PROPERTY INVESTING GONE WRONG

Everyone who knows me knows that I am crazy about property investing. Since we started in our 20s, we bought ten properties in total and only ever sold one. We used all the acquisitions as some sort of exciting experiments. It was necessary to get diverse experiences from the industry to feed my inquisitive nature. To achieve that, we bought a property in town, properties in three different provinces, a bank owned property from an auction, property from a deceased estate, a townhouse, a property within a gated residential estate, a property in the boomed off community, a house we plan to rent out furnished and a house in a business street which we rezoned into a commercial property. That sounds like a lot of real estate investing but its actually not as huge as I make it out to be. The beauty with this approach is that, I can sit here on my bed and tell a story about all of that. I believe all my mistakes in property investing were meant to be shared, to save another South African from committing the same mistake.

Property Investing Gone Wrong:  Took this image in Brighton, UK

Whilst, I am clearly a fan of property investments, I believe in a diversified portfolio. I went crazy listening to the radio programme on property investing. An editor of one of the biggest property magazines in South Africa blurted out "you will never go wrong with property in the long run". The reason I almost took this personally is that, this is an influential person in the industry and a whole lot of us are listening with interest. In his defense though, he did add the last part... "the long run". Which waters the statement down but leaves it as inaccurate. With poor or no research you may go very wrong with property investing. Most of the mistakes I and others were ignorant to are easy to avoid like:

1. Poor Location
A bad location will always be a bad idea when it comes to property investing. Set your target market where the area is developing nicely. I now have a clear target market and clearly set areas or suburbs. I will not buy a bargain located outside my target area. If the property is residential, it has to be in a good proximity of good schools, shopping centre, medical facilities and exciting community amenities. I will not be desperate to give a property to the first prospective tenant that shows up. I have turned down four tenants in the past two months. Most new investors target young professionals like themselves, which I find to be a good strategy.

2. Bad Price
A great piece of real estate in a good location with a high price tag is a bad investment. An investor does a thorough homework way before investing (unless she occupies a space in those rapidly changing industries). Know the returns you want before you even start shopping for the property. Exercise your patience when searching for a property that meets that yield. The wrong price is a huge loss before you even start.

3. Initial Investment and Liquidity
Well, we know that you will require a deposit to acquire a new asset. That deposit amount, your deeds registration, transfer and bond registration fees will cost you more than most estimate. That should be OK because you are investing. In the long run, you are likely to get a lot of money from that initial investment. However, you are most likely to lose some money if you change your mind and sell that property immaturely. Even worse, you may have a lag between that decision to sell and getting a buyer. During the marketing period, your property may be vacant, sucking your reserves dry. This is the reason point number 1 and 2 above are the most important for an investor. Your investment is not liquid, you have to be in this for a long haul to recover your costs and get your returns.

4. Maintenance, Renovations and Repairs
As we all know, most tenants break stuff. Even if they are great tenants, wear and tear takes its toll on possessions. You will be fixing a whole lot of stuff in the long run. You need good planning, a budget, even handy skills and an emergency fund to take care of repairs. It is definitely not as bad as it sounds; I have done this for more than a decade without any fixing skill and interest to learn. Your rental yield calculation has to factor that.

5. Management, Rates, Taxes and Levies
You should take this into account when you are shopping for your property. If you collect R10,000 in rental, deduct all the costs like homeloan repayments (R8,000), levies, rates and taxes (R2000) and know that you are only breaking even. This is actually a good scenario. You may need to top up from your pocket like most of us do in the first few years of investing. There are property management costs which I forgot to add too.

6. Vacancies
Then you may have a period where your property is vacant and no rental comes your way. Refer to point number 1 to avoid this. Your location has to have a good rental demand. You can do this so well that you never get any vacancies in years. And that is not an exaggeration. But you may be in a bad market that your place exchanges too many hands, gets damaged in the process and costs you too much money. Point number 1 and 2 cant be missed in this process.

7. Bad Tenants
Even a vacancy is cheaper than bad tenants. Another reason to thoroughly screen your applicants.

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IF I HAD DEBT

It has already been concluded that I am a bit of a bore. I do not follow even the most popular TV programmes and generally tend to dislike anything that has some hype around it. Never trust me with opinion on the Idols, Big Brother or even personal finance shows. It cannot be a surprise that I have never been in the position where I needed to fight debt other than the mortgage. I never paid a car installment. I know you may be thinking, "Pheeew! That is more boring than I expected". But I'm alive, not bored to death just yet.

Here's the problem with my boring nature, I am missing on an opportunity to write amazing posts about how I got out of debt. Most bloggers have amazing "zero to hero" kind of stories. Even I love to read and listen to such success stories. If I had debt at some point in my life, I would probably be stronger, wiser, more matured... except, that is not how I would choose to toughen up. I have an overactive imagination, which enables me to journey into a life of living in the boots of all sorts of people. Just the other day I was writing about how one can easily get out of debt. That post is the most loved around here.

If I had debt...
1. I would pay at least the minimum required on all my debts every month without fail. I would do this like my life depended on it. I really never understand why people just ignore their debt.

2. I would cut all unnecessary expenses out of my budget. Only debt free people can afford these luxuries. Here goes what should be dumped in the bin:

• Gym membership. Why are we even talking this? (-R700)
• Expensive cellphone contract to be replaced by a cheaper one. (-R300)
• DSTV/ pay TV would definitely go. Have you noticed how little time you have for TV? (-R800)
• Choose public transportation where possible. In Gauteng we have Gautrain. But living closer to work is probably even better. I have always chosen to live closer to my workplace.
• Eating out is sheer luxury. I would cook my own food most of the time. (-R500)
• Shopping other than that of food. (-R1000)
• Salon visits and other beauty expenditure. (-R500)

I made up figures here just to make it more interesting. After cutting all this expenditure (estimating it at R3800), their monthly cost would all go towards paying my debt. I know you need a clothing budget and all that. Take a small amount from that.

