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Buy-to-let has become buy-to-regret

Outlook for rental market dims.

It seemed like such a good investment idea, a no-brainer really. You bought a rental property with a small deposit, a large mortgage and got someone to rent it, paying off your mortgage bond to the bank. Ever-rising rentals ensured you would start generating some extra-cash in the near term.

Then ten, 15 or even 20 years later, when the bond was paid off, you either collected the rent sans mortgage to live on or you sold the units for a fat profit.

How things have changed

While buy-to-let (BTL) was a fringe investment for property-savvy investors for a long time, myself included, it became mainstream during the last residential property boom which lasted roughly from about 2002 to 2008, by which time the global financial crisis hit with gale force winds, coincidentally also as a result of financial shenanigans in the property financing arena in the biggest property market in the world: the US.

Such was the allure of BTL that at the peak of the market in 2008, almost 25% of all residential property sales in SA were in the BTL category, according to FNB.

This has now dwindled to below 6%, as commercial banks have become extremely circumspect in granting bonds for BTL purposes, and will only grant them to blue chip clients with impeccable balance sheets and only in certain areas. Expect this statistic to lower even more in months ahead.

In the boom times property developers, mortgage banks and estate agents created such a compelling argument that it was considered to be foolish and short-sighted not to partake in this credit-induced property gluttony.

A perfect storm has now hit the BTL market and literally tens of thousands of BTL investors countrywide, perhaps with the exception of the Western Cape are, according to one BTL-owner “slowly being squeezed to death by a giant financial anaconda”. Rates and taxes have been rising on average at almost double the inflation rate per annum over the last five years and more.

And, as properties get older, maintenance costs rise while property values themselves, both in real terms and in some cases in nominal terms, decline.

Since 2008 the residential property market has declined by about 20% in real terms and is still firmly in a bear market. The outlook for the residential property market on the whole is decidedly negative.

Lipstick on a pig

Yet property marketers are desperately trying to put lipstick on this pig.

Reading my Sunday property supplement over the weekend I found two pieces of marketing bumpf.

The first one quoted Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa in the Sunday Times as saying: “Property is far less volatile than the equity or share markets. Property prices tend to increase consistently over time which makes it a lot easier to gauge the estimated return on investment. Property owners will not have to sleep with one eye glued to the stock market and have to sell the minute the market is at a high.”

Why do I disagree? Volatility in equity markets in itself is not a risk-factor: every seasoned investor will know that. It’s simply a function of the liquid and transparent global markets that are measured on a second to second basis.

In contrast to residential property prices, equity markets are measured and analysed on a continuous basis and investors can work out their net returns on a daily basis. Residential property prices by comparison are almost impossible to gauge. Take this piece of advice with a very large dose of salt.

Elsewhere in the same publication Jan Davel, MD of the RealNet estate agency advises: “The tight conditions at the moment represent some good opportunities for investors with a medium- to long-term outlook. All indications are that there will be a resumption of stronger value growth in the market within the next two to three years.” Where that growth will come from – considering the prospect of a ratings downgrade in the near future – remains to be seen.

To his credit Davel, elsewhere in the article, does offer a more realistic assessment of the true state of affairs when he says: “…although rental properties are currently in high demand, actual rentals are unlikely to rise much over the next two to three years”.

I have written extensively about the lacklustre performance of the SA residential property market. Every time I do my inbox is filled with emotionally-laden emails from property-pundits trying to offer a different view, sometimes with some unprintable expletives thrown in just to make a point.

Trust me: I am the first to want to be writing something rah-rah about the property market. I was the original residential property market bull many years ago, but like Dr Tim Noakes of Banting-diet fame, I’ve also had my Damascene conversion along the way and have had to change my way of thinking.

Why? Simply because the facts have changed and, as such, the advice has to change. Until the facts themselves show otherwise I have to warn again that BTL, under current economic and political conditions in SA, could prove to be very costly to your personal wealth. There are better, cheaper and smarter ways to make money from property investments.

The Rental Monitor (Q4 2015) report, on credit bureau Tenant Profile Network’s website makes for sobering reading for existing or potential BTL investors.

