and went on to succeed.

17.1.1

Diamonds are an idea

Although there might be a scarcity of this stone, for me, there isn’t a tangible value in a diamond. There are a couple of industrial applications but for the bigger part diamonds are simply an emotional purchase in my opinion. I did not buy the diamond that my wife now wears on her finger because I felt there was an investment in the stone itself. I bought that diamond because I knew what it would do for her emotionally if I gave her the ring and asked her to marry me. Therefore the stone to me was not worth as much as the emotional investment. Many a woman might say that the size of the diamond in the ring is not as important as the fact that she is engaged to be married., but have you guys ever noticed how most woman inform their friends that they are engaged? See if you recognise the following scenario. The women would arrange a get together as girls often do a simple social gathering without any agenda if you like. The lucky bride to be normally does not say too much, but slowly and deliberately she puts forward her left hand palm facing down in order for the newly acquired ring to be the focus point. All the women instinctively come forward, they gasp, giggle, jump up and down and then you can hear “it’s so beautiful, you must be so proud”. All this excitement and every woman knew without the bride to be saying a word about what that diamond ring meant. This is one of the best and longest lasting marketing campaigns I have ever seen. Money created out of thin air and it is a universal language. It was perfected with a simple slogan “diamonds are forever” and it played directly on the emotional significance of that statement. A good friend of mine, Frank, owns a jewellery pawn shop in London. Frank has told me quite a few stories of people coming into the shop to exchange their diamond and gold jewellery for cash. He has listened to the various sad stories his customers tell him such as “My husband bought this diamond ring three years ago for a small fortune, it breaks my heart and I am so sad to get rid of it but I have no choice, I need the cash”. Frank is a very good and a fair business man. He takes the ring, weighs the gold, classifies the diamonds and gives them a quotation for the exchange as per his lookup chart. His customers do not always understand that what he can trade their jewellery for is normally much less than what they paid for it. Who made the money then? The money was invented the minute the husband to be wanted to show the love of his life how much he loves her. Value was created by the various companies in the supply chain, the salesman and society to a large degree. It’s not always about the actual worth, but more importantly what it is worth to a potential customer. Therefore money was created out of thin air simply by adding perceived value. This is but one example; there are many other examples similar to this one.

18.

The pie is big enough

There is a misconception that the world only has a defined amount of money, that there is a limited supply of money. When I say to you can print your own money, it means that you are not taking money away from your neighbour, you are creating more than what was there before. Not all money is being used by people all the time. There are huge amounts of money available to people that can prove they can give a better return on investment than the banks can give. This money is called venture
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 81 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

capital and there are literally hundreds of millions of Rand available to people who have sustainable investment ideas. This money was not taken away from somebody else, it has always been there. When you make more money, the money pie grows bigger. You don’t actually have a bigger slice, and your neighbour doesn’t have a smaller slice, you have increased the size of the money pie.

19.

Bad Ideas

I have never had a bad idea. Granted, I have had ideas however that didn’t turn out as I thought they might and in the process it cost me (and in some cases my business partners) some money. I don’t know of anybody that deliberately goes out to lose money or to fail. Most ideas are good when you have them. That is why you get excited about the idea as you only see the positive side of it. During this “dream” phase, you hardly ever think that the idea could fail. One such company I started with a good friend of mine, Marius, turned out not to be as good an idea as we thought it would be. Marius and I talked about the pros and cons of the concept and we agreed that the business plan was not what we thought it would be. We simply closed that business down and arranged for the existing customers to be serviced by another company. The customers were satisfied with the solution, Marius and I were happy and we immediately decided to look for new business ventures to explore together. You see, as businessmen, we were unemotional about the decision as it was the correct decision for our clients, for me, for Marius and for the business. Ultimately it was the clients that benefited the most as they tied into another service provider who was actually more focussed on that specific business model than what we were. I am sure that there will be more business ventures I start that will not exactly be “my cup of tea” in the end but I can assure you that I will continue to start and refine new businesses. This is what an entrepreneur does; he creates something where there was nothing before.

20.

