A book written for property investors

This electronic publication was specifically written to fill in the missing pieces of the puzzle – the information that so many property advisors do not discuss. A lot of property investors would already have been exposed to some form of initial investment training such as seminars, books, online discussions and the like. Yet, most investors cannot say with certainty that they purchased their investment property according to their personal criteria. Most properties are purchased against other peoples criteria. It is often heard that “because my advisor told me it is a good deal, I took it”. But was it really a good deal for the purchaser, or was it simply a good deal for the advisor?

The idea for the book came about when the author interviewed several property investors who had already attended several training seminars, investors who have read several books and investors that are part of formal investment clubs. It was found that there was a major gap in the education and knowledge of these investors. Most of these people had already purchased some sort of investment property but did not exactly know why.

This is an interesting situation as one would presume that if you are about to invest quite a bit of money in any venture, you would certainly do your homework before you simply signed on the proverbial dotted line and handed over the money. Strangely enough, this was not the case. Most people interviewed simply stated that they believed that they were doing things correctly because somebody else told them so.

In some instances these investors were fortunate enough that their investments turned out not to be the worst they could have made. Other investors did not fare so well with their advised investment choices.

“You don’t have to wait for the FOR SALE sign” was written specifically to bridge the gap left by so many seminars and books as well as training that stops short of actually showing people how to accurately and correctly evaluate an investment property. This book is for people who are genuinely interested in property investment in its true sense. The book address in a practical step by step approach, the various considerations a potential investor must take cognisance of when looking to invest in property.

This electronic publication is truly a fully comprehensive investment guide as it comes complete with all the needed documentation that is normally so difficult to find. As a property investor, you need very specific tools in your daily activities. Get these 8 critically important documents FREE when you purchase your copy of this book

"Being new to property investment, I found You don’t have to wait for the FOR SALE sign a breath of fresh air. I used the previous year to perform my property investment planning with this year being the execution phase, i.e. putting my plan into action. During the planning phase I read a number of books on property investment and although I learned a lot from them they certainly did not live up to my expectations. They go into some detail of property investment but stops short of telling one exactly how to plan, how to execute, what to look out for, i.e. it they all lack real substance. One was always left with a feeling that there should be more, there must be more.

Then I discovered Graham's little gem and thoroughly enjoyed it. It is short, concise, to the point, with a no-nonsense approach to property investment which you will not find anywhere else. True to its name, it really is "The 7 step missing guide for property investors". Here you will find real world practical information on how to set up, fine tune and execute your property investment plan with tips and tricks of the trade abound. This is highly recommended reading and should be the first book everyone reads on property investment."

Tertius Joubert

This book has been called
The 7 Step 'Missing Guide' for Property Investors
by several of its readers

This book was written by a

Property Investor who is a Certified Estate Agent
together with a
Property Investor who is a Chartered Accountant
and a
Property Investor who is a Certified Financial Planner

Editing by the author of The Ultimate South African Business Companion
who is also a property investor

The following are only extracts from chapters of the book. The actual chapters are much more comprehensive.

True property investing

Have you ever wondered why estate agents place advertisements in the various advertising papers stating “calling all investors”?

No matter which property magazine you pick up, the line “calling all investors” is always there on at least one property listed for sale. Why would you ever need all the investors? You only need one investor.

The sad fact is that the best investment property is not found in those advertisements. By the time you have read the advert, it is too late - you are competing with thousands of hopeful “investors”. Basically there are only three methods to really get to know about the great investments out there:

1. You can speak to various competent property brokers who make it their focus in life to be up to date with genuine investment property.

2. You can track potential investments yourself. This obviously involves work, time and effort otherwise there will be no need for property brokers.

3. You can make use of a combination of these two methods. This is the approach that is recommended - the best investments are not necessarily found behind the “FOR SALE” signs, the best investments are not always listed or advertised, the best investments are created by savvy investors.

Would you like to be that ONE investor? You can be, if you know what you are looking for and how to go about it.

STEP 3a:
Where do you want to buy

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

I guarantee that in no time at all you will become an expert in your chosen investment area if you only follow these steps once. Most people, including estate agents, do not even go through these couple of steps. They think it is too much effort, that it is simply something that they will not be able to do. With the tools and advice given with this book, anybody can perform these simple steps and become an expert in their chosen investment area.

You don’t necessarily have to visit each property before you decide to submit an offer to purchase. I like to buy in areas where there is a proven track record of steady growth which can be sustained. Let’s take