The report focuses on one key determination of the BTL equation: the tenant. How much is he/she paying, is this amount rising every year and is your tenant paying on time?

Herewith a few aspects regarding timing of payments:

  • 69% of renters pay their rent on time
  • Of the remaining 31%, 11% paid late
  • 5% were given a grace period
  • 5% did not pay

This alone should make you think twice about considering a BTL as an investment. You have over 30% chance of your rent being late or not being paid.

Meanwhile you are responsible for rates and taxes, the bond repayment, the insurance and all other costs.

Tenants have more rights than you

As an owner you have far fewer rights than a delinquent payer. The legal process of getting a non-payer out of your property, of which there is a high chance during your lifetime, takes about four months and between R20 000 to R30 000. So your eventual loss equates to the loss in rent, legal costs and probably repair costs to your property. Someone who you have to evict from your property will not look after it. It’s more likely you’ll end up with a trashed property.

As an aside, I understand that there is legislation in the pipeline that, if enacted by Parliament, could mean a substantial fine and/or imprisonment for the owner of a residential property if the correct procedure is not followed in evicting a non-paying tenant.

The chapter in [the Rental Monitor report] on average rent and escalation gets to the heart of the current problem with regards to BTL. Quite simply, with the exception of the Western Cape (gosh, this is getting annoying for us living in Gauteng) and to a lesser extent in the Northern Cape, rental growth has been slowing for almost three years and in some parts of the country has gone hugely negative.

Let’s first look at the national average for rental escalations. In the Q4 2013 rentals were galloping ever-higher at a rate of 9.29%, far in excess of the inflation rate. But since then escalation growth has fallen off a cliff and during 2015 was substantially less than the inflation rate and the latest number was 3.21% in Q4 2015.

If one strips out the effect of the escalation rate in the Western Cape (it’s remained consistently above the inflation rate and was at 9.96% in Q4 2015) then the national average in rental growth is closer to zero.

Rental growth in 2015 in Mpumalanga was below zero while actual rentals in Limpopo at the end of 2015 were 16% lower than two years ago. Average rentals in North West are about the same as they were in 2012.

These statistics prove without any doubt what I personally have been experiencing and what an ever-growing number of BTL investors are finding out for themselves.

Apart from the Western Cape, property prices and property rentals are not rising but costs and the hassle factors are.

I would suggest that the BTL market, unless the current trend doesn’t reverse, could soon find itself in a negative equity situation. Negative equity refers to the realisable value of the property being less than the outstanding bond.

Almost weekly I see the sales in execution of properties deeply in negative equity, either at Langebaan and Shelley Beach in the Cape or Hartbeespoort Dam in North West Province, for example.

A recovery in the BTL, as Davel admits, is far off into the future. A few things need to happen before there is any realistic chance of current BTL owners seeing their fortunes improve. This includes economic growth and rising employment in the formal sector, rising  consumer confidence as well as an improvement in individuals’ financial situation. It will also assist greatly if rates, taxes and bond mortgage costs come down but on both accounts prospects are slim.

How BTL owners, some of them with their retirement packages in a portfolio of units, would love the immediate liquidity of a listed property share, which trades daily.

Listed property investments, by the way, have been the best investment class over the last ten years, returning almost 20% per annum year after year. The difference in net wealth between a BTL investor and JSE-listed property investor or, even better, a global fund, over the same period must be enormous today.

But they can’t get out in a hurry; they are literally bogged down in the quicksand of an illiquid investment which is putting huge pressure on personal cash flows with no easy way out. The only way to raise some cash in a hurry is to sell it at a reduced price, probably using the same estate agent who recommended it as a good investment some ten years ago, and then paying a commission of anything up to 7% to do so.

Oi vey, as they say.

*The outlook for the residential property market is one of the topics that will be discussed at the upcoming Qua Vadis? seminars taking place in the Western Cape and Gauteng later this month. Speakers include Dr Frans Cronje (SA Institute of Race Relations), Ryk van Niekerk, editor of Moneyweb as well as Paul Hansen from Stanlib. Visit www.brenthurstwealth.co.za for more information and here to book.