3. I would prioritise my debt according to the interest charged on each. Because I am a sucker for examples, let's go:
Credit Card 18%.... (minimum payment R1200)
Clothing Account 15% ...(minimum payment R600)
Personal Loan 11% ... (minimum payment R1500)
Car Loan 10.5% ... (minimum payment R6000)
Homeloan 9.5% ...(minimum payment R8000)

Exactly in that order, starting with the credit card debt, then the next biggest interest rate, until the cheapest debt to service. This way I end up paying the least amount possible overall.

4. As a plan to fast track the process, I would consolidate debt using my homeloan. I would get access from my homeloan or apply for a re-advance to pay up the rest of my debt. Remember that my homeloan is the cheapest debt I have. 9.5% interest rate is better than the 18% I am charged by my credit card service provider. After consolidating my debt, all that excess amount of money that I suddenly have will go towards the mortgage repayment. That takes my homeloan repayment from R8,000 to R17,300.
WOW! I had R9300 extra all along! Remember the R3800 you were dumping in all those expenses??? That takes my extra mortgage payments to R13,100 per month.

I would then sit back and watch the homeloan melt. With my eye set on the mortgage balance to take note of when it gets back to the amount it was before the debt consolidation process. I would most likely pay this amount up way before the time my car loan term was to lapse. I would not buy a new car during and immediately after this process.

5. If I had debt, I would most definitely get an extra source of income. Desperate times call for desperate measures. I would sell stuff or use my skills to get income elsewhere. I would even rent out a room in my space. I cant imagine that, but I think I would.

6. I would call a family meeting to let everyone know that all the funds available after basic expenditure will go towards paying the debt off. Wastage when it comes to food and any other household supplies would have to be avoided. Everyone would have to take showers to save water and electricity. If I had debt I would make a call for all of us to switch to frugal mode. That's how much I hate debt.

And finally, if you are busy with your debt war currently, know that you can conquer it. Its not as tough as it looks. Change the mindset, set goals with time frames and work hard to achieve them. Cutting some luxuries can be a temporary measure.

“Whether you think you can, or you think you can't--you're right.” Henry Ford

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WHY THE RICH ARE RICH AND YOU ARE NOT

There are so many misconceptions about the rich and how they live, talk of crooked expectations. How do we think the rich got where they are in the first place? It may seem rather obvious that building wealth calls for prioritising one's life and setting certain principles. Except, the not so rich would like to believe that the rich were born that way. Then the craziness in their imagination runs wild; forcing them to run their own lives in a way that may make them look rich. The sadness of craving unwarranted respect.

Why the Rich are Rich and you are not.

A few years back I bought and read a book written by Professors William Danko and Thomas Stanley entitled, The Millionaire Next Door: Surprising Secrets of America’s Wealthy. I can safely say, I have never read a better researched and written personal finance book. It just opens your eyes to the realities of wealth building. The truth is that, people who try hard to look and act rich are nowhere close to being rich. They may be earning extremely high incomes which translate to anything but wealth. The inflated lifestyle that is meant to be a show off and "proof" that one is wealthy is nothing but a cheap showoff.

1. Lifestyle inflation
A million rands in one person's hand stretches further than a million rands in the next person. Of course a lot of people are chasing the next big job, a promotion or higher salary. The irony is that, when they do get the higher income they were chasing after, it never translates to wealth. The reason being that, people want to act rich too soon without acquiring wealth. A new high paying job gets poverty stuck people bigger cars, bigger homes, expensive clothes and higher levels of debt. This is refereed to as lifestyle inflation. Your high income will never translate to wealth if you are keeping up with the Joneses.

2. Living above your means
The rich are not living within their means, responsible middle class lives within their means. The rich live below their means. Living on 90 percent of your income won't cut it. You will never make the time with 10% savings rate. The wealthy continuously build and maintain their wealth living on a fraction of their income. I have a friend who lives on 25% of her income. That is a true story. Always bear in mind that, the most important aspect of building wealth is TIME. The sooner you start the quicker you reach the finish line.

3. Knowing the balance sheet
I know it may look like a joke but 100% of the people whose finances I worked on didn't have a clue how much the interest rate they pay on any of their debts is. A huge chunk of them did not know how much their total debt is. Most of them did not know how much they spend every month and on what. This is the most miserable fact of all. You will never conquer what you do not know. I am forever startled by how common it is for intelligent people to choose to live in the dark when it comes to their finances. The rich know the details of their net worth and the amount by which it is growing and shrinking.

4. Setting goals and striving to achieve them
The wealthy are very much focused whilst the not so rich are moving without clear direction. I've had years where my goal was simply to boost our net worth by a million rands or close. That doesn't require a million rands in income but a million rands strategy. When you set goals and run after them, you tend to achieve a lot more than when you have no set strategy. This life requires thorough planning.

5. Buying experiences vs things
The wealthy often go on reasonably priced outings, camps, holidays, gaming trips, etc. Contrary to what most believe, the rich don't splash on fancy cars, expensive stuff and costly activities. They often buy used cars that they comfortably afford to buy with no debt. The most popular car make for dollar millionaires is said to be a Toyota. Imagine that! The "not so rich" often show off in fancy German cars and boutique clothes they cannot afford. They would go through 100% of their income and further subsidise it with a credit card. It is ironic. They choose materialism over experiences like travel and activities that make the world a better place.

6. The earlier the better
Most of those who make it have started investing very early in their lives. They are beneficiaries of compound interest. Starting later robs you of this benefit. I am planning to write an article on time value of money soon. But this demonstration will suffice for now:

Scenario1.
Age of investor: 25 until 45 (20 years)
Monthly investment : R5,000
Interest (ETF) :20%
Total amount invested : R1,200,000
Balance at the end of an investment term : R15,800,000

Scenario 2.
Age of investor: 35 until 45 (10 years)
Monthly investment : R10,000
Interest (ETF) :20%
Total amount invested : R1,200,000
Balance at the end of an investment term : R3,820,000

Take note that the amount invested is the same. The longer you wait to start, the higher the amount of money you need to invest.

7. Materialism never equates to happiness
Need I say more? The most unhappy people in this world are the materialistic people, regardless of their income levels. These are the people who want to be seen as higher achievers without being any of that. They will spend millions to give a false impression of what and who they are.

