Warren Buffet has made his mega-billions by not doing what the crowd does. How many people do you know who would:
Sit on a massive pile of cash rather than invest in anything that does not deliver the right kind of growth and value, as he did in 2001 – to the tune of 50 billion dollars?
Then, in a matter of months, spend the lot and buy companies because the time was right?
Which meant, everyone else thought the time was WRONG (i.e. post-September 11th)
Watch a single company for fifteen years before investing a cent ...content to wait until the economy, the government or the management made some change that brought a window of opportunity for fabulous value?
* It takes strength of character to resist the hysteria of a boom or the panic of a bust and go in the opposite direction to everyone else.
* It takes strength of character to ignore what the “experts” are saying and make decisions according to your own simple but powerful rules (for example, the Formula for Riches).
* It takes strength of character to resist being swept along while you sit tight and listen as everyone tells you you’re missing out.
But that’s how the second richest man in the world did it. And you can too.
In 1982 I bought my first property as an investment.
In 1987 I bought my second.
I waited five years for the climate to be right for me again. It so happened that in the intervening years the market wasn’t great.
Could you wait fifteen years for the right thing? Could you wait five?
And does it matter?
Yes, it does. Rushing a decision because you’re in a panic about being too slow, missing out, or being too close to retirement doesn’t make it okay.
Five properties with an IRR of 20% are not equal to one property with an IRR of 100%.
Two wrongs do not make a right and two mediocres do not make a brilliant.
Scoring 50% in two exams does not give you 100%.
We may laugh at the idea but we think property or other investments are different! They’re not.
Thursday, August 23, 2007
Did you get it?
I sometimes get asked about the National Credit Act and how one can “get around it”. For some reason, people have got stuck on the idea that spending 30% of your gross household income on home loan repayments is a limitation that is going to hold them back on Wealth Creation.
When I ask why this is a problem for them, they say ...
“I am up to my limit already with my family home and my place at the coast, so that means I cannot invest in property for Wealth Creation.”
Then I ask them what IRR they are getting on their existing properties and they tell me that they have not done the sums.
This really surprises me!
How can you just leave these two big purchases, these two big risks, out of the equation when it comes to planning your financial future? If 30% of your income is not working its head off in terms of your Wealth Creation goals, how can you ignore that?
You see, a lot of people just do not “get it”.
I understand that they may have bought their properties before they learned how to invest in property like a Wealth Creator. Back in the days when, like most people, they bought up to their maximum in terms of affordable bond repayments (or more accurately, up to the maximum of what the bank would lend them) when it came to a family home, and then bought a dream holiday home at the coast too, when they could.
(As an aside, have you noticed how many more people have bought homes on the coast? Not long ago it was really something only the very well-to-do did. Now people on quite ordinary incomes are doing it too! Not that prices have gone down – far from it!)
Back to the story ...
If the 30% of your income that’s going into your home loan/s is not growing at a good rate, you have a problem. Nearly a third of your income is “out of the race”. Just the decision to pick up that little place on the coast has taken thousands of Rands a month off the table of your financial future. There is something called an opportunity cost and if, say, R5 000 a month is earning you say 20%, then in 10 years time you will have put in R600 000, for what kind of return?
R1, 880 476.50
If you think that’s not too bad then you must have been talking to a life insurance salesman sometime recently! Because take a look at this:
If you invest a tenth of this, R500 a month, at the rate of 85%, you will put in R60 000 and get what kind of return?
R26, 015 986.
It’s not a mistake. R500 a month can make you over R24 million MORE than R5000 a month, if you put in the time and effort to find the right property, structure the right deal, and check that you are getting the right kind of answers when you run Property Pro Investment Program.
When I ask why this is a problem for them, they say ...
“I am up to my limit already with my family home and my place at the coast, so that means I cannot invest in property for Wealth Creation.”
Then I ask them what IRR they are getting on their existing properties and they tell me that they have not done the sums.
This really surprises me!
How can you just leave these two big purchases, these two big risks, out of the equation when it comes to planning your financial future? If 30% of your income is not working its head off in terms of your Wealth Creation goals, how can you ignore that?
You see, a lot of people just do not “get it”.