**Magnus Heystek is head of research at Brenthurst Wealth and can be reached at magnus@heystek.co.za for ideas and suggestions.

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Have you Seen the prices of property in Harare lately? In US Dollars?

Do you actually want to live in Harare?

Do you actually live in your BTL investments?

You need to be able to keep a close eye on your investments (and tenants) or your risk becomes too great. Of course you don’t live in your BTL investments but that’s not the point.

Well, no actually 🙂

in aus the ONLY way to prosperity is to buy investments properties thru highly geared loans. no issues with rental collections – because all the checks are done before you rent your dwelling out and there is a very well regulated rental bond (deposit) system in place. this has given rise to one of the biggest housing bubbles (in Sydney at least) EVER in the world. this was on tv this week -http://www.abc.net.au/4corners/stories/2016/05/02/4451883.htm

The ONLY way? Really. What about a diversified portfolio of stocks and bonds?

Australia is exactly the wrong place to invest in residential property due to the high prices and low yields.

I’ll try again – buying investment properties is a past time which many many ordinary people get involved in – because they like “bricks and mortar”. many ordinary people only get involved in share markets through their retirement funds managed by fund managers – not as direct investors. if one had to use what it appears to be your investment maxim – only buy where prices are low – NO ONE wld be buying in London, new York, paris etc etc – which of course they are because they have no problems renting

squatting is the answer! no rent, rates, electricity etc!! free municipal services!!!

Really Robert? Let’s do the math.

Let’s say I buy a property for $500000 (AUD) and pay stamp duty, conveyancing (settlement) etc of $30000. The base cost of the investment is $530000. I borrow this from NAB (National Australia Bank) at fixed 4.75% rate.

I then let the property for $450 a week to a “safe” tenant.

My first years rental income is $23400. I have various expenses of $8742 such as State tax ($500)- because they can, maintenance ($2000), Insurance from fire, storms, earthquakes, arson etc ($720), Rental Insurance ($450), Agents commission of 8% ($1872), shire rates ($1600) and water rates ($1600). I also pay $25175 interest on the mortgage. My loss is thus $10517. This loss comes off my income so is really $7572 for the year after the tax break from negative gearing to the hilt.

If we assume CPI of 3% per annum the value of the house grows to $671958 after 10 years.

At the end of the 10th year our income is $30532, the expenses $11406 and the interest still $25175 (assume flat rate of 4.75%). The loss is $6050 for the 10th year.

We then sell the house for $671958 and the agent takes $30000 commission. The capital gain is $111958 on which you pay tax of $22392 (40% marginal rate, 50% of the gain taxed).

The after tax capital gain is $89567. This has a present value of $50013 using a 6% discount rate.

The present value of the 10 years losses after tax deduction for negative gearing is $45614 (6% discount rate).

Thus we really made $4399 in today’ money.

A great investment? I think not. No path to riches.

Now there is a lot that can go wrong. The housing market, currently in a bubble, can collapse. Interest rates can soar (rentals will also go up). There is , however, substantial risk.

clearly an ozzie asking an aussie specific question – I was hoping to deal in general terms – but anyway here goes. anyone with a bit of financial sense would have bought their investment properties in an SMSF – ideally when it is in pension mode (no Tax). they would then have leveraged it to the hilt using “limited recourse borrowing”. the stories one hears about smsf’s having A$10 million+ plus in them is entirely because of this strategy. have a client who did this – about to sell A$9million – TAX FREE

Everyone should know that the way to wealth is to buy assets when the sentiment is against them. That said don’t buy the property at the top of this article – a tenant WILL wreck it in months. Buy in a well run body corporate. Look for the type of property that a good handyman can fix in a few days even after the worst tenants – nothing fancy. Buy insurance – for 5% of the rent the rental is always paid on time even if the tenant is in default. Look after the place yourself don’t use a rental agent. Remember to buy cheap and buy in the Western Cape.

Yes I agree WC has good property prices but unfortunately the salaries are now not keeping up with the rentals.