 The rich are generally financially independent. They have better control of their time. Think about the 45 year old in scenario 1 above. With R15M, you are good to go. The materialistic individual is not even in scenario 2.

You too can join the rich. Start today.

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2015 PROJECT PLAN 1

I took a decision to document the projects I plan on undertaking in 2015 to build on my 2015 goals. The first one in my mind is the trial furnished letting.
I know a few bloggers who let small apartments or rooms in their homes and listing them at AirBNB. It is usually for short term stay from a few days to a week. I am warming up to the idea of a furnished rental. We've always loved staying in self catering apartments when we go for short holidays. However, with my lazy approach in mind, I would skip the daily rental option and go for a monthly rental. A more hands off approach suits my passive income approach more. This is my 2015 project plan 1 of probably 5. I would target to implement this particular one by mid-year.

2015 project plan 1 - the estate nature reserve

One of my properties which is a perfect fit for this kind of a project is in a gated residential estate. The picture above was taken from the exclusive nature reserve within the estate. Furnished, this unit could bring in double its current monthly rental. I would love to get a few years tenancy contract like the ones entered into with corporate clients. Especially if we assume that my tenant will be pretty decent and not break my furniture or scratch stuff. This unit pretty much ticks all the boxes for an up market furnished rental. Below is a list of what could attract my target tenant.

1. Security
The main selling point for this particular unit is security. Whilst I got over living in such an exaggerated security place, my tenants seem to love it. Security is costly but it pays you back. I've had the current family occupy the unit for more than three years. People feel safe in estates with controlled entry and exit.

2. Look and Feel
It doesn't matter how glamorous your place is, high paying tenants want to be in spectacular surroundings. Like your agent would say "LOCATION, LOCATION, LOCATION". Apart from the location, your furniture has to be of quality with a nicely landscaped garden. Most ridiculous but true is that, the neighbour has to also maintain the same look and feel standards. Everyone is forced to keep up with the Joneses in these estates. The whole estate is run like a well oiled machine. Roads for cars, walkways, bicycle and baby stroller pavements should be at their best look all the time. These are things you look for when shopping for an up market rental property.

2015 project plan 1 - the estate dam

In this particular estate, there is a nature reserve with a dam, nature breeding spots and lots of various water and land breeds of animals. This offers a tranquil walking, jogging and cycling trail. It is also a requirement that you keep your home neat and presentable at all times. Forcing your tenant's neighbours to be an ideal match for them. 

3. Lifestyle
The place is peaceful and relatively safe. One may jog, walk, cycle or picnic in the dam area with friends and family on weekends. This type of a tenant loves to have those options, even when they never use them. Noise levels are also controlled. That is a part of the controlled estate lifestyle that does not suit me and my family. Complaints I received over the past few years are that of my tenants' dog barking at night.

furnished property letting project

 4. Convenience
School buses collect school kids at the estate gate to local schools. There is a few well recommended private schools in the area. Wi-Fi is now being organised to be available throughout the estate. It is obviously cheaper to pay the telecoms service provider as a collective than as an individual.

All of the above sell a furnished property to the tenant. The subject unit is also a good size with 4 bedrooms and 3 living areas. That is a great size for an expatriate family on a contract employee with school going children. A good maintenance free garden comes with its own garden services. It is exciting just thinking about this project.

That is one of my projects for 2015. Do you have plans for the coming year?

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CAR FUND IDEA

Welcome to new readers of this humble blog. I hope you enjoy it and learn a trick or two. Do ask questions if you so wish. Those who have been with us for the past few years may recall that I am fond of those various savings pockets. I am a true fan of the envelope system without the actual envelopes... story for another day.

I shared my car fund idea here about two years ago. I know, I also mentioned how a car is not an investment  earlier in the same year. But really, I cant change the fact that most of us love being behind shiny wheels with sheer comfort. Whilst I thought and still think its a bad idea to pay a car installment, a colleague shared how she finances her cars with me the other day. I was totally WOWED by it, and because I can never keep such secrets, I'm sharing that with you today.

She gave me a lift in her A Class Mercedes Benz for two days. I probably never mentioned how much I love a Merc. Yeah, I do! So after a small irritating chit-chat about work and its politics I managed to gather strength to pry on her personal finance issues. Have you noticed just how nosy I am? I am a curious soul and generally interested in people's lives. BUT... and a big BUT I do it out of love. This is why my colleague was open to giving me this tiny detail of her finances.

Car Fund Idea : Real life Story

Firstly, my colleague is approaching her retirement (above 55). She changes her cars every 4 to 6 years. She is definitely not like me. My car is seven years old going for 8 in the new year. I still smell the dealership in it...JOKING. My colleague doesn't like an old car, which is not a bad idea, given her amazing strategy.

She uses a very high deposit for each car buy. Her installments are therefore negligible. I love that. But it does not end there. She pays until she owes nothing on her car, like her current Mercedes Benz. She then drives it for another two years after the last payment, and continues paying the same amount into a separate savings or investment account. For interest sake, lets say her car installment is R5000 per month, though I suspect its way less. This is where I make a practical example for us to unpack her strategy.

Car Fund Idea Example 1
Monthly Deposit R5000
Interest 9.5%
Number of Years 2

In two years my colleague will be having more than R131,500 in her money market account. Let us go crazy and assume my colleague used Satrix Indi to save this amount for the past two years. The performance has been 32.72% over the past three years. This is getting exciting.

Car Fund Idea Example 2
Monthly Deposit R5000
Interest 32.72%
Number of Years 2
See how this ETF would have given my colleague more than R166,300 in the two years from the R120,000 she slowly invested over 24 months. How is that for a new car deposit??? Before you forget, she is also trading her old car in for some R100,000. That makes R266.000 deposit. Lets now go into a calculation of how much my colleague ends up paying monthly for her Mercedes Benz.

