In property investing and even home ownership it is very important to understand the numbers of the deals.

However, that said, just one set of numbers without understanding the whole pictures usually is not useful but rather can create more confusion.

The numbers calculated will mean different things to different people and for different cases.

It was brought to our attention that there are even more predictions about residential real estate going down for another 2 years or more.

Can this be true?

As with any prediction, it can be true as much as it can be wrong. But, in essence for real estate / property investors that have purchased correctly – this does not matter at all. Never did and probably never will.

Sure any investor can buy one or two wrong properties in their portfolio that don’t make much money, but one “sour lemon” has never been the “end of days” for any real estate investor.

Unless, of course there is the “but” again, and the “unless” again…. those are the only properties that the investor holds. Then this could be a big problem.

So, why in essence it doesn’t matter where the market goes?

Often, people who own investment, or even private properties, re-finance without calculating the cost involved or having a proper understanding of the situation.

What is a re-finance agreement?

When you first submit a request for a bond on a property, the bank assesses the value of the property you wish to buy and grants you the bond at the fair market value of that property. So, suppose you wish to buy a house for one million, the bank will offer you one million, depending on your affordability. They offer you this amount because, should you default on your debt, they can repossess the property and sell it at that fair value, thereby getting back their money. This represents very little risk to the bank. However if the property market in the area is in decline – then this would be very big risk to the bank as the bond given won’t cover the selling price they can get (should they need to repossess).

Often, the value of property increases. Suppose that house is now worth 1.2 million. Should the bank repossess the property, they could probably get 1.2 million for it when they sell it. Therefore, the bank offers you a loan extension (an increase in your maximum loan) of 200,000. You can therefore take out a further loan of 200,000, using the property as collateral.

What people must bear in mind is that this is not money in your pocket; it is an increase in the loan amount of 200,000 which will have to be re-paid over the lifetime of that bond. Most people believe that it is money they simply receive and can therefore use to either lower their bond or for personal use. The simple fact is that the value of the asset which is up as collateral, namely the house, has increased and the bank therefore extends you a possible increase in the loan amount.

Finance is always a worrying factor when starting any business.

• Where will I get it?
• How much will it cost me?
• Will this severely cut my potential profits?

Before you dive into financial management, you must understand its most important element; CASH FLOW.

As a property investor you will have to face various activities that sometimes can be challenging.

First you will have to find the deal that suits your needs and financial situation. Personal preference and circumstances are of high importance when buying an investment property. As we say on Property Investor Network, you should make your money when you buy, not when you sell. This is very important. The deal must be good for you at the time of purchase.

As we stress, over and over again, property investing is about calculating the numbers, not about the tiles, or the nice windows. Not even about the neighborhood. Though I am sure a lot of investors and particularity "emotional property investors" would love to argue the neighborhood subject.

Because of this, it stands to reason that one should buy as cheap as possible. Many investors ask what is cheap enough? Is R300,000 okay? Or maybe R500,000 or maybe one should go for the lowest prices in the worst places of R100,000.

Often I get emails about this Guru and that Guru. I get asked questions and often asked to give my opinion about other peoples systems and so called Gurus.

Here is the deal, everyone wants to know what is good and what they should get involved in, but that said there is a catch to all this and I will explain this right now in the hope of clarifying the questions about all the systems and gurus in real estate and the property investing market.

If you really want to get the best out of this post or clarification you should first come to suspend your thought of “Good” and “Bad” as definition.

I know, for some this may be too much to ask, but if you can do this for the next 5-minutes (which should be short enough to mange) you may understand much more from what you are reading.

Usually, people who ask about Gurus and systems are at the beginning of their property investing journey and the field looks very much like an endless jungle.

Some property traders and investors choose to buy property for the purpose of renovating and then selling.

This strategy can be used for both "selling for profits" and "renting for profits". In other words, there are 2 systems to renovating a property for profits.

Renovating properties is great way to generate income and some do this for a living. This type of deal is really a specific strategy and can be slightly speculative in nature if one is lacking the correct planning and fundamental considerations. In other words, you can "lose your shirt" doing this is, if you don’t know what you are doing.