I understand that they may have bought their properties before they learned how to invest in property like a Wealth Creator. Back in the days when, like most people, they bought up to their maximum in terms of affordable bond repayments (or more accurately, up to the maximum of what the bank would lend them) when it came to a family home, and then bought a dream holiday home at the coast too, when they could.
(As an aside, have you noticed how many more people have bought homes on the coast? Not long ago it was really something only the very well-to-do did. Now people on quite ordinary incomes are doing it too! Not that prices have gone down – far from it!)
Back to the story ...
If the 30% of your income that’s going into your home loan/s is not growing at a good rate, you have a problem. Nearly a third of your income is “out of the race”. Just the decision to pick up that little place on the coast has taken thousands of Rands a month off the table of your financial future. There is something called an opportunity cost and if, say, R5 000 a month is earning you say 20%, then in 10 years time you will have put in R600 000, for what kind of return?
R1, 880 476.50
If you think that’s not too bad then you must have been talking to a life insurance salesman sometime recently! Because take a look at this:
If you invest a tenth of this, R500 a month, at the rate of 85%, you will put in R60 000 and get what kind of return?
R26, 015 986.
It’s not a mistake. R500 a month can make you over R24 million MORE than R5000 a month, if you put in the time and effort to find the right property, structure the right deal, and check that you are getting the right kind of answers when you run Property Pro Investment Program.
Yes, it takes time and effort but it’s worth it.
In the meantime what do you do if you already have that beach house and an overly-expensive family home? Because we know that in an ideal world you do not try and make a bad investment better after buying it.
You make your money when you buy, not when you sell. But the reality is, many people are in this situation before they learn about property investment.
First and foremost, understand that your existing properties and investments are part of your Wealth Creation picture – they are not a separate issue. If you “get” just this, believe me you have made a breakthrough!
- Find out where you stand – work out the IRR on all your properties.
- See if you can improve the results – e.g. what would happen if you were to convert the garage into a cottage and rent it out?
- If the figures are horrible, do the sums and see what would happen if you moved into a cheaper rented place and rented out your house. (There is also a myth that it is always better to buy than to rent – do you know that?)
- Is there a market to rent out your coastal place and if so does it make financial sense to do this?
- Consider selling, especially if you could not handle another interest rate increase. It is better to sell and to carry on with your life and learn how to make the right investments than to clinch to your emotional decision – and lose it all.
- The bottom line – you cannot make a decision unless you know how to do the calculations. We make irrational decision because we are ignorant.
These ideas are just for you to investigate with Property Pro. Depending on the figures, you should make your decisions.
Thursday, August 16, 2007
Where to find property BARGAINS and MOTIVATED SELLERS?
The only place in South Africa where you can find a concentrated pool of motivated sellers and bargains is at www.propertyinvestments.co.za.
One of the biggest misconceptions about property investment is that the most critical part is the property itself - its condition and location.
The truth is that both of these considerations are secondary to the motivation of the seller.
If the seller is not motivated, then no matter what the condition or the location of the property, you are not going to get a great deal. But if you have a motivated seller, then you have a great chance of turning a handsome profit no matter what the condition or location.
When this really hits home, it revolutionizes how you prioritize your search for great deals.
No longer do you waste time doing due diligence and inspecting the house, until you have made sure you've found a motivated seller.
Once you found a motivated seller you can apply the Property Pro Investment Strategy and Program to verify if the property meets your investment objectives.
Finding Motivated Sellers.
Finding this motivated seller becomes the most important investment activity you can ever engage in.
You must focus your time, efforts, and creativity on searching for a motivated seller first.
Personal Example.
I use this strategy and during a challenge I bought 48 properties in 94 days looking at only 8 of the properties.
What signals must you look for?
In most cases motivated sellers are the result of some personal situation, unique to that individual.
Although the specific situation may be unique to that individual, there are certain patterns to look out for and then work out how to benefit from these.
By concentrating your efforts on these highly motivated sellers you will make life much easier for yourself.
Let's look at one of the patterns.
People run into financial difficulties. People get behind in payments, cannot get out of debt, find themselves threatened by outside factors such as an uncontrolled bond-rate, lose their jobs or become one of the 84% of new business owners that will close their doors within the first three years of operation.
Usually their property was used as their security to start their business.