Cost of the car R400,000
Deposit plus Trade in value R266,000
Total finance required R135,140
Interest rate 9.25% (current prime rate 2014 November)
Term of loan 4 years
Initiation fee (Once off) R1140
Monthly service fee R57
Monthly installment R3450

Phew!!! I know what you are thinking. There it is fellow South Africans. I love playing around with these figures. Hope you do too. There is absolutely no reason for you to pay more for a car of your dreams. Just remember that you can do even better by investing the R5000 every month, just for retirement's sake.

How do you finance your own luxuries?
Blessed weekend!

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FEAR OF TAKING RISKS

What a hectic week I am having. I haven't even had time to garden. And in this rain, I would have loved to plant a rose bush or two. I decided to go ahead and squeeze in a post on the common fear of taking risks and why risk is part of an investor's life.

Risk is definitely scary but exaggerated amounts of fear can be paralysing. Everyone needs to have a system to manage their fears, in personal finance and all areas of one's life. We just have to realise that being alive in itself is a risk and its never going to get any better. The investing space requires one to have some appetite for risk. The extremely risk averse take longer to build wealth. Having said that, not all risks are worth taking.

A fear of taking risks

Expected Returns
I am a very cautious person, but I take a huge amount of risk when my sums look good. I base my decisions on expected returns with each project or investment I take on. I go through the same calculation every time I acquire a property. Each acquisition should have potential to work hard to up my net worth and monthly income. I naturally start by calculating the expected rate of return on the new acquisition to justify the purchase. Everything is based on assumptions. An element of risk is there but I refuse to let it paralyse me. In the case of shares, I focus on the expected future growth of the company whose units I'm buying; with property, I look at plans for the location of the property,  and the basket of stocks in the ETF I'm buying, etc. The decision has to be well informed to reduce the risk and fear thereof.

Risk Assessment
Having looked at the expected return on my investment, I look at the potential risks. Even with a high expected return a high risk investment with may not be worth my time and money. A lot of high return scams are making rounds targeting the desperate individuals. If an "investment" sounds too good to be true, chances are, it is too good to be true. My sister once told me of an investment scheme by the name "defencex". I never needed to even check how legitimate tis investment was. My sister gave me the figures which added up to 60% of interest in one month. This was obviously one of a kind. I advised my sister to run as fast as she could from it. Then more similar scams appeared. An "investment" that promises returns that high raises a red flag immediately. An investment that is too volatile in terms of its performance trend is also high risk. Looking at what is likely to happen reduces ones fear of taking risks.

Diversification
The best lesson I learnt earlier on in life is having every area of my life diversified. This is from my career, relationships and finances. I really have haphazard qualifications that are not related to each other. Before we even look at my my curious nature, I easily get bored with routine. Similarly, my friends are far from being replicas of each other. I practice the same in my finances. I have tried to have diversified sources of income. I find it very dangerous to rely on only one source of income.

A low rental month is boosted by the dividend here and and some interest there. The goal is to manage the risk which is in your control in order to reduce the impact of the market risk which is not in your control. Even in my stock portfolio, I try to be well diversified in different sectors. When things go sour in the financial sector, I might be doing well in the telecoms.

Diversify your life to avoid the crippling fear of taking risks.

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DECEASED PROPERTY TRANSACTION UPDATE

My deceased estate property transaction journey was very long and tedious. Remember how I gave up on this purchase last year in this post... After a long conversation with the estate agent and the lawyers I thought I should just hang in there. The wait was not as painful because I had no monthly costs. Did I mention that the heirs were so desperate to get rid of this house that they were selling for below 50 percent of what I was told it is worth. It needed a lot of cosmetic work though. I would say R50,000 to R100,000 worth of work. For more on what I looked at to see if this transaction is worth it, go to the article on buying rental property. 

The transaction took exactly 1 year without a day longer. It was too strange. The bank had lost the Title Deed, which delayed this further. On the 12th November last year, all was done and the property was registered. I am not the most patient person, but I must say, I can do this again. Lawyers informed me that it was registered a year back.

12 November 2013

TRANSFER: SELLER NAME/ BUYER NAME
ERF, TOWN

We write to confirm that the registration of the above transaction took place out of the Deeds Office Cape Town on the 12th of November 2013.

We anticipate receipt of your Title Deed in approximately 3 months time.

In the meantime kindly arrange to be registered with the Amathole and Amahlathi Municipalities as a ratepayer and service consumer

Enclosed is our statement of account which we trust you will find in order.

Yours faithfully,
Lawyer

I was never told to do my own municipality registration before. I was in shock. Anyway this was my first small town purchase. It is much easier in the Metropolitan areas, where I usually buy.

Attached to this letter was my statement of account with costs of about 4.44% of the property purchase price. I just want you to know what the costs for this transaction were. I removed the amounts, I don't know why...SIGH!

STATEMENT OF ACCOUNT

RE: TRANSFER: SELLER NAME/ BUYER NAME
ERF, TOWN

To purchase price Erf xxx   
To attending instruction for transfer, drawing all documents & attending to local work etc
To Vat
To paid Amahlathi Municipality for Clearance Certificates
To pro rata share rates ito Deed of Sale from 12/11/2013 to 30/06/2014
To paid Amathole Municipality for Clearance Certificate
To Fica verification
To Vat
To Cape Town conveyancers charges:  Lodgement and registration of transfer 
To Deeds Office search fee
To Vat 
To document generation fee
To Vat
To our postage, petties and bank charges
To Vat 
By paid iro purchase price and costs       
By interest 

This was all listed in my statement. Some amounts are very small and some listed in triples. Like I said, it was a very low 4.5% including all costs. I would do this again for sure.

What Next:
We are repairing the ills in the house. A very slow process. I'll be constructing 3 or 4 attached small cottages in this 800+ square metre land. Rental is low but overall returns are higher than I earn in my existing units. It is a pilot project for me. I'll report to you as soon as I start. I actually can not wait.

Remember to ask me any question, I love your comments, criticism and questions my friends.     

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BUILDING WEALTH

I actually enjoy responding to emails and comments. It feels like I am having a two way conversation. Anonymous just posted a follow up comment on dealing with debt, buying a home and investing in property. Here goes:

I think that (making solid relationships) is a skill that has stood you in good stead.