Lets then look at the fundamentals and considerations that make property investors and renovators successful in this strategy.

Can’t Pay the Bond? This is how you can save your property and avoid repossession.

It is sad see that there are many property investors and home owners that can’t pay their bonds  due to the recent interest rate increases. To add to the trauma, many have refinanced properties to the extent that getting a quick sale in the open market is close to impossible as there is no equity left to make the deal attractive to another investor.

This makes the situation very unpleasant and dangerous for the credit records of such persons. These incidents seem to leave the property investor or homeowner stuck, panicked and very emotional about the situation.

There are however a few solutions that come from the most unexpected place – the banks.

Many think it takes to be Donald Trump or Robert Kiyosaki to become successful in real estate investing. That is just not true.

Granted they are some of the most famous investors, but don’t think that others are not successful. Some are widely successful, they are just not famous…. and mind you, not everyone seeks fame after success.

Here is what it takes for the beginning:

In these tough times one of the most frequent questions is “What do I do if I am over exposed and can’t pay the bond/s?”

Here are some practical solutions out there that others have employed:

1. If you can’t pay the bond but the transfer has not take place yet, in other words you have bought into a development, please read this article: Property Transfer Nearing No Money to Pay the Bond . 
2. If you have too many properties and the bonds are killing your financial position consider selling some urgently.
3. If you can’t sell at the price you want consider reducing your price to sell at absolute bare minimum.

The term negative gearing is not very widely used in South Africa by property investors, in fact if you Google it you will find mostly Australian domain’s. Though the term is not widely used, we found it is extensively employed as an investing strategy and often with little knowledge of its’ meaning and consequences.

In this article, we will look at negative gearing and try to best explain what it is, and how negative gearing affects property investments. Negative gearing, generally speaking, is an investment strategy. However, just like with any other strategy, it can be good or extremely risky, if one doesn’t know what it entails.

By Dana Pretorius – Member of Property Investor Network

With the new increases in interest rates and the national credit control act, property investors must start to look at how to make more money from their current investment properties. Optimising the portfolio has never been more important than in the current economic climate. Property investments after all are supposed to make you money.

Many property investors will agree that cash flow is the secret to successful investing. Whether it is a property or business, the key to success is to have a strong grip on your cash flow situation. Interest rate increases, like the ones we have recently experienced, can significantly eat into the cash flow. Many people think that one needs to amass great sums of money to build wealth, but building a strong inflow of cash can also bring about financial freedom without having piles of cash.

In my last article I discussed where to find buy to let cash flow positive properties, it stands to reason that now you want to know how to go about finding them. So, lets get right to it.

As I mentioned in the first article, it takes great effort, but it is by no means rocket science. If you are serious and committed to putting in some effort, which must be consistent, you are likely to find many cash flow positive properties. You will also find, that buy to let properties in the residential market will get even easier to find with every increase in interest rates. Take careful consideration of this, because if such properties where too easy to find, property investor would be doing it and we wouldn’t need to discuss it at all.

To continue from the first article, there is no particular province or area for such properties, and hence finding strategies can be applied anywhere.

In the last few years many developments have sprung and investors bough often more than one property. Though these could have been great investments some problems have been noticed with the fact that developments take time to develop and register at the deeds office.

For many economic reasons including the increases in interest rates, some investors found that their affordability has changed since the time they placed the offer to purchase and were granted the bond. They have overextended themselves, didn’t know at that time, and now don’t know what to do to save the situation.

This is actually two questions, often asked together. We will try to answer both, as these issues are very connected in more than one way. Hence the question should really be: Should one buy if not money is available to do so and if the answer is yes, then how would one go about buying.

This question has as many answers as there are individual circumstances. The truth is that many investors have purchased more property via re-financing money from existing equity. But this has to be taken into consideration with affordability as well, because re-financed money actually costs money. Banks do not lend money for free of course.

As a result of increases in interest rates and changes enforced by the New National Credit Act, many are predicting that the rental market is about to blossom for buy-to-let investors. The reasonsing for these predictions is logical, increased interest rates combined with lower bond qualifying amounts for property buyers will temporarily forced many people to rent. How true is this prediction?