There are many reasons for financial difficulties, but most people revert to selling their biggest asset, their house, when times get tough.
The bad thing is that if they cannot pay their debts then they can be sequestrated.
Not only have they lost every thing financially but they will also end up with a bad credit record and over the next five years they are out of the financial race.
Most people do not have the time or the know how to look for motivated sellers and this is where www.propertyinvestments.co.za can help.
WHERE TO FIND MOTIVATED SELLERS
When one for instance enters into a home loan arrangement, financial predicament is never the forecasted intention.
Nevertheless, the average home in SA is repossessed in as little as 18 months.
Buy-and-sell motivations differ from circumstance to circumstance and at the latter end of the state of affairs described above, the motivation is to sell the money-sapping impediment as soon as possible.
However, even in situations like these, one needs to focus on the best possible tools to bring you to your current solution.
Financial cycles.
A quick overview on repossessed property shows us that this unfortunate process is the end of a financial cycle.
It starts off with a loan and sadly ends in a sale of execution to the public.
When the financier enters into the process of repossession, a letter of demand is sent to the non-paying homeowner.
When the owner of the home does not conform to the content of the demand, a summons is issued by the creditor, which leaves the homeowner 10 days to respond.
Should he fail to pay the outstanding amount or fail to enter into an appearance to defend the matter, judgment is taken against his name.
Here after a warrant of execution is issued and the property can be sold on auction.
THE SOURCE NOW, the information on the property referred to is obtained on your behalf immediately after judgment has been taken by www.propertyinvestments.co.za.
At this stage the only person that has functional foreknowledge of the pending sale in execution, is the owner of the house and it is therefore not public knowledge yet.
The public generally knows it once it is advertised to be sold in execution.
This gives you a head start on the opportunity.
In layman's terms this is called a GIVE AWAY or a BARGAIN.
Once judgment has been taken, the details of the one burdened with the loan, is submitted to the various credit bureaus where it will remain unless the homeowner satisfies the home loan by selling the property.
www.propertyinvestments.co.za is the only website in South Africa that can give you access to more than 780 properties listed the last 30 days with a verified Judgments against them.
You can also visit www.propertyonauction.co.za if you want to get an insider’s look at what properties in South Africa will come on Auction over the next month.
Number of Auctions listed the last 30 days: 1866
Warning to all Property Pro Investors.
Do not think just because you can get a property at less than the banks valuation that it is a bargain.
Do the calculations using the Property Pro Investment Strategy and Program before you make an offer.
One of the biggest misconceptions about property investment is that the most critical part is the property itself - its condition and location.
The truth is that both of these considerations are secondary to the motivation of the seller.
If the seller is not motivated, then no matter what the condition or the location of the property, you are not going to get a great deal. But if you have a motivated seller, then you have a great chance of turning a handsome profit no matter what the condition or location.
When this really hits home, it revolutionizes how you prioritize your search for great deals.
No longer do you waste time doing due diligence and inspecting the house, until you have made sure you've found a motivated seller.
Once you found a motivated seller you can apply the Property Pro Investment Strategy and Program to verify if the property meets your investment objectives.
Finding Motivated Sellers.
Finding this motivated seller becomes the most important investment activity you can ever engage in.
You must focus your time, efforts, and creativity on searching for a motivated seller first.
Personal Example.
I use this strategy and during a challenge I bought 48 properties in 94 days looking at only 8 of the properties.
What signals must you look for?
In most cases motivated sellers are the result of some personal situation, unique to that individual.
Although the specific situation may be unique to that individual, there are certain patterns to look out for and then work out how to benefit from these.
By concentrating your efforts on these highly motivated sellers you will make life much easier for yourself.
Let's look at one of the patterns.
People run into financial difficulties. People get behind in payments, cannot get out of debt, find themselves threatened by outside factors such as an uncontrolled bond-rate, lose their jobs or become one of the 84% of new business owners that will close their doors within the first three years of operation.
Usually their property was used as their security to start their business.
There are many reasons for financial difficulties, but most people revert to selling their biggest asset, their house, when times get tough.
The bad thing is that if they cannot pay their debts then they can be sequestrated.
Not only have they lost every thing financially but they will also end up with a bad credit record and over the next five years they are out of the financial race.