Your money is losing value

The value of money decreases over time. This is not just something that happens to South Africa but to every country in the worlds. Each year our currency becomes less valuable. Here is an example, if you have R100 000 at an inflation rate calculated at 6%. At this calculated rate, the value of money will effectively be halved approximately every ten years. If the inflation rate is higher, money loses its value even more quickly. What this means is to you as an investor, is that if you simply leave your money in an interest bearing bank account, your money is loosing value all the time. The interest earned on your money in the bank account is normally less than the amount by which money loses value each year. Leaving the money in the bank account is still better than doing nothing with it, but the sad fact is you are still loosing money. You have only slowed down the rate at which your money decreases in value. How do you ensure that your money grows at a rate greater than what the bank can give you? You have to use it, or if you like “invest it”, in a mechanism that will give you greater return than what the bank gives you. Keep in mind that the interest paid by the bank might not even beat inflation. Have you ever wondered why the banks or the insurance industry are willing to give you a return on your investment? What is it that these companies do with your money to ensure that they can give you more while they still make even more money by using the money you just gave them to work with?
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 82 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

If you can answer that question, you are truly on your way to becoming a very successful investor. Big corporations ask this very question daily to their best investment strategists. These highly paid individuals are constantly pressured to invent new ways to make money. And how do they do it? They simply apply the concept of leverage - by making use of the money you have so graciously given to them, they find investment opportunities that will make them more money than they are spending.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 83 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

21.

Keep Your Credit Record Healthy

It normally surprises people when they are told that they are listed on ITC, even if you have a good credit record. It is mostly because the wording “ITC listing” is associated with a bad credit record. Each and every person that has ever applied for credit is listed as a consumer with the various credit bureaus. Even if you have not applied for credit, your details will still be on record reflecting that you do not have any credit as yet. The credit bureaus exist to track your spending and credit habits. The banking institutions also keep a separate record of your spending habits internally with their own filing systems. Your credit history will look something like this: Table 21-1 Personal Details Surname Name Title ID Number Date of Birth Marital Status Spouse Name No of Dependants Telephone No Home Telephone No Work Telephone No Cellular Email address Pompies Piet Mr 700101 0000 123 1970 / 01 / 01 Married Sannie 2 011 555 5555 011 987 6543 082 345 6789 piet@pompies.co.za

Date 2006-09-12 2005-07-02 2004-03-22

Years 1 1 1

Table 21-2 Address Information Address POBOX 112 Centurion, 2009 79 Akasia rd, Garsfontein, Centurion 34 Graniet ave, Durbanville, Cape Town Table 21-3 Employment Details

Tenant / Owner Owner Owner

Date 2002-11-27 1998-08-01 1996-02-01

Years 5 4 2

Employer Foundation for Better Living National Printing Associates SA Trade Company

Occupation Director Manager Clerk

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 84 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za
Credit Company Name Nedbank ABF Nedbank AMEX Card FNB Credit Card WESBANK ABSA - Credit Card Vodacom SP

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Table 21-4 Credit Account Status
Date Opened 02/04 12/04 10/04 02/06 10/06 08/01 Account Type Installment Credit Credit Installment Credit Open Opening Balance R94 472.00 R15 000.00 R15 000.00 R218 282.00 R15 460.00 R0.00 Current Balance R0.00 R0.00 R5.00 R102 795.00 R8 079.00 R1 179.00 Monthly Installment R0.00 R0.00 R5.00 R3 458.00 R731.00 R1 179.00 Account History ==CCCCCCC=========C0000= ====================00 210000000000000000000002 ===00000000000000000000= =110101010000100000P0000 ===================000==

Table 21-5 Monthly Payment Behaviour
Company
08 NOV 08 OCT 08 SEP 08 AUG 08 JUL 08 JUN 08 MAY 08 APR 08 MAR 08 FEB 08 JAN 07 DEC 07 NOV 07 OCT 07 SEP 07 AUG 07 JUL 07 JUN

Nedbank ABF Nedbank AMEX Card FNB Credit Card WESBANK ABSA Credit Card Vodacom SP