It is the primary reason for us leaving WC as there is no place for the middle-class

don’t worry prices will soon be heading south – just check the weekend argus to get an idea of the “tsunami of properties” coming on the market every week

now that is an oxymoron – buy cheap and in the w cape!!!

I once thought as you did, Lynne. Bought a place in an in-demand, pretty security complex, lived there for a while, then moved and rented it out. Then last year the levies went up by 28%. I was also the victim of one break-in while on holiday, and one theft. Not to mention the headaches with the tenant.

Costs going up, real value going down. Nah. Sold it and never looked back. Won’t be going back “because this time it’s different” never actually is.

Hi Andrewa,
Tell us more…Don’t be such a tease!
Give us your source.
I recently helped one of my staff buy a house in Harare and she paid $22 000!

so what? – lots of cheap places around – Nepal – most of Africa – means nothing – no one in their right minds wants to live in these places

Interesting article Magnus. Have you looked at the rental yields people are making on inner-city properties or those in Braamfontein, Hillbrow, Berea, etc? One of my friend’s has bought three flats in the inner city, where the rent pays the bond and yields free cash-flow from the get go. The rental yields on some of these flats are unbelievable. The key is obviously to buy in a good building, with a good body corporate and secure good tenants, which is perhaps not as difficult as everyone thinks (…coming from someone who lives in Braamfontein herself).

Good rentals in Joburg & Pretoria CBDs. The bulk of government offices are in the CBDs & civil servants no longer want the long commutes from the townships & suburbs.

Friends never tell the full story. Some buildings provide free toilet paper because the week before payday, tenants cant afford toilet paper, so they use newspaper. The building then has to get plumbers in at vast cost to fix the system. It’s cheaper to provide free toilet paper. They pay the rent first, but that’s it!

Hanna, the reason that the returns are so high is the same reason that Greek Eurobonds were paying 30% a while ago and re-bundled unsecured loans pay 20%.

If the seller could sell the property for more, he /she would do so, and the return would be lower.

Maybe you should be asking not why is the return so high but why is the price so low?

I have thought hard and long about all this. Sure, BTL will have it’s day in the sun at some point, nobody can predict when or where. I guess everybody will have to make his own financial and risk calculations.

The problem is that after paying bond/tax/security/maintenance, the potential capital growth of the property actually far outstrips the rental profit. Capital growth carries the greatest weight of your investment, and over the long term, you can perhaps at best hope for a few percentage points inflation outperformance.

I’m interested to get Magnus’ view on why the WC market keeps performing like it does and when will the party end? 15-20% year on year growth is unsustainable and places like Sea Point won’t relent!

BTL is a long term investment as a good house can last 100 years.
I bought a house for 210k and sold it ten years later for 960K. AFTER 10 years paying a bond half of the bond payment comes of the outstanding amount and you can kill the bond in no time. The rental income over the next 80 years is yours.
When people like Magnus give up after two years with his BTL I wait until the interest rate drops before I sell at a profit or take a second bond on the house.
The problem is the negative cash flow during recessions that can break you.

Well you had an absolute gem there. Most properties will not grow at 16% per year as yours did. Will your average growth over 100 years be higher than inflation? I think it’s highly unlikely. Remember maintenance and security costs. Remember capital gains tax and income tax on that rent.

I’m not discrediting what you did, just pointing out that property can be very speculative (potentially good profit) but the average guy will probably get it wrong. And people see it as an investment, when in fact it is rather a “passive” income, which requires large scale for it to be enough.

Well you had an absolute gem there. Most properties will not grow at 16% per year as yours did (in the boom years?). Will your average growth over 100 years be higher than inflation? I think it’s highly unlikely. Remember maintenance and security costs. Remember capital gains tax and income tax on that rent.

I’m not discrediting what you did, just pointing out that property can be very speculative (potentially good profit) but the average guy will probably get it wrong. And people see it as an investment, when in fact it is rather a “passive” income, which requires large scale for it to be enough.