Ok, so I'm a 29 year old married man with 2 kids and a little knowledge on personal finance. I feel like I'm too far in debt that even buying home for my family is but a dream. Any advice as to how I can go about making this a reality as my wife earns R13000 and I earn on commission which is normally between R17000 and R25000. I am very curious about the property industry and would one day like to look at buying, fixing and selling. Would you say that I would need to first pay off my bond before treading into that sphere of property investment and so forth?

I'm sorry, I know I'm asking so many questions now, but all this is coming to mind. Could you perhaps suggest any books or material that I could use to expand my knowledge on?

Thanks for your email Anon. let me briefly unpack your data:
Age 29; Married; 2 kids; renting (assumption); lots of debt; Income is R30,000-R38000 per month
Assuming that your wife is the same age as yourself, you are very young. All you need is to start where you are and start building up. You have to take tough decisions to build your wealth and the legacy to leave for your children. Where it starts is dealing with your debt. It doesnt matter how big it is, you can do it. You will need to be on the same page as your wife to fight this together. I will suggest a few posts for you to look at.

1. Starting Out
This post might discourage you a bit because it states what I think you should have done to start with. If you havent read it already, do so. Knowing what you missed helps make you more cautious as you move forward. The post is a letter I recently wrote to my sister who is starting out.
Building Wealth- the beginning...

2. Getting Out of Debt
Most people think this is too difficult. It is not as difficult as most imagine it to be. Read this and create your own strategy on how you will kill your own debt. R30,000 in income is not small money. It can go very far. Whatever strategy you use, stick to it. A number of people who dont get to the top give up too early. Consistency is what matters.
Dealing with Debt...

3. Building your Savings
You will always have to start with paying yourself. You are more important than any of the retailers you are enriching when you buy stuff. Your debt has to take priority. Paying your debt is paying yourself because that is buying your freedom. Refuse to be a slave to those you owe. Paying debt is the first step in building wealth.
Buying your Freedom...

4. If you buy a House
Buying a house is not necessary, but when you do, fight to pay it up so that you own 100 percent of your home. Rather buy a smaller house in a nice area with good schools. If you have a car, work on paying it up too. Not even a bank deserves to be owed by you. This will take years to finalise but you have the time. Remember to keep saving a little whilst you are paying off your assets.
Paying your Home Quicker...

5. Investing in Property
Be ready and prepared when you start investing in property or any other investment vehicle. I would remove small debt like personal loans, credit card debt and store account debt before I embark on investing. Savings in the money market account and probably an ETF may suffice until you are debt free. The debt you can live with is a homeloan. Nothing else is worth owing on. Keep your car as long as you can.
Property Investment...

6. Mistakes to Avoid
It would be wise to avoid some of the mistakes that others make when investing in property.
Common Mistakes by Property Investors...

7. Books I have Read
I have read a lot of books on investing and building wealth. I will make a list of all the books that pointed me to the right direction and make a seperate post. This post is already too long. I will take them out in my study and make notes on each of them. That may require a bit of time.

I enjoyed giving my two cents piece of layman advice. All the best going forward.
SISA

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NETWORKING FOR SUCCESS

I cannot be the only one who stalks amazing people I find in random places and online. I manage to get the most intimate of details from people about how they make their money. I think its mostly because I am an inquisitive soul. I ask a lot of questions that even my doctors allocate more time to me than to an average patient. Its like an illness but I love me. A lot of people tell me stuff without planning to. I remember a girl in one work meeting saying "I don't know why I'm telling you all this". I just smiled trying hard not to interrupt.

only yesterday, Anonymous left a comment on the post "STICK WITH THE WINNERS", which was essentially about friends of mine who are making their money work for them. I have a long list of such friends. Hubby thinks I should start having a channel with video interviews. People around me are just too brilliant and awesome. I am considering having written interviews of ordinary people here. Back to the question asked by Anonymous:  

"Being in the midst of winners is one thing however, getting there from the periphery of obscurity is a whole new ball game.
How did you find friends like the ones you have mentioned?"

Without thinking this through, I responded:

"I never even thought of where I got these friends until now Anonymous. My debt free house builder friend was with me at work. We clicked immediately.

The one who rents her home had her son as my son's best friend. We met at school events and then birthday parties. I chat to a lot of people. It helps.

The property developer claims to have been inspired by me and this blog. We met via blogs but we are now very close.

I am that girl with a glass of red wine that is untouched in business functions, interviewing everyone without them knowing it. Its a friend of mine who taught me about stock investing. He calls me for advise on that now.

Networking is never overrated."

NETWORKING FOR GROWTH Whilst networking is absolutely essential, remember that not everyone you meet can help move your personal finance agenda forward. You will have to identify people who are like minded and focused. Some people will be brilliant but not your preferred kind of associates. Some will think the same of you.

Treat your personal finance goals like a business. A business network is a "give and take". So many people want to take, take and take without giving anything. To get information, you will need to give same. Self centred people never grow far. The moment you give out what you have, you get a lot more from others. Be out there to help others with information and experience you gathered.

When you spot opportunities, do follow up to get more information. This needs not be a formal conversation. I find coffee dates amazing. I meet up with people to share what I know all the time.

A lot of people are introverts. We have to push ourselves to release our voices. Its always difficult but that is the case only at the beginning. Once a connection is made, it is made.

Some of the high quality connections you may make are in forums of like minded people. Blogs, online forums and social networking platforms are amazing to connect like minded people. You only benefit from these by giving your own input.Sharing is indeed loving.

Feel free to ask me anything by leaving a comment below or clicking here...

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FRUGALITY VERSUS EARNING MORE

A lot of personal finance fans choose between the two paths to financial independence viz. frugality versus earning more income. Those who have been following this blog for some time will remember that I wrote about reaching financial independence and how I am doing it here...  The two methods can be used together.

One of my rental properties: on Frugality versus Earning More

Frugality
Frugality is about using resources sparingly and economically. Frugal people may for instance buy used goods, grow their own food  to save money and generally live at a far lower cost than the income they earn. R500 in the hands of a frugal individual may last a month whilst two days may be too long in the hands of a lavish person.