= = 2 = 1 =

= = 1 = 0 =

C = 0 = 1 =

C = 0 0 1 =

C = 0 0 1 =

C = 0 0 0 =

C = 0 0 0 =

C = 0 0 1 =

C = 0 0 1 =

= = 0 0 1 =

= = 0 0 0 =

= = 0 0 0 =

= = 0 0 0 =

= = 0 0 P =

C = 0 0 0 =

0 = 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

Table 21-6 Account Payment Indicator Definitions Definition Closed Paid Up Bad Debt Written Off Not in Arrears No of Months in Arrears No Data Found Indicator C P W 0 1–9 =

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 85 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold Table 21-7 Enquiry History

Date
2009/02/06 2008/10/31 2008/05/19 2008/05/05 2008/04/29 2008/04/08 2007/12/22

Type
NORMAL NORMAL NORMAL NORMAL NORMAL NORMAL NORMAL

Enquirer
FIRSTRAND STI FNB CLEARWATERMAL STD BANK (6305) STD BNK HOME LOAN PEP HL ACC CTR STD BNK HOME LOAN FNB H/L-NBP NAZ

Contact
ANDREW JOHAN JOUBERT 012 673 3000 FNB (011) 6752026 SBSA (011) 4714800 STANDARD BANK HLD 011 999 9999 NEDBANK LIMITED 0860555111 STANDARD BANK HLD 011 999 9999 FNB HOMELOANS 011-3532000

As can be seen, there is a track record of who inquired about your credit status. In addition to this basic information, the following information is also available: • Judgements Judgments are granted by court order against an individual or company. • Judgments can remain on your credit record for a period 5 years. • Notices A notice is legal action that has been taken against you after you have failed to pay an outstanding account. Notices include administration orders, provisional sequestrations, sequestrations and rehabilitation orders. • Administration orders can reflect on your credit record for a period of 10 years • Rehabilitation orders can reflect on your credit record for a period of 5 years • Sequestrations can reflect on your credit record for a period of 10 years • Default Defaults are listings from credit grantors when non-payment of accounts occur, such as if you do not pay your doctors bill. • Defaults can reflect on your credit record for one year. • Bad debt written off can reflect on your credit record for 2 years. As you can see from the examples here, anybody granting you credit will be able to evaluate your spending habits. Another interesting fact is that your credit details are captured every time you apply for credit, so next time you casually give your application details to a credit provider, make sure that your details are captured correctly. • Pay your accounts on time The best thing you can do to keep your credit score healthy is to pay your accounts on time every month. You only need to pay the minimum amount to keep the credit grantors happy. If you do fall behind on payments, pay up as soon as possible. As you can see from the example in Table Table 21-5 Monthly Payment Behaviour, the credit grantors keep track of your payment history. This will affect your future credit applications.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 86 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

22.