Most people do not have the time or the know how to look for motivated sellers and this is where www.propertyinvestments.co.za can help.
WHERE TO FIND MOTIVATED SELLERS
When one for instance enters into a home loan arrangement, financial predicament is never the forecasted intention.
Nevertheless, the average home in SA is repossessed in as little as 18 months.
Buy-and-sell motivations differ from circumstance to circumstance and at the latter end of the state of affairs described above, the motivation is to sell the money-sapping impediment as soon as possible.
However, even in situations like these, one needs to focus on the best possible tools to bring you to your current solution.
Financial cycles.
A quick overview on repossessed property shows us that this unfortunate process is the end of a financial cycle.
It starts off with a loan and sadly ends in a sale of execution to the public.
When the financier enters into the process of repossession, a letter of demand is sent to the non-paying homeowner.
When the owner of the home does not conform to the content of the demand, a summons is issued by the creditor, which leaves the homeowner 10 days to respond.
Should he fail to pay the outstanding amount or fail to enter into an appearance to defend the matter, judgment is taken against his name.
Here after a warrant of execution is issued and the property can be sold on auction.
THE SOURCE NOW, the information on the property referred to is obtained on your behalf immediately after judgment has been taken by www.propertyinvestments.co.za.
At this stage the only person that has functional foreknowledge of the pending sale in execution, is the owner of the house and it is therefore not public knowledge yet.
The public generally knows it once it is advertised to be sold in execution.
This gives you a head start on the opportunity.
In layman's terms this is called a GIVE AWAY or a BARGAIN.
Once judgment has been taken, the details of the one burdened with the loan, is submitted to the various credit bureaus where it will remain unless the homeowner satisfies the home loan by selling the property.
www.propertyinvestments.co.za is the only website in South Africa that can give you access to more than 780 properties listed the last 30 days with a verified Judgments against them.
You can also visit www.propertyonauction.co.za if you want to get an insider’s look at what properties in South Africa will come on Auction over the next month.
Number of Auctions listed the last 30 days: 1866
Warning to all Property Pro Investors.
Do not think just because you can get a property at less than the banks valuation that it is a bargain.
Do the calculations using the Property Pro Investment Strategy and Program before you make an offer.
Wednesday, August 8, 2007
Is the house price party over?
If you look at the latest Absa House Price Index which shows month on month house price growth for July 2007, you will find it at the lowest recorded level for seven years.
According to Absa the 0.5% increase from June to July 2007 is the smallest increase since September 1999.
First negative real house price growth this century
With the inflation rate pushing through the 6% level it has resulted in the first negative real house price growth in years.
What this means is that for the first time since 1999, after adjusting for inflation, the value of the average house has actually decreased slightly over the last month.
There are a number of reasons why, and the most talked about one at the moment is the new National Credit Act. Many economists are blaming the Act, but according to Absa senior economist Jacques du Toit, the slower growth is “mainly the result of higher interest rates.”
It’s been some time now since interest rates were gradually raised and there was not much effect to begin with. But now it’s adding up, along with high inflation, and the effects are starting to show.
Du Toit believes it is still too early to determine what influence the National Credit Act (NCA) is having on prices. We know there are admin backups and we know that more bond applications are being rejected due to the Act, so chances are those effects will also start filtering through.
What does this latest news mean?
It means that if you have invested in property without knowing how to do the calculations it may be time for you to start worrying. If you bought planning to sell (speculation), hoping prices would go higher, and if you cannot afford to hold onto your property with the higher interest rates, and if you then have to sell, you may find fewer buyers and you may not get your price. You could lose money.
Why do I not believe in property speculation? Because it is a gamble. You buy in the expectation that prices will rise and that interest and inflation will not. You have no way of knowing what will happen, and so you are taking a chance. For the past five years, since mid-2002, prices have risen – to begin with spectacularly, more recently less so. But now for the first time since September 1999, they are almost static.
Where does this leave the property investor who invested according to the Property Pro method?
* In this case, you know you do not make your money when you sell. You always make your money when you buy. In fact a true investor seldom sells. So you didn’t buy in the hope of selling even higher. You bought because the sums made sense and the income more than covers your expenses. So you’re not worried.
* You also know that income is more important than capital and you know how to do the worst case calculations and how to apply the Mercedes Principle. You would have done the worst case calculations and decided that you would still be okay.