The frugal hate any kind of waste and usually reuse resources. they embrace low cost and cost-free options like cycling instead of driving, jogging instead of the gym, searching for discounts, etc. This group focuses on cutting costs and expenditure. Many frugal people live on a small fraction of their income.

You will be surprised to know that I am not a frugal person. Just the past week I guzzled on restaurant cafe latte almost daily and ordered lunch from different restaurants everyday. I did this because I was just too busy and preoccupied the whole week. I would never do this everyday but if I have to choose between writing emails to my property manager and preparing the next day's lunch in the evenings, I am inclined to choosing the emails. This is because that email to my property manager is probably going to grow my income or guard against me losing money whilst the lunch may cost me R50 for that day. Before you judge me for being too lavish, we really try to live on a fraction of our income with 50% being the norm.

Earning More
"Passive Income is earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved." that is according to the IRS.

Passive income is usually regular (daily or monthly) once it has been built. Main sources of passive income are rental activity, stock trading and business partnerships. When it comes to making a choice between the two (frugality versus earning more income), I definitely go with higher income. Reasons being that when money is made and invested, it goes on making babies and grandbabies for the rest of one's life. That's where I put 100 percent of my focus. If I have to buy lunch everyday because I am writing for income, so be it. 

Just a few years ago, we fought for our property income to replace one of our salaries and we managed to do that. I doubt if frugality alone would have helped us achieve that. We have tried to grow our dividends to give us a small stream of passive income, which proves to be very tough in South Africa. Our money market account gives us a few cents which, given the inflation rate, is technically a negative growth. But this is still better than an ordinary bank account. My writing earns me more than enough to cover my son's school fees and all school related costs. The excess from that is for me to do whatever I wish like the shopping spree I went on in my recent trip to the UK. The beauty with this is that I love writing and I can do it for the rest of my life. Everyone has their own passion they can practice on a part time basis. I would not have achieved much without extra income.

Frugality has a good role to play, but growing your income is the most effective strategy. However, even that only adds value when the income earned is invested. The aim is to have your money grow to earn you income every day of your life.

Which one would you choose for yourself: frugality versus earning more income?
Remember to ask me any question by clicking here...

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THREE MORTGAGES IN ONE YEAR

When I was quiet, its been crazy in this household. We actually applied and got three mortgages in one year after paying off all our homeloans. This scares many people but I guess its just our life. We go through some sort of preparation before we apply for a loan because we just can't stomach rejection. We are cowards like that! We also use our rental income in a spreadsheet with bank statements as proof of extra income. Now on to the story of us accessing three big mortgages in one year. A truck below being testament to our latest move from house to house.

Three Mortgages in One Year - Moving House

Every once in a while I itch to go through a renovation project. It seems to be a very strange feeling to many, but I on the other hand have accepted the fact that I am not normal. I definitely don't want to be normal, thank you very much. As this "renovation itch" time approaches, I started searching for a good fixer upper in the area of my dreams. I saw a gorgeous traditional style 1960s Victorian property listed online, with all 5 bedrooms, 3.5 bathrooms, a study, 2 kitchens and outside rooms. It was everything I ever wanted to work on beautifying. The only problem was that we were away as a family and would go back home in a week's time. I lost the listing and never bumped into it ever again in that week. 

The Viewing
Back home we started calling real estate agents to show us the properties in that same area. We love gated communities for obvious reasons. One agent took us out to a 3 bedroom house with a lot of ground to extend the house. As we were driving to the show house right behind our agent's car, we drove past the Victorian property I saw online. I froze inside the car but I didn't want to disrespect the agent by asking her to stop. This was such a painful discovery. I knew that I want that old house but without an idea how I will make that happen.

We viewed the 3 bedroom property and asked the agent to email us an "offer to purchase" form as we take the decision. We were too excited by the possibility of extending the current structure or rezoning the place into a two duet property. We could sell or rent out the one house and live in the new house. The house wa nicely placed in the front portion of the stand with massive land behind it. The stand measured about 1300+ square metres (14,000+ square feet). The agent lead us the other direction, to get out through the other gate of the estate. Meaning that, I couldn't see the Victorian house as we drive out.

The Search Re-Launched
We waved goodbye to the agent as we were trying to get back into the estate to see the house we wanted one more time. The Mr had not seen it as we drove fast past it the first time. Unfortunately, going back in there was impossible. Back home in my laptop, the search began. The house reappeared on my screen. I wanted to jump up and down. It was listed by only two agents (dual mandate). We called the first one but she seemed not interested to take us to see the place. We called the agent in the second advert. She was available immediately. The house was absolutely crazy dim and ugly inside. Just think OUTDATED everything.

We made our mind there and then. We'll sign in the dotted line. Almost 1600 square metres (17,000 square feet) of land and a lot of space to play around with remodel ideas. Solid structure without a single crack in sight. I looked at it and thought to myself, "I am absolutely home". Finally, a house with a veranda (porch) as large as a playground. We were pleased and arranged to go view it in a few days just to be sure. The house was on the market for only a week plus at the time.

After the second viewing we went to sign the offer to purchase. One couple had beaten us to it. We signed the offer anyway and offered the lowest we think the sellers would accept. A saving of more than R200,000. We were convinced that the place was listed below the market rate to start with. In just a few hours our agent called and told us that our offer was accepted. We were beyond thrilled. We were told that the lady from the other bidding couple cried. I understood her as I probably would have cried in her position too.

Mortgage 1 and 2
We financed this property with two mortgages. I will never have enough space to unpack that process in this article. But to cut the long story short, the interest rates we were charged were too high on a new mortgage. We decided to get a re-advance on two of our fully paid mortgages. Those were two super cheap homeloans.

We moved into the new home. It has been a hectic year trying to clean the place up. Removing carpets, splashing paint, etc. Our home was now light and getting there quick when we spotted another house for sale within the walking distance of our new home. We called our agent to investigate the owner and negotiate an offer. The price was non negotiable.