Acknowledgements

I asked several people at various or different stages of their investment career, to help me evaluate the contents of this book before it was published. Some of these investors are very new to the world of property investment and some are seasoned investors with well established portfolios. I would like to thank them here for their assistance and input. I asked these wonderful people to write a quick couple of words, explaining what this book meant to them and how it affected their property investment methods and careers. These are their words. Thank you for the brilliant feedback, the valuable input and comments you gave about the book. • Werner Froneman - Mojave International During the past ten years, I’ve travelled to more countries than I can remember. I’ve lived, worked and met people from all walks of life, from prime ministers of Europe, China and South Africa, to advisers to the president, CEO’s and directors, designers and developers, artists, professors and teachers, even bus drivers. I’ve been involved and excelled in various business ventures, including US Retail Management, Marketing & Promotions (contracts in Gauteng for Hooch, Norton Internet Security, ABSA, Shield and Cell-C), Personal & Medical Care in the UK, Professional Photography in U.K and S.A, Fine Art Auctioneering and Investment in America and Europe, Personal Consulting Services, sales development and training on luxury cruise liners, and many more. This was an education that money would not have been able to buy. After much research, my chosen “investment vehicle” in South Africa was to be property investment. I had a hunger to know as much as I could about it, in order to reduce my chances of failure. I attended a few recommended seminars by very successful investors, who got me so excited about easily making my millions, it was almost to good to be true. But they’ve obviously succeeded at it, therefore so could I. The problem was, even though I’ve been given a great overview, just exactly HOW was I supposed to do it? The detailed steps to optimise my investment and avoid the pitfalls obviously eluded me. After spending nearly R20 000 on their investment seminars, I realized that I still had to figure it out myself by making mistakes, learn from it and hopefully not bankrupt myself in the process. I couldn’t afford to “get it wrong” and therefore I seriously wanted and needed a guide through what seemed like a wilderness of methods, procedures and possible pitfalls. Then I came across this book “You don’t have to wait for the FOR SALE sign. Though at that stage, it was still in its infancy, it was exactly what I needed; packed with practical, real world scenarios, based on years of experience, knowledge and understanding. The author created a simple, interesting and easy to read guide, to truly help people like me…someone who was disappointed in the empty promises of others! This great book has given me the absolute confidence to fearlessly invest in property. It provides you with the contracts you use, the easy step-by-step analyses to evaluate any property, thus enabling you to see the “real world” projected numbers before you commit to anything, and also how to sidestep possible pitfalls which ends up saving you thousands. If I’m unsure of anything, I simply contact the www.casaline.co.za team. There is always an experienced person available to advise me. This has forever changed the way I will invest and I thank Graham and www.casaline.co.za for revealing, what everyone else was too selfish to do. • Francois de Jager
Copyright © 2008 Graham van Zyl All rights reserved
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 87 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Ek het baie geniet om die boek te lees. Ek het baie van die kliniese manier gehou waarop jy jou analises benader wat die emosie deel van eiendomsbeleggings heeltemal verwyder. Ek hou ook baie van die praktiese advies wat jy gee en sal verseker baie van hierdie advies in my eiendomsbeleggings voorentoe kan gebruik. Verseker `n goeie boek wat ek vir enige iemand wat in eiendomsbelggings belangstel sal aanbeveel om te lees. Soos jy in die boek se ‘conclusion’ noem is dit nie veronderstel om `n totaal omvattende boek van eiendomsbeleggings te wees nie. In jou boek fokus jy op `n spesifieke tipe eiendomsbelegging benadering waar jy nie noem of koop om te verkoop, buy to let, koop met nothing down, koop vir kontantvloei positief vanaf dag een af jou voorkeure is nie, wat jy wel doen is om hele reeks toerusting en hulpbronne uit te wys wat `n mens baie prakties in enige van die bogenoemde tipe strategiee voordelig kan gebruik. • Tertius Joubert Being new to property investment, I found “You don’t have to wait for the FOR SALE sign” a breath of fresh air. I used the previous year to perform my property investment planning with this year being the execution phase, i.e. putting my plan into action. During the planning phase I read a number of books on property investment and although I learned a lot from them they certainly did not live up to my expectations. They go into some detail of property investment but stops short of telling one exactly how to plan, how to execute, what to look out for, i.e. it they all lack real substance. One was always left with a feeling that there should be more, there must be more. Then I discovered Graham's little gem and thoroughly enjoyed it. It is short, concise, to the point, with a nononsense approach to property investment which you will not find anywhere else. True to its name, it really is "The 7 step missing guide for property investors". Here you will find real world practical information on how to set up, fine tune and execute your property investment plan with tips and tricks of the trade abound. This is highly recommended reading and should be the first book everyone reads on property investment. • Pamela Wright This is a remarkable book about property investment. Is takes very little time to read its powerful recipe for getting big results from assessing the property prior to buying. • Riaan van Deventer - Prothesis Management After a business degree & 7 years experience in franchising & IT, I turned to training upcoming business persons in business & people skills. For more than 10 years I have enjoyed helping others on their way to a better life. Mentoring in spiritual matters, personal health & fitness, family life, people skills, personal finances, leadership, business management, property investing, financing as well as risk management, has become a way of life. I am married to my queen and partner Ally; herself in Senior Management and a Chief Electrical Engineer. When you hear or read about the lives others are living, you often desire to have some of those aspects in your own life, but you seldom think about the road that needed to be travelled to reach that place. In fact most times you desire the results, but you are not willing to undergo the journey. The truth is that there are still some people, who have travelled difficult roads and learned things the hard way, who desire that your journey should have less bumps. Graham is one of those people and this book will warn you of bumps in the road or even show you some of the better roads to travel on your journey to successful property investing.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 88 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Even though I have travelled the road of property investing myself, I have still learned so much from this book and found better roads, for me and those I mentor, to travel on our future roads to property investing & business development. This book and some action from your side will help your road to be much less bumpy than what mine was. Your success depends on your ability to learn, relearn & unlearn and then pass on what you have learned. Ally and I believe that success is determined by the impact you have on the lives of those around you and we desire to surround ourselves with like minded people. Thanks for this book Graham. It is a blessing to know you. Our passion for life, excellence of service and love for people helps us to live life on purpose.