This means that if you invested according to the Property Pro method you have the peace of mind of knowing that whatever the market does, it is not going to affect you too badly.
On the other hand, if you did NOT follow this strategy you may be in for a rude awakening if you built your hopes and dreams on capital growth and then went out on a limb, financially.
So you can see that the current conditions may work for you or against you, depending on what kind of investor you are. There are three types when it comes to capital growth.
1. “Investors” who buy in order to sell and in doing so make a capital gain. This group is also called speculators.
2. “Investors” who develop land and in doing so depend on capital growth to earn a living. (and make investments)
3. The third group of “investors” follow a system where you buy to hold, but use the capital gains to increase their capital base and sometimes even their standard of living.
The phantom of capital gains
For the last twenty years I have taught people that if you build your wealth on capital gains you are going to get a lot of nasty surprises.
I have personally experienced the reality of capital gains: it is just a phantom gain.
Capital gains happen when the markets gets emotional and starts pushing the prices upwards but it can literally disappear overnight when the mood changes and confidence drops.
It does you no good to have R1 000 000 on paper when you cannot sell the property to turn the paper money into liquidity. I have seen this happen in 1984, 1987 and again in 1998-9.
This very week several of my students, by making use of www.propertyinvestments.co.za, bought property for less than 50% of the bank’s valuation. (By the way – do you know that last month alone there were 1602 properties (with judgements) listed on www.propertyinvestments.co.za – the only website in South Africa where you can find real property bargains?)
Is it good value at half the price? You can’t tell without doing the calculations
Now just because you get a property for half the bank’s perceived value does not mean it is a good investment ... you still have to do the calculation the Property Pro way.
So the question is – who really knows what a property is worth? If you buy a property the bank says is worth R800 000 for R400 000, then who is right about what it is worth? You? Or the bank?
Of course the bank is really just following the crowd in the first place because their valuation is based on what they think they could sell it for.
The only unemotional valuation
That’s why I teach my property students to do the calculations. You base the value of the property on what it brings in. That is the only unemotional measure, in the end.
For the last five years I have said that serious investors can’t wait for the interest rate to rise simply because the real property investment jewels will only show in “bad” times.
When everyone else is getting out of property ... that’s the time to get in
If I look at what is happening now, true property investors may be in the pound seats if the interest rate goes up another 2% (especially if it is a slow increase over a long period of time, as the interest rate hikes have been over the past year or so) and if the banks are forced to apply legislation according to the National Credit Act.
To summarize: if you are a property investor and you invest according to the Property Pro Investment method, the timing may soon be ideal for you to buy.
If not – I would suggest you get on the course as soon as possible because you are going to need all the advice and strategies I teach if the market turns against you.
What if the market does not do what I think it might do? Well, you will still be in the pound seats simply because you know how to invest! Property Pro Investors know how to make money in “good” and “bad” times.
According to Absa the 0.5% increase from June to July 2007 is the smallest increase since September 1999.
First negative real house price growth this century
With the inflation rate pushing through the 6% level it has resulted in the first negative real house price growth in years.
What this means is that for the first time since 1999, after adjusting for inflation, the value of the average house has actually decreased slightly over the last month.
There are a number of reasons why, and the most talked about one at the moment is the new National Credit Act. Many economists are blaming the Act, but according to Absa senior economist Jacques du Toit, the slower growth is “mainly the result of higher interest rates.”
It’s been some time now since interest rates were gradually raised and there was not much effect to begin with. But now it’s adding up, along with high inflation, and the effects are starting to show.
Du Toit believes it is still too early to determine what influence the National Credit Act (NCA) is having on prices. We know there are admin backups and we know that more bond applications are being rejected due to the Act, so chances are those effects will also start filtering through.
What does this latest news mean?
It means that if you have invested in property without knowing how to do the calculations it may be time for you to start worrying. If you bought planning to sell (speculation), hoping prices would go higher, and if you cannot afford to hold onto your property with the higher interest rates, and if you then have to sell, you may find fewer buyers and you may not get your price. You could lose money.