As with everything in life, one can’t simply take a prediction at face value. There are many factors to consider before one can state, in this case, that increased interest rates and the NCA will usher in "glory days" for buy-to-let investors. This article looks at some of the consideration investors need to factor.

With everything that has been happening to the the South Africa property market in 2007, and a lot has happened other than the NCA and interest rate increases, there are two options a property investor can look at:

1. Pack up and go home, do not invest anymore and live in the depression mood or increase in interest rates, NCA and other worries, or
2. Take the opportunity to continue investing in a counter cyclical market.

If you don’t mind, we would like to discuss option 2, as option one is not very productive if you come to think of it.

Metering of electricity with secondary prepaid electricity meters is an excellent way for property investors, landlords and letting agents to avoid the risk of having to pay electricity utility bills, when tenants don't pay.

However, feedback from the field shows that prepaid electricity meters also have other benefits. Customers who have installed prepaid electricity meters, in their rental units, are telling PrepaidMeters.co.za that one of the interesting benefits of using prepaid meters is that they are directly reducing their tenant turnover.

It's at an interesting time in the market. The market has gone from Peach to all Strawberry's and Cream for property investors buying investment properties. The effects of the interest rate hikes, NCA, more interest rate hikes and the looming new rates and taxes bill, due to kick in next year, are coming together in close succession, creating a boom time for property investors with capital to spare. Now it is the time to buy investment properties.

Good investors have been holding something back during the boom years, circling the market in search of the weak and unsuspecting. As the dust of the race to buy clears, the carnage of the market is starting to show and finally investors can act on their counter cyclical instincts and come down to feast at the vulture restaurant.

Recently on PIN Forum there has been a discussion about “round trip financing” and the dangers related to this. If you wish to read the thread before you read this article it can be found here .

As a general summary, the problem for investors is when the start moving around money between people that are the same, or in other words connected persons and /or entities.

This falls under some heavy issues discussed in that thread about “round trip financing” with no commercial substance and much more. Section 80 of the income tax act no 58 of 1962 says in detail what a tax avoidance agreement is.  The act deals with sections such as lack of commercial substance and round trip financing, both of which are clearly identifiable in this cases of connected persons.

In several of my articles I will be discussing special rules for connected persons. I therefore feel it is important to mention what a connected person is, for tax purposes.

The act separates connected persons in relation to individuals, companies, members of partnerships and trusts.

Many members of the Property Investor Network have expressed their concern with the newspaper headlines surrounding the NCA and also the fact that several banks seems to have suffered as a result.

To better understand the effect and bigger picture, let's look briefly at the situations in other leading property markets, such as the US and UK. This will help put a perspective on the South African market.

Most investors know that in South Africa, as opposed to other countries like the US, property investors cannot depreciate residential buildings. We all know that some changes have been made to allow depreciation on commercial buildings but residential buildings according to tax law doesn’t have many options. As you noticed, I said many options, there is though one option in the law that is somewhat constrictive, but which may still be a viable option for buy to let investors. That statement needs a minor correction, in this article we will be referring to a new term “develop-to-let”. Hang on a bit here and we will explain everything.

We found that there is an allowance in the tax law that enables property investors to depreciate a building and before we wrote this article we went out to investigate the information and give you some examples of how you can depreciate a residential building and in what conditions. So here goes…

The estate agent community has expressed extensive concern over the  NCA. Is the picture really that of gloom and doom? Just as with other articles this month, the answer is yes or no, depending on your perspective. To help you decide which, this article takes a broader view of the picture so that we all can hopefully make more sense of the situation.

We recently published an article focused on the negative effects the NCA is having on the economy as a whole. However, when we look at the estate agency industry we must realize that it has many sub-sectors. For the purpose of this article, we will only discuss residential, as we believe that this sector is currently the greatest pressure.

So, is the doom and gloom projection and speculation for estate agents in the residential market due to the NCA and how much does the NCA impact on such a possible outcome?