23.

Conclusion

As I stated in the beginning of this book, this book is not intended to be the definitive book on property investment. I don’t think that anyone can print a definitive book on property investment as the market and investment strategies change on a continual basis. This book is intended to be a guideline of the simple steps to be followed in order to evaluate a property for investment purposes. If you have found this book useful in that regard and if it helped you clarify your thoughts regarding property investment, then I have achieved my goal. I wish you all the best in your endeavours and I look forward meeting you. Happy Investing! Graham

This publication is intended to provide general information about property investment. The information contained in this publication and the annexures are not intended as legal advice for any specific situation. Professional advice is recommended for specific transactions. While the author and contributors have made every effort to ensure that the information contained in this publication and/or annexures are factually correct, no responsibility can be accepted for any omissions or errors. The author, contributors and publisher accept no responsibility or liability for any results, loss, injury, or damage allegedly arising from any information or suggestion contained in this publication and/or annexures.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 89 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold Graham van Zyl

Graham is an Investment Consultant, a Certified Real Estate Agent and Financial Advisor. He has consulted many investors who had already attended several training seminars, who have read several books and investors that are part of formal investment clubs. Graham sees himself as a consultant that helps his clients make sound financial decisions taking into consideration their long term goals while still being very mindful of their immediate needs and circumstances as part of their ongoing financial plan. Graham spent more than 10 years in the engineering field working for a multi-national company completing several projects in excess of R100 Million. Some of the work produced was so unique that copyright was registered. In 2000, Graham wrote a song dedicated to his late brother, Daniel, who tragically passed away in a motor vehicle accident. The song was performed and recorded by Mark Beling, the lead singer for the band Mean Mr Mustard and released with their “Only when it rains” album. In 2005 he moved into the real estate industry full time. One of the unique projects he launched here was to design, implement and manage a unique national residential rental pool for a large investment consortium. In addition to this, he trained and coached many investors on the technical and financial aspects of property investing. Graham wrote and published this book called “You don’t have to wait for the FOR SALE sign” The 7 Step ‘Missing Guide’ for Property Investors” mainly to answer and assist the numerous investors that have asked these same questions. Graham is a Registered Financial Planner. You can contact Graham at info@casaline.co.za You are welcome to send your comments or post them on our blog www.casaline.co.za

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 90 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold Wynand du Toit