Why do I not believe in property speculation? Because it is a gamble. You buy in the expectation that prices will rise and that interest and inflation will not. You have no way of knowing what will happen, and so you are taking a chance. For the past five years, since mid-2002, prices have risen – to begin with spectacularly, more recently less so. But now for the first time since September 1999, they are almost static.
Where does this leave the property investor who invested according to the Property Pro method?
* In this case, you know you do not make your money when you sell. You always make your money when you buy. In fact a true investor seldom sells. So you didn’t buy in the hope of selling even higher. You bought because the sums made sense and the income more than covers your expenses. So you’re not worried.
* You also know that income is more important than capital and you know how to do the worst case calculations and how to apply the Mercedes Principle. You would have done the worst case calculations and decided that you would still be okay.
This means that if you invested according to the Property Pro method you have the peace of mind of knowing that whatever the market does, it is not going to affect you too badly.
On the other hand, if you did NOT follow this strategy you may be in for a rude awakening if you built your hopes and dreams on capital growth and then went out on a limb, financially.
So you can see that the current conditions may work for you or against you, depending on what kind of investor you are. There are three types when it comes to capital growth.
1. “Investors” who buy in order to sell and in doing so make a capital gain. This group is also called speculators.
2. “Investors” who develop land and in doing so depend on capital growth to earn a living. (and make investments)
3. The third group of “investors” follow a system where you buy to hold, but use the capital gains to increase their capital base and sometimes even their standard of living.
The phantom of capital gains
For the last twenty years I have taught people that if you build your wealth on capital gains you are going to get a lot of nasty surprises.
I have personally experienced the reality of capital gains: it is just a phantom gain.
Capital gains happen when the markets gets emotional and starts pushing the prices upwards but it can literally disappear overnight when the mood changes and confidence drops.
It does you no good to have R1 000 000 on paper when you cannot sell the property to turn the paper money into liquidity. I have seen this happen in 1984, 1987 and again in 1998-9.
This very week several of my students, by making use of www.propertyinvestments.co.za, bought property for less than 50% of the bank’s valuation. (By the way – do you know that last month alone there were 1602 properties (with judgements) listed on www.propertyinvestments.co.za – the only website in South Africa where you can find real property bargains?)
Is it good value at half the price? You can’t tell without doing the calculations
Now just because you get a property for half the bank’s perceived value does not mean it is a good investment ... you still have to do the calculation the Property Pro way.
So the question is – who really knows what a property is worth? If you buy a property the bank says is worth R800 000 for R400 000, then who is right about what it is worth? You? Or the bank?
Of course the bank is really just following the crowd in the first place because their valuation is based on what they think they could sell it for.
The only unemotional valuation
That’s why I teach my property students to do the calculations. You base the value of the property on what it brings in. That is the only unemotional measure, in the end.
For the last five years I have said that serious investors can’t wait for the interest rate to rise simply because the real property investment jewels will only show in “bad” times.
When everyone else is getting out of property ... that’s the time to get in
If I look at what is happening now, true property investors may be in the pound seats if the interest rate goes up another 2% (especially if it is a slow increase over a long period of time, as the interest rate hikes have been over the past year or so) and if the banks are forced to apply legislation according to the National Credit Act.
To summarize: if you are a property investor and you invest according to the Property Pro Investment method, the timing may soon be ideal for you to buy.
If not – I would suggest you get on the course as soon as possible because you are going to need all the advice and strategies I teach if the market turns against you.
What if the market does not do what I think it might do? Well, you will still be in the pound seats simply because you know how to invest! Property Pro Investors know how to make money in “good” and “bad” times.
Friday, August 3, 2007
Is capital appreciation better than a positive income return?
There are two different ways to look at property investments and it depends on what you’re looking for.
Say you want to retire without taking a lifestyle or pay cut, then you're going to need some kind of passive income, to replace your salary.
This is possible by converting your capital appreciation into a series of payments to yourself - but once you've spent this gain, then it is gone forever.
You become dependent on further capital appreciation which is by no means certain. You make an assumption that the market will continue to rise fast enough to cover the payments you require.
However, positive income returns regenerate, which means they may continue indefinitely.
Yes, tenants will come and go and there may be times when your property will be vacant, but generally speaking your passive income stream is not limited.
Wealth Creators place a higher value on income than capital
If you want to make money in real estate to create degree of financial independence, so that you are no longer dependent on a job, then it makes sense to focus on positive income returns rather than capital appreciation.