Mortgage 3
We were back at the bank door asking for a homeloan with our 20 percent deposit (down payment) in hand. This one house was in an office street. We wanted to rezone it into a commercial property. We go crazy when we see an opportunity to try something we have never done before. We immediately searched for town planners, architects and quantity surveyors. Finally, we have a commercial property. The process has been a money drain but we are still happy we dived right into the deep end. Our residential rental properties are hard at work financing this project. This is a life changer.

That my friend, is how we moved from having no homeloan to having three mortgages in one year. We are still working on this commercial project. Our calculation shows a return on investment of 17%. That is more than we can ask for.

Our Plan
Renovations on our current home are very slow. This is an asset that is underutilised. We are planning to complete the renovations on it and the commercial project and rent both out. Meaning that in a few years we will definitely be homeless again. We live in a construction site all the time. Super crazy, I know. We have a few ideas to try with existing investment properties, in order to raise their productivity and rental rates.

We had a hectic year. What a ride! Building wealth has never been this exciting. Its tough at times but overall exciting. Just remember this: It is POSSIBLE to do this for anyone. I may come back on the process of applying for a re-advance and a reasoning behind taking that path to finance our property.

To ask any questions from me click here...

Many blessings,
SISA

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DEBT TO INVESTOR

I am very proud of my baby sister. You may be gettin a tad bit confused because I have a lot of siblings. Lets name this one Pres. She is an amazing soul who has always kept her focus on saving. The only problem is that she was going at it the wrong way. A lot of people are going on about wealth building the exact same way.

Pres had a few store cards, which she only used to buy sale items. All of her kids clothes were bought at discounted prices. She really loved sales and got thousands of rands in discount every year. It bothered me that my sweet sister would know when and where the latest sale is throughout the year. She is still a sale star but with a changed mindset. This is the chat we had with her the day she stopped searching for discounted prices:

Me: Your kids have very nice quality clothing items.
Pres: You wont believe how cheap they are. I only buy at discounted prices. My favourite is 70% off or further discount on a discount. I save a lot of money that way.
Me: But you do realise that your focus is on spending and not saving, RIGHT?
Pres: What do you mean? I saved R70 by buying this for R30 instead of R100. I am saving.
Me: You are not saving R70, you are spending R30. Your R30 is not at the savings tool, it is at Woolworths. If you were saving it, it would be in your Money Market account or somewhere else making money for you. You lost R30. If anyone is saving here, its possibly Woolworths.
Pres' jaw dropped.

This is the mistake that a lot of people make. They chase the big red "SALE" signs on the windows of the shops. They get inside to buy stuff they don't need, because its discounted. Its one of women's biggest personal finance mistakes of all time. Off course, in the store catalogues they write "SAVE 50%". The truth is that you may be spending that 50% on something that you don't need. It gets different only if you actually needed that particular item that very moment. This "saving by spending" idea is such a bad habit, even if you think you will need the item in a year's time. How many times do we change our style and preferences. Besides, if you paid that R30 into your debt, you would have really saved yourself from drowning in debt.

Fast forward to just a few years later, Pres has paid up all her store cards. She carried a balance in quite a few cards before then. She never thought that being debt free is possible. She then calls me one day whilst I was at home minding my own business. Our call goes:

Pres: Hey sis I have a confession to make.
Me: What?
Press: Remember I have no store cards? Today I saw something I really wanted in one of the shops in the mall. it was heavily discounted and I didn't have cash.
Me: And...
Pres: I took a card application form. Immediately I had it in my hand I felt so much unease like something was constantly starring at me. I stopped immediately and told the shop assistant that I'll bring it back the following day. I felt so much guilt that I dropped it at a trash bin just outside the store and walked away. I felt so much relief.
Me: What did you want to buy?
Pres: A pair of shoes. They were really cheap.
Me: (with disbelief because this woman has no space to put her shoes anymore) Well done. I'm so proud of you.

My sister has no store cards since she paid them up, but her being debt free is just a tip of the iceberg. She struggled to get a job she is qualified for and settled for a job that pays way less. She used to complain about this and mentioned several times that they cannot buy investment property because of this constraint. My sister is still in her old job and now owns 3 properties. She moved to the smallest of them in one of the convenient suburbs. The other two are rented out to her tenants. My sister is glowing with confidence as she should. I am super proud of her. The most amazing part is that, this took only a few years for he to move from debt to investor.

I just want to encourage you to start getting out of debt. Its really not worth it. Stores are filled to the brim by credit card shoppers for Christmas festivities at the moment. What a sad state of affairs. Are we not much better than that? Don't our children and the next generation deserve better? Don't we deserve a comfortable retirement? Don't we just owe it to ourselves to sleep like babies?
 
I have a lot of similar stories from ordinary people like you and me. Join the winning team for a brighter future.

Many Blessings,
SISA

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STICK WITH THE WINNERS

Just the other day I wrote a letter to my sister at her request. I emphasised the part where she should surround herself with great people. I really should have written that in caps lock, bold and highlighted in red. It doesn't really matter how strong you think you are, bad company does spoil good character.

Stick with the WINNERS

If I ever give my son only one advise, this is it. In everything you do stick with the winners. That is in relationships, in finances, in your Spiritual walk, in your career, in life in general… Life is hard work as it is, you don’t have to add toxicity to it.

Let me get too personal a bit.
Cash is King
One of my best friends is a big part of the reasons I never fell into the debt trap really. We spent so much time together and fled from people whose lives were about the next pair of shoes. This friend of mine paid her first property within two and half years. That’s 2.5 years. We were both in an entry level job at the time. And NO, she got no help from her parents. She delayed buying a car and paid everything she could into the property homeloan. She went on to build a house of her dreams CASH within a residential estate years later (she is still in her 30s). That’s what I’m talking about when I say stick with the winners. She is a true winner. She now drives a brand new big and expensive car and dresses up really well. Not forgetting how she continues to build on her savings and investments. And her now fully paid rental apartment in a high rental demand area is her source of extra income.

Living on your Assets
I also have a friend who managed to upgrade her home into executive levels and just decided to rent it out to corporates at way more than her business made at the time. After renovating her house, she realised that it has become too big for her family. She rented the house to a business and went ahead to rent for about 15% of the gross rental she collects. Read more about how this diva lives on her assets.