Wynand du Toit is an active property investor and practising financial planner. He specialises in business assurance and continuity planning, estate planning, personal risk and investment planning. Wynand has a passion for property investment as part of a balanced portfolio and has spent countless hours with successful property investors to analyse and understand their needs. He realised the value of using the correct asset protection structures early his investment career and has seen the consequences of poor planning. He has also written many property and insurance planning articles for both the print and email media. Wynand is a Certified Financial Planning Practitioner ™ and incorporates the six step financial planning process into his interactions with his clients as prescribed by the Financial Planning Institute. He works closely with a large base of clients consisting of a variety of business owners, property investors, professionals and corporate and has built up a solid network of professionals who assists his clientele. These professions provide the best possible advice and range from practicing professionals pertaining to all forms of income tax, estate duty, company and trust structuring, estate and will planning and even salary structuring and corporate benefits.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 91 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Lesley-Caren Johnson This book was proofread and edited by Lesley-Caren Johnson author of the highly successful The Ultimate South African Business Companion – Forms, Checklists & Templates For Everyday Use, published by Frontrunner Publications. This book is a must-have for the entrepreneur and small business owner. This comment was received by one business owner who has recently started his own business: “I have just purchased a copy of the Ultimate South African Business Guide. I am new to the business world after working for 18 years in local authorities. This publication is a wonderful product and could complement a lot of what I do in my business.” The The Ultimate South African Business Companion currently retails at just R250 each (including VAT) and all the forms, templates and checklists provided in the book are available on the CD-Rom accompanying the book. This means that you can save the forms you want to use to your computer and then edit or change them to suit your own unique business needs. The book is available through all major bookshops as well as at www.kalahari.net. Alternatively you can contact the author via email at lesley@wordsparks.co.za or www.WORDsparks.co.za. WORDsparks was started by Lesley-Caren Johnson in 2005. Lesley-Caren has been involved in franchising and business expansion for almost twelve years. While consulting she discovered that her strength is writing and she would focus on this as a core element of her business going forward. Wordsparks is a company specialising in the development and documentation of business and franchisespecific activities such as Operations & Procedures Manuals and Disclosure Documents. Along with the Franchise Agreement and Franchisee Selection & Recruitment Packs, these documents are vital elements in the structure of any franchise organisation. Further to this, the company also prepares other business documentation such as business plans, training manuals, employee handbooks and, as explained above, Lesley-Caren writes business books aimed at the small business entrepreneur. Lesley-Caren feels that her speciality and strength is her extensive experience in creating and writing Operations and Procedures Manuals and reviewing & developing operations systems. She is experienced in all areas of stock management, small business administration and financial controls including the development and implementation of systems. Further to this, she provides assistance to clients to determine the financial management reporting needs of the operation as well as reviewing current point of sale & management control systems and assists with the upgrade and/or implementation thereof. Lesley has written manuals for a wide range of Industries spanning the hospitality, retail, beauty, signage, motor, farming, educational, consulting and food industries. Past clients include GSM DIRECT/Vodacom, MTN (South Africa, Uganda & Rwanda), Placécol Beauty Centres, Cell C, Jack’s Paint & Hardware & InspectaCar (through Wesbank) as well as for corporate organisations such as Speedy Deloitte & Touche Franchise Consulting, ABSA Group Operations and The Magic Company. Over the last few years Lesley has also got involved in writing training content both for training programmes that require SETA accreditation as well as for those where training and coaching is focused on the entrepreneur or small business owner.

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 92 of 94

Graham van Zyl c www.casaline.co.za
info@casaline.co.za “FOR SALE” sign, 53 3rd party property inspection, 59 administration, 51 administration orders, 86 affordability, 46, 64 area investigation, 32 asset protection, 11 body corporate, 58, 60, 72 bond amount, 73 bond cancellation attorney, 74 bond finance, 63 bond origination, 63 bond originator, 63 bond payment, 51 bond registration attorney, 74 buy to sell OR buy to let, 35 capital gains tax, 11 capital growth, 37 cash flow, 44 close corporations, 10 common property, 71 companies, 10 conveyencer. See transfering attorney deeds office, 37 Defaults, 86 disposable income, 64 due diligence, 57, 58 estate duty, 11, 13 estate freezing, 14 exclusive use rights, 72 financial calculations, 45 full title property, 70 google earth, 16 gross yield, 48 guardians fund, 14 initial property parameters, 50 insurance, 60 interest rate, 64 judgment, 78 legal action, 86 levies, rates and taxes, 60 levy, 72 loan, 36, 50, 51, 56, 60, 63, 64, 65 m², 34 maintenance, 60 managing agent, 72

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold INDEX mortgage loan, 11 motivated sellers, 78 Municipal Valuation, 40 National Credit Act, 64 net return, 48 net yield, 48 occupation, 75, 76 offer to purchase, 53, See sales agreement participation quota, 72 permanent fixtures, 75 printing press, 79 private capacity, 11 professional tenants, 66 property management, 66 property valuation, 30 property value, 73 purchase price, 73 registration, 75 Rehabilitation orders, 86 rental, 36, 74 rental agreements, 59 rental income, 51 rental management, 51 Rental per m², 36 Return on Investment (ROI), 48 risk cover, 11 sales agreement, 54 section, 71 sectional title unit, 71 sequestrations, 86 servitude, 74 shortfall, 51 tenant administration, 67, 68 tenant profile, 67 the parties, 55 the value of property, 31 transfer duty, 73 transferring attorney, 74 trustees, 72 trusts, 10 unit, 71 usufruct, 75 vacancy, 60 vacancy losses, 51 witness, 54 yield, 47
ISBN: 978-0-620-43690-8 Second Edition 2009 Page 93 of 94