One reason is that you do not eat up all your capital, i.e. the entire asset.
Another is that positive monthly rental income is extremely liquid! You can take it straight off to the shop to pay your grocery bills, whereas there is no ‘capital appreciation debit card' that gives you immediate access to funds.
Best to have a win-win situation – capital and income
Ideally you should have both capital appreciation and positive income. But opportunities offering this can be more difficult to find, especially at present.
Horses for courses
It's fair to say that different property investments offer the potential for different types of returns.
Some are specifically designed for capital appreciation and focus on location irrespective of cash flow returns. At the other end of the spectrum are investments that offer high cashflow returns but no or low prospects for capital gains.
You can only determine what property you should buy after you've clarified what outcome you're working towards.
Income and independence
Say for example your goal is to work less now, then you would not buy a negatively geared property that is designed to lose money – because you’d have to work harder than ever, to pay for the loss. Instead you would focus on properties that deliver an ongoing positive cashflow, since that is what you'd need to replace your salary and fund the lifestyle you deserve.
Once you have clarified the outcome you require, then the Property Pro Program (visit www.propertyschool.co.za for more information) becomes vital. Without it, it is almost impossible to measure the risk and return on any kind of property deal. You simply cannot factor in the 27 variables that affect the investment.
Final thought …
Property is not the only investment that can generate passive income.
If you own a business which is managed reliably by someone else and it is generating a healthy profit (more than the running costs) then that is another way to access passive income. The nature of the investment could be anything from a business to a bank deposit to a life policy.
The amount of passive income you receive, however, will vary greatly depending on which type of investment you choose. In some cases, with some retirement products, it is simply impossible to generate enough passive income to live on – no matter what the salesman tells you (go to www.retirequickly.co.za for more revelations about conventional retirement products).
Enough passive income – in other words, the levels that can realistically be achieved with property investments - improves your standard of living and may replace your normal source of income. If the investment is sound and maintained, there is every reason to expect your passive income to last your entire lifetime, and your children’s lifetimes as well – if not longer!
Say you want to retire without taking a lifestyle or pay cut, then you're going to need some kind of passive income, to replace your salary.
This is possible by converting your capital appreciation into a series of payments to yourself - but once you've spent this gain, then it is gone forever.
You become dependent on further capital appreciation which is by no means certain. You make an assumption that the market will continue to rise fast enough to cover the payments you require.
However, positive income returns regenerate, which means they may continue indefinitely.
Yes, tenants will come and go and there may be times when your property will be vacant, but generally speaking your passive income stream is not limited.
Wealth Creators place a higher value on income than capital
If you want to make money in real estate to create degree of financial independence, so that you are no longer dependent on a job, then it makes sense to focus on positive income returns rather than capital appreciation.
One reason is that you do not eat up all your capital, i.e. the entire asset.
Another is that positive monthly rental income is extremely liquid! You can take it straight off to the shop to pay your grocery bills, whereas there is no ‘capital appreciation debit card' that gives you immediate access to funds.
Best to have a win-win situation – capital and income
Ideally you should have both capital appreciation and positive income. But opportunities offering this can be more difficult to find, especially at present.
Horses for courses
It's fair to say that different property investments offer the potential for different types of returns.
Some are specifically designed for capital appreciation and focus on location irrespective of cash flow returns. At the other end of the spectrum are investments that offer high cashflow returns but no or low prospects for capital gains.
You can only determine what property you should buy after you've clarified what outcome you're working towards.
Income and independence
Say for example your goal is to work less now, then you would not buy a negatively geared property that is designed to lose money – because you’d have to work harder than ever, to pay for the loss. Instead you would focus on properties that deliver an ongoing positive cashflow, since that is what you'd need to replace your salary and fund the lifestyle you deserve.
Once you have clarified the outcome you require, then the Property Pro Program (visit www.propertyschool.co.za for more information) becomes vital. Without it, it is almost impossible to measure the risk and return on any kind of property deal. You simply cannot factor in the 27 variables that affect the investment.
Final thought …
Property is not the only investment that can generate passive income.