Our company has just completed a 36 unit duplex residential apartment complex in Paarl, Western Cape, strictly for leasing. Although we budgeted for a 20% non-occupation in the first year, we were fully let on day of completion. All tenants young families and young professionals and rent paid strictly by debit order. 8% rental escalation.
Best investment decision we ever made!! You however do need the proper infrastructure to manage BTL’s – that’s where they normally become a nightmare.

Wanna make money off residential property? Buy SatrixFini or shares in the top four banks. Every Tom, Dick and Harry is a property expert here, all paying interest. Only winner: The banks!

And some of the banking shares are paying great divvies. Better than your rental returns.

Buy-to-let is usually ok, but borrow-to-let is a bad idea.

You miss the point – one of the main advantages of investing in property is the debt. The rands you borrow are worth a lot more than those you repay. My first property bought some 20 years ago for R128 000 now earning R6400 per month. For every R1m bond one has at an inflation rate of 6% adds R60 000 to your personal wealth every year tax free.

To each his own, but here’s an alternative. If you had R128k, twenty years on the JSE @ (long-term average) 15% growth will get you +- R2.1mil, with a 2% dividend working out to R3490 per month. If the dividends were reinvested, that becomes +-R2.9mil, at which point the dividends would become R4920 per month. A property earning R6400 pm (after I guess bond repayments, property tax, maintenance, levies/security, commisions, etc) is probably worth in the region of R800k-R1mil. Make your pick.

Of course, if you had to borrow R128k, congrats, you created wealth out of nothing. Well not nothing, you would have had to show that you had enough left over each month to make the bond repayments in the first place, and you would have enriched the bank with your interest. You can construct terribly complicated spreadsheets but the point is that if you don’t reinvest your R6400pm into more property, you’re going backwards. And at some point it becomes a hassle.

Tax complicates the equations, but your rental income is CERTAINLY NOT tax free (you should know). Neither is the capital growth on your property or shares. Dividend tax is at least the smallest of the lot.

FD LOUW. You cannot borrow R128 000 to buy shares with at once . The banks will laugh at you because you would have bought shares like LONMIN and African Bank and maybe Saambou with the money then. And most of these companies that was in the top ten companies dont exist anymore.
With the R1500 bond repayment then it will take you 7 years to save up the R128 000. Luckily by then these companies wont be on the JSE anymore.

GERT. Agreed, but I didn’t say go borrow money to buy shares, just presented two scenarios. So let’s say you start small and take 7 years to get there. Like I said, congrats, at least you’re on the path. But now what? More property, or something else?

Also, you buy the index (think Satrix40 or SatrixFIN). For diversification, but also because African Bank would fall out of the index long before they go bust.

@fdlouw. just something noted, you compare the share value of 2.1mil with the property value of 800k-R1mil. You even provide a figure for dividends reinvested however you ignore the rent your received from the property for those 20 years in your comparision. That rent could also have been invested in shares or other properties. But by not including it you are not comparing apples with apples.

It is still likely that the shares was a better option than property however it is important to compare like with like when comparing investments.

@ Borga You’re absolutely correct, you HAVE to reinvest the profit, not blowing it on luxuries every month. Even then (according to my own calculations, and even if you have 10 properties), you’re likely to be better off in 20 years with small amounts of cash invested in the equity market each month. Like I said elsewhere, the bulk of your investment is not the rental profit, but in the value of the property, and that doesn’t outperform inflation by much (if at all).

Gert my mate ( and others)-dream on. Meeting the tooth fairy must be on your wishlist as well. Magnus is 100% correct. Been there. I also deal with evictions on regular basis and its ugly and expensive for owner.A legal nightmare. Plus owner liable for ALL rates ,water etc . Capital growth is a myth in SA and “leverage” is just advisors jargon for megadebt. But good luck living to a 100 to reap the rewards.

LuluAlert, we are in the same boat as Zimbabwe. The rand will most probably go the same route as the ZIM Dollar. When the RAND gets worthless my 1 Million debt will also be worthless but I will be able to rent out my houses for a $ or maybe a chicken.