Copyright © 2008 Graham van Zyl All rights reserved

Graham van Zyl c www.casaline.co.za
info@casaline.co.za

Don’t wait for the FOR SALE sign
This eBook may be sent to your friends and distributed in any manor as long as it remains unchanged and not sold

Figure 3-1 The 7 Step Investment Process.............................................................................................................................. 6 Figure 6-1 Map view of target area...................................................................................................................................... 16 Figure 6-2 Google Earth view .............................................................................................................................................. 17 Figure 6-3 Sunninghill Suburb Trends Area Map ................................................................................................................ 20 Figure 6-4 Sunninghill Suburb Trends: Tenure of Owners .................................................................................................. 21 Figure 6-5 Sunninghill Suburb Trends: Age of Residents .................................................................................................... 21 Figure 6-6 Sunninghill Suburb Trends: Market Stock.......................................................................................................... 22 Figure 6-7 Sunninghill Suburb Trends: Growth and Activity............................................................................................... 23 Figure 6-8 Sunninghill Suburb Trends: Lending by Institution............................................................................................ 24 Figure 6-9 Sunninghill Suburb Trends: Bond Information................................................................................................... 24 Figure 6-10 Sunninghill Suburb Trends: National, Provincial and Municipal Ranking...................................................... 26 Figure 6-11 Sunninghill Suburb Trends: Transfer Information ........................................................................................... 28 Figure 7-1 LightStone Valuation Report: Property Details.................................................................................................. 40 Figure 7-2 LightStone Valuation Report: Municipal Valuation ........................................................................................... 41 Figure 7-3 LightStone Valuation Report: Valuation Details................................................................................................ 41 Figure 7-4 LightStone Valuation Report: Aerial Photograph .............................................................................................. 42 Figure 7-5 LightStone Valuation Report: Comparable Sales............................................................................................... 42 Figure 7-6 LightStone Valuation Report: Bond Details ....................................................................................................... 43 Figure 7-7 LightStone Valuation Report: Amenities ............................................................................................................ 43 Figure 14-1 Occupation Timeline: Seller moves out after registration................................................................................ 76 Figure 14-2 Occupation Timeline: Seller moves out before registration ............................................................................. 77 Figure 14-3 Occupation Timeline: Existing tenant occupying the unit ................................................................................ 78 Table 5-1 Business Entity Comparison................................................................................................................................. 12 Table 5-2 Estate Duty Example ............................................................................................................................................ 13 Table: 7-1 Townhouse complex deeds office registrations ................................................................................................... 33 Table: 7-2 Townhouse Complex average sale values since 2007......................................................................................... 35 Table: 7-3 Townhouse Complex unit 8 sales ........................................................................................................................ 37 Table: 7-4 Townhouse complex 8 sales percentages ............................................................................................................ 37 Table: 7-5 Sunninghill average sectional title sales for the last 5 years .............................................................................. 38 Table: 7-6 Initial property evaluation inputs........................................................................................................................ 50 Table: 7-7 Initial property evaluation results....................................................................................................................... 52 Table: 9-1 Due diligence property evaluation results .......................................................................................................... 62 Table 21-1 Personal Details ................................................................................................................................................. 84 Table 21-2 Address Information ........................................................................................................................................... 84 Table 21-3 Employment Details............................................................................................................................................ 84 Table 21-4 Credit Account Status ......................................................................................................................................... 85 Table 21-5 Monthly Payment Behaviour .............................................................................................................................. 85 Table 21-6 Account Payment Indicator Definitions.............................................................................................................. 85 Table 21-7 Enquiry History .................................................................................................................................................. 86

Copyright © 2008 Graham van Zyl All rights reserved

ISBN: 978-0-620-43690-8

Second Edition 2009 Page 94 of 94