An Investor's Lifestyle
My other girlfriend left her cushy corporate job for property development. She is not doing badly for a new developer. It gets tough at the beginning, as expected. Accessing capital is not easy but this diva started with rezoning her own home into a commune. They moved to their granny flat as they start. She is now completing her first block of flats. I'll try to get her to guest blog here. I will plead with her. Lesson for you and me: It is completely doable. These are people I know and love. We all have it in us to do it.

Taking a Break
I wont count all my friends here but this one is worth mentioning. She just came back from a luxurious holiday. She is a single mother of two. She went away to think about what she will do next. Having a few properties that now cover ALL her expenses. She quit her job and is now throwing herself into entrepreneurship. Having made all those sacrifices, she can take the risk I think. She prepared herself well before quitting her job.

It is a long list of winners I surround myself with. I only listed women here, on purpose. I also remember family members and almost everyone else, as I was blindly starting out in life, stating that "you cannot live without debt". What a bunch of hogwash. Off course anyone can. It will be tough initially, but it gets better and then way better. You can retire early and live comfortably doing exactly what you want to be doing. The main important factor in anyone's life is time. They are not manufacturing any of it if you haven't noticed. You lose time to do the right thing, and that time is gone forever.

Whatever your plan, implement it. Most people will say "it wont work", just keep moving. I make an effort to surround myself with winners. Winners are people who set goals for themselves and follow with implementation. It may be a guy selling tomatoes in the street corner or a teacher that lives on the fraction of her income. A winner is the girl who owns all her stuff... no consumer debt. Stick with the winners. Stick with someone who knows they do not need to fit in. Someone who is their own person. Peer pressure is for the weak. All lifestyles are contagious.

I may be boring, but one thing for sure, I sleep like a baby, when a lot of my peers are thinking of where they can get a Daisy to rob in order to pay Jane. Juggling credit cards to pay loans and store accounts. You deserve way better. Choose the winning team for yourself.. That is where we all belong.

Very well said! take that first step.

 Ask me any question. I actually love those.

Many Blessings,
SISA

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NOVEMBER 2014 GOALS

Since I went back to work I failed to document any of my quarterly goals. I am back to that. Recording things keeps me motivated. I know 2014 is already gone but I just cant keep this until January 2015.

PERSONAL FINANCE GOALS

NET WORTH: I will have to check the values of all the investments and real estate debt, add them up and re-calculate our net worth. More like the beginning.

EMERGENCY FUND: We did empty our EF whilst acquiring a property beginning of this year. I have to update you guys on that later. We are now slowly building this up again. Meanwhile, the new acquisition is still vacant bringing in no income as we are still working on it. We will keep the EF at 6 months worth of our household expenses. We are now at 14%. We will take it to 21% of the target. Growing it by a third (33%).

GIVING: We will maintain giving of more than 10% of income.

REAL ESTATE: Nothing major here. We will be working on extra security in our residence. December approaches and sadly with higher occurrences of burglaries.

STOCKS AND DIVIDENDS: Nothing planned here except for the normal ETFs.

EXTRA INCOME: Trying to take online income up by at least 25% by end of November.

Other Goals:
Enroll for a short course related to my work. I never thought I would have this goal especially at such a busy time at work. I really warmed up to work nicely. I like it.

Lets see End November if these actually fly. I also want to throw a no spend week challenge with interested readers from January.

Many Blessings,
SISA

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EXCHANGE TRADED FUND

I have been getting a lot of emails about the exchange traded fund (ETF) lately. I'll try and unpack it a bit here. I am a fan of ETFs, please pardon my positive look at them. But Really they are just the best money growing tool for new investors. Being low capital intensive and so on and so on... Lets look at our latest email below:

"You really inspired me, I would like to know more about Exchange Traded Fund”
Patricia

An ETF can be your foot in the door of the JSE or any stock exchange. One fund typically combines or has a collective of  stocks, commodities, currencies and/or bonds, which offers the needed asset diversification for an investor. Two people in my family invest in the ETFs because of their passive nature, low costs, tax efficiency, and liquidity. This is my experience on the subject from the two family members (hubby and son):

Low Cost
I once compared the ETFs to Unit Trusts. ETFs are very cheap because they are mostly commission-free. In their statements I see an admin fee. It’s negligible too. They are generally tax efficient too. That’s a really big plus. Always bear in mind that whatever cents you are saving in trading translates to more in your portfolio. It may be a few rands which add up to hundreds of rands in the long run.

Liquidity
Most investors want to know that they can get their money whenever they need it by selling their assets. In that case, an Exchange Traded Fund could be one of your options. You may actively trade your units using any of the available platforms, if you are the hands on type of a person. This means that you may buy and sell your units as you please.

Diversified Portfolio
All of us personal finance divas love a diversified portfolio. I hope we do. Exchange Traded Funds can be a good way to diversify one’s portfolio. Each ETF is typically a good basket of stocks, currencies, bonds or commodities. These may be from the same sector or various industries like finance, minerals, technology, top performing stocks, etc. Some are from same country and some international. Some are a group of high dividend stocks which are great for dividend investors. Now that we are on this topic, I have to write about my experience on international ETFs soon. 

Compounding
With my 11 year old son’s ETF, we both agreed to automate the re-investing of dividends. That small income buys more units of the fund and so the ball rolls. Apart from the capital growth he earns, he also gets his dividends automatically invested. That's the power of compounding. Some people may choose to take out their dividends out. I wouldn’t, unless I would invest them elsewhere.

Risk
Like any other investment, there are risks associated with trading. From the periodic trends, exchange traded funds generally look very good. Remember to do your research to identify your industry of choice and ETF type.

I did write about the Exchange Traded Fund before. Click on that link to open it.
Let me also commit to trying to get an expert to write a more comprehensive article on this subject. I'll beg them to go easy on the technical language.


You too may ask me a question by clicking on this link. You may also leave a comment below. And off course tell us about your own experiences or guest post here. We welcome any views. We also love other people's financial freedom journeys. Whether you just started paying your debt up, acquiring assets or taking your well deserved early retirement.

All the best in your investment choices,
SISA

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