Please look at the facts. There are over 50 countries in Africa. South Africa is the second biggest economy on the African continent and Zim is one of the smallest. South Africa is mainly a services based economy (like first world countries) and Zim mainly agriculture based (66% of their labor force). South Africa has GDP per capita 19 times higher than Zim. I can go on and on. Why do you think that South Africa is in the same boat as Zim when all the facts points to the opposite?

Moneychief, the reason I say we are in the same boat as Zim is that every ruling South African president depreciated the rand by almost 100% to the $.
The American $ also depreciated during the last 20 years compared to the price of a house in RSA.
The reason for this is that the Reserve bank and governments pay their workers with money that was not worked for and is now worth as much as typing it in on a spreadsheet. And everytime POST OFFICE 2BILLION payroll gets typed in the RAND depreciates like in ZIM.

The rand tracks other emerging market currencies. If you compare the Brazilian Real with the Rand against the dollar you will notice that they both track the Dollar almost identically. South Africa has a controlled inflation rate, nothing like Zim. US fiscal policy has a much bigger effect on the Rand Dollar exchange rate than what the South African president gets up to. The US economy is like the Titanic and the South African economy is like a rubber duck. The rubber duck gives way to the Titanic.

It is all very simple really – the odds are against a property investor under a socialist government.

Under a socialist regime there are no foreign buyers so support property values – rising municipal taxes act as transfer of wealth – rising estate duties and VAT act to nationalize the equity – increasing “security of tenure” laws act as a transfer of equity from the owner to the tenant – government nationalizing private property by implementation of “security of tenure” – tenants have more rights than owners.

The property owner is being milked by the tenant, the musicality and the government while he is struggling to pay off his bond. The vague promise of “safe and certain inflation-beating profits” drives the property investor to become a willing slave to a socialist government.

Live as a free man – invest in listed equity with an international footprint. Pay your fund-manager his fees, for (unlike a tenant) you can get rid of him in an instant without repercussions!

Give this man a Bells!

what about Bells and Whistles??????????

I’ll buy all of your unwanted houses.
Any Price
Any Area
Any condition
0607008877

seriously, how can there even be a debate on this !?!

everyone knows past performance is no guarantee of future profits ….. so where are the risks right now ?

– property tenure: YES! (EFF pressure for expropriation; new bill before parliament)
– rising interest rate environment: YES!
– rising property rates: YES!
– increasing pressure on disposable income: YES!
– inflation risks: YES!

go ahead though …. a fool and his money … etc

@bobsmith

Well no I wouldn’t actually 🙂
I would however like to get Harare type prices (in US Dollars nog) for some of my South African rental properties.

Is it not at times like these that one should start investing in property? Because by the time the figures look good and the reports great, it would be too late, you would have missed the boat.

The capital gains of a property investment is a function of the interest rate cycle. Property prices rise as the interest rates come down. For that matter, property investors that did well in the previous property cycle would have done even better if they simply bought government bonds. The bank takes bonds as security so you can get gearing if you want it.
The transaction cost on bonds are less than 10% of a property transaction, while it is liquid and government guarantees the yield – so, no hassles with tenants, rates and taxes, insurance and maintenance.

The point is, if we talk about timing an investment in property, it is at the top of the interest rate cycle, not near the bottom where we are now.

Asking Adrian Goslett, regional director and CEO of RE/MAX for the real answer is like asking any CEO to give 5 good reasons why people shouldnt invest in his company.