It has been a whole month and a half since the NCA has taken its’ full force and affect and the horror stories are starting to pour in.

I think that the whole picture of the NCA is not fully clear yet, but the effects have started to take shape.

Some comments, stories and situations have brought to the sad and hopefully wrong conclusion that the NCA has the full capability to bring the country down to its’ knees. Lets hope we are totally wrong.

This article is a short comparison for two bank products. Many people asked what is the difference between ABSA buy to let offering and Nedbank. We asked Donnie Claassen our resident Financing Expert to help us out on this one.

You can contact Donnie here   with any questions or comments on this article if you need clarifications.

Before starting it is important to remember that every bank creating a product has certain criteria attached to it. As you see everywhere “Terms and Conditions Apply”, this also applies to bond products.

Interest rates have now gone up 450 basis points and a further hike this year cannot be excluded from planning. Along with this, fuel, food and energy prices are set to increase. Most of this woe is outside the control of the South African Reserve Bank, but nonetheless impacts heavily on an already straining economy.

Things are looking pretty rosey as the perfect storm begins to brew. Perfect for Property Investors.

In this market properties are “dumped” on the market in a last minute desperate attempt by owners trying to avoid repossession. Everyone tightens their belts and their budgets, business included. Layoffs follow, costs go up and inflation is the word on everyones lips.

The long speculated market downturn is undeniably here. No need to speculate, it's on the streets and creating havoc. The stage is set for the perfect storm.

Once in a while like in every industry we need to look into the future to plan our marketing and continued growth. The Real Estate agents industry should do that now.  I wrote a while ago that real estate agents should start looking into the future while taking new communications and networking methods into account.

In every industry once in a while there are changes that have major future affect on how we do business. I remember the days when some people refused to carry a cell phone. Look today where we are. Even a 7 year old child carries and owns a cell phone. People are even becoming phobic without their cell phones, like it is their life line. What did we ever do before cell phones?

I don’t know if this is good or bad nor do I care to criticize, but what is important is that I have noticed a change in the way people are marketing property to one another; a change that has the potential to be as significant as the cell phones, if not even more. Because it connects people instantly and only people that wish to be connected to each other in this communication medium, much like the cell phones.

Yes, I am talking about the social networks and the move into social networking in the property space. When I speak to agents about social networking, they look at me in with a funny look, either I am mad, or they have no clue what I am talking about. This makes me seriously wonder.

Today social networking and social media is growing by leaps and bounds, monthly, not yearly. Take into consideration that Facebook since 2004 has acquired some 64 million users and I also heard a report that some 250,000 users are joining monthly. That is just beyond amazing.

But what does this have to do with real estate agents, property and Private Property?

As you all know by know Philip Viviers is one of the Experts on Property Investor Network and we just wanted to give you his summary view the 2008 Budget as he wrote it:

This article is part 5 of our sectional title series where we are exploring sectional title ownership responsibilities.

In the previous article we explored the obligations of the owner to their Section and Management Rules, in this instalment we will continue with Conduct Rules, we will leave the Common Property for the next series as it extends to an entire article.

• Obligations in terms of the Conduct Rules
• Obligations in terms of Common Property

This article is part 4 of our sectional title series where we are exploring sectional title ownership responsibilities.

In this installment we will discuss some of the ownership responsibilities which should be carefully considered before purchasing an investment in such schemes.

Hope, by now, you read about the Body Corporate Functions and Responsibilities, which will help with better understanding this article.

Though sectional titles are controlled by the body corporate, which every owner is part of, it is important to understand that each individual owner and investor has responsibilities in a sectional title scheme. These responsibilities in a scheme extend to the following points:

• Obligations with regards to their Own Section
• Obligations in terms of the Management Rules
• Obligations in terms of the Conduct Rules
• Obligations in terms of Common Property

In this article we will only discuss the responsibilities of an owner to their Section and to the Management Rules.

This article is part 3 of our sectional title series. In this installment we extend upon our previous explanations of the Body Corporate powers.

These are often confused with Trustees powers and often owners get confused about who has the right or the power to do what.

This article is part 2 of our sectional title series explaining the Body Corporate and its responsibilities.