If you own a business which is managed reliably by someone else and it is generating a healthy profit (more than the running costs) then that is another way to access passive income. The nature of the investment could be anything from a business to a bank deposit to a life policy.
The amount of passive income you receive, however, will vary greatly depending on which type of investment you choose. In some cases, with some retirement products, it is simply impossible to generate enough passive income to live on – no matter what the salesman tells you (go to www.retirequickly.co.za for more revelations about conventional retirement products).
Enough passive income – in other words, the levels that can realistically be achieved with property investments - improves your standard of living and may replace your normal source of income. If the investment is sound and maintained, there is every reason to expect your passive income to last your entire lifetime, and your children’s lifetimes as well – if not longer!
What do you mean when you say “property will give you a passive income” or residual income?
Income is money you earn from an investment you have made or work that you have done.
Active income is money that you earn on a one to one basis, in other words, one unit of work earns one unit of money. So, one month of employment earns you one month’s salary. The next month you start again and there is no end in sight because you always start each new payment cycle at R0. This makes you very dependent on your job – you are always just one notice period (a month usually) away from trouble should that job cease. No employee is so indispensable as to be immune from this insecurity.
Passive income is the term used when the money keeps coming in even after you have stopped working for it. One unit of work leads to many units of payment – possibly infinite. Put differently, it is when you work once but continue to get paid over and over again for work you’re no longer doing.
Passive income brings financial freedom with real financial security, because you are not dependent on a boss and a job that may at any time decide they can do without you.
What is financial independence?
Financial independence means freedom from the need to have to work.
It can occur in varying degrees from partial independence (when you can take a few hours off work) to complete financial freedom (where you no longer need to work at all).
The way to attain financial independence is through acquiring passive income.
Passive income is money that flows into your pocket and is largely independent of the number of hours worked.
It needs to be emphasized that there is really no such thing as complete passive income because every Rand of passive income must flow from some kind of work or effort in the first place.
For example, while rental income might seem to be passive income, the task of finding and investing in property, together with managing the tenant, filling in tax returns etc. is anything but passive! However, Wealth Creators are prepared to put in the time and energy because it still adds up to only a fraction of normal working hours, and gives real financial security.
The word 'passive' really means avoiding being paid by the hour.
Instead you seek to do some work today and leverage off it tomorrow.
This leverage is in the form of receiving multiple payments without the need to work again.
For example, if you invest in a property with a positive cash flow, then you hope that the work involved in finding and acquiring the property will create a positive income stream that will last until you sell the property.
Work now for a lifetime of return later – that’s what it’s all about!
Active income is money that you earn on a one to one basis, in other words, one unit of work earns one unit of money. So, one month of employment earns you one month’s salary. The next month you start again and there is no end in sight because you always start each new payment cycle at R0. This makes you very dependent on your job – you are always just one notice period (a month usually) away from trouble should that job cease. No employee is so indispensable as to be immune from this insecurity.
Passive income is the term used when the money keeps coming in even after you have stopped working for it. One unit of work leads to many units of payment – possibly infinite. Put differently, it is when you work once but continue to get paid over and over again for work you’re no longer doing.
Passive income brings financial freedom with real financial security, because you are not dependent on a boss and a job that may at any time decide they can do without you.
What is financial independence?
Financial independence means freedom from the need to have to work.
It can occur in varying degrees from partial independence (when you can take a few hours off work) to complete financial freedom (where you no longer need to work at all).
The way to attain financial independence is through acquiring passive income.
Passive income is money that flows into your pocket and is largely independent of the number of hours worked.
It needs to be emphasized that there is really no such thing as complete passive income because every Rand of passive income must flow from some kind of work or effort in the first place.
For example, while rental income might seem to be passive income, the task of finding and investing in property, together with managing the tenant, filling in tax returns etc. is anything but passive! However, Wealth Creators are prepared to put in the time and energy because it still adds up to only a fraction of normal working hours, and gives real financial security.
The word 'passive' really means avoiding being paid by the hour.
Instead you seek to do some work today and leverage off it tomorrow.
This leverage is in the form of receiving multiple payments without the need to work again.
For example, if you invest in a property with a positive cash flow, then you hope that the work involved in finding and acquiring the property will create a positive income stream that will last until you sell the property.
Work now for a lifetime of return later – that’s what it’s all about!
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