Mr. Heystek is indeed right here. Rates and Taxes are killing property owners and there wasn’t much growth to talk of in rental income lately! At east I was lucky so far in that my property was bought during the booming property times my rental income was paid and tenants looked well after the property. It looks to me however that as a investor trying to build something for retirement I am buggered in any case. What is the alternative Mr. Heystek? When I look at the huge amount of fees subtracted from my Investment portfolio yearly, I am crying as well. Many investors was charged an updfront investment fee of between 1 – 3 % of the initial portfolio (at least I have skipped that, or so I think). My yearly fees on my investment that I know of are the following: First of all there is an advice fee, on top of that there is an administration fee and on top of that a fund fee. 3 layers of fees which I can see. These layers of fees eat up about 2-3% (even higher in some cases) of your investment on a yearly basis. Furthermore and in addition to t he aforementioned when investment returns were reasonable and not so long ago I was charged a hefty performance fee (4%) by the fund. When I enquired came to understand that funds in South Africa are permitted to charge so-called “asymmetrical” performance fees. This means they may levy an additional charge for outperforming a particular benchmark, but of course without an equal reduction in fees for under performance. This practice is as common as it is self-serving. All the aforementioned are the fees that I have figured out more or less. In addition to all of that there is also trading costs which are rarely disclosed in any manner. It looks to me like there is actually no uniform presentation of fees, making it very difficult for investors to tell what they are paying in total for each of the various fund expenses. The impact of fees on an investment is massive!! If you pay close to 3% in fees per year, then you have paid far more than 30% over 10 years (factoring in that you would have had a return on the fees if you did not have to pay it). High fees, poor disclosure levels and advisors’ lack of fiduciary duty are some of the key issues plaguing South Africa’s investment industry. So I am afraid it is not only property that is a bad investment!

This is easily fixed. Get yourself some low cost ETF index trackers.

Pay the rental agent, pay the bank, pay the municipality, pay the sectional title levies and you need to charge one hell of a rental to make a profit. Rather buy blue chip equities and save yourself the heartache of deling inconsiderate low life tenants who feel zero for your investment.

An average house cost in 2000 R 240 000
An average house cost in 2005 R 700 000
An average house cost in 2010 R 1000 000
An average house cost in 2015 R 1 300 000
Most buy to let investors will give up within the first 5 years and would have missed out the growth for the next ten years of at least R500 000 because of fear.

Do what Magnus does, Not what Magnus says…..Buy property in the Western Cape….Finish & Klaar…

It is very interesting to read all these negative comments about property investing. I have been investing in property for 15 years and I live off it. I hire agents to manage my property and pay fees which are tax deductible. Also, bond costs, levies and taxes are tax deductible. Property is a growth investment asset and has inherent capital growth risks. I sleep well at night knowing that my capital is secure. There may be short-term volatility. I tend to ignore these gyrations and focus on long term. My property investments are not a naked position like equities that are not hedged. A global catastrophe could wipe out a naked position. Historically, equities have done well. Who knows the future? Unless you buy put to protect your investment portfolio, you are playing a dangerous game. I will stick with property and bet on property rights (constitution) and insurance to protect my investments. We all have anecdotal evidence to support our arguments. I have done well in property. Besides, there are not many alternatives.

Diversification is always a good idea – all eggs in one basket, not so much. The JSE ALSI has grown from 5000 bpts in 1994 to 52 000 today. There has never been a time in the last 70 years on the JSE where the ALSI has fallen by more than 30%, and when it did, it had fully recovered all losses over the following 3 year period. You have now read all about the negatives and massive fees involved in property investing, and obviously you have experienced these first hand. (Transfer duties, Estate agents fees, maintenance costs, levies, insurance, and tenant risk). If I were you, I would place some of my money in a low cost Unit Trust portfolio and compare the growth over 5 years against a similarly priced property. I guarantee one of these will far outperform the other…

Always good reading stuff from Maggie. Two points from my experience:

1) I had 19 tenants over 11 years that I managed myself. No issues. There are certain basic but crucial steps in selecting them. Like a pilot’s checklist. Still, I agree, shares are easier.

2) Any asset is always all about the price you pay for it and if you get that right you will win and not lose. Whether property or shares. I think many oaks pay to high and/or do their calcs wrong in buy to let game.

Whether you invest in listed property, BTL or shares you have to know what you are doing and have your dux in a row. BTL is an excellent investment when managed by a body corporate as well as an added advantage of capital growth in a long run

You sound like an estate agent; talking it up at any cost!

Surely you must know how utterly ignorant and negligent some body corporates are? Some even steal the levies. C;mon, buy to let has become a dead duck!

Oh please REMAX! An estate agent!
They’re like swindlers – any lie to sell dud products!

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