The Body Corporate is comprised of all the owners of a sectional title scheme. An investor buying into a sectional title scheme will automatically belong to the Body Corporate on registration of the unit (this is not optional).

The owners that make up the Body Corporate have a responsibility to make sure that the scheme or complex is run efficiently and according to the Sectional Titles Act 95 of 1986.

It stands to reason that all owners therefore collectively have that responsibility.

In a joint effort to give more information to property investors around South Africa, Ardent the pioneering, free property investing community website in South Africa since 2004 and Property Investor Network have decided to come together to help property investors grow their knowledge.

Both Ardent and Property Investor Network had the same vision from the start, which was based on providing a free flow of property information, exchange of ideas and a community for investors to help each other while having fun and communicating freely.

This merger of the sites will provide both communities with a bigger and better place for all to benefit. “In line with my vision of free flow of information on Ardent, this merger just made sense, we are two sites doing the same thing on the community side, getting together the community just grows stronger for the benefit of all”, says John Becket founder of Ardent.

Though as we know information is power, more often than not, information often comes  at a very high price that is not justified or necessary. Property Investor Network has built its’ community from the pure will to help investors get started and have a place to freely ask questions and discuss issues, though it will never replace professional advise, nor should it, it does help investors get started and discuss ideas.

With the increase of buy to let properties and the hype in the property investing market, often an investment property is confused with a simple property trade deal or speculation.

Purchasing a property that is not a primary dwelling or holiday home, can be generalized in 3 main categories:

1. Resale – For the purpose of selling for profit (often called a “flip”)
2. Fix / Renovate - For the purpose of renovating and reselling for profit (often called a property trade).
3. Letting – For the purpose of letting to a tenant and generating income for the long term (often called buy to let property).

In today’s information age anyone can find anything they ever want on the Internet. There is no lack of information, by far, there is excess more often than not. In today’s world mothers arrive at the doctors rooms with 50 pages of data, printed from the internet, of what can be wrong with their child. There only reason for a visit to the doctor is to confirmation what they think they already know is wrong. This may not be such a good practice, but it is no joke. From doctors to property investors and tenants, anyone can find out anything about everything. For property investors this means that tenants today also have information at their fingertips and property investors must take heed to that, or else!

Ensuring that tenants pay for the electricity they use is often a cause for concern and trouble some task for property investors. It's not uncommon to find landlords that are lumbered with having to pay utility bills for tenants.

Property Investor Network, in conjuction with the leading developer of prepaid utlities management solutions are proud to bring to you a cost-effective and efficient solution to the problems of prepaid electricity in rental units.

Capital gains tax was introduced on 1 October 2001. This tax is levied on the disposal of any asset on or after 1 October 2001. C.G.T is very complex. I will be discussing the basics in this article.

How do we calculate it?

Before we can calculate C.G.T, we must first discuss the amounts that make up a C.G.T calculation.

These amounts are: Proceeds and Base cost.

Before selling an asset, it is wise to consider the tax implications of the sale. Such tax implications are not only important at the time of sale but also important in considering the value of a property according to its related cash flows before you actually buy a property.

A recoupment is one of these considerations. To understand recoupments you must understand what the tax base of an asset is. As you remember, we are allowed to expense a part of an asset for tax purposes every year, these are allowances. The original cost of an asset, less any allowances claimed to date is the tax base of an asset. So: if we have an asset with a cost of 220,000 and we have claimed, as a deduction from taxable income, 140,000 in allowances, to date; the tax base of the asset would be 80,000.

Section 11(h): Relief for the landlord

This is a highly complicated section.

The first important point to mention is that these deductions do not apply in the following two circumstances:

1. If either the landlord or the tenant is a company and the other party owns more than 50% thereof. I.E: Party “A” is an individual (could also be a company) and it rents out a building to party “B” which is a company. If “A” owns more than 50% of “B” then any premiums or improvements made by “B” will not be exempt in any way from the gross income of “A”.
2. Also, if “A” and “B” are both companies and a third party owns more than 50% of both of them, there will be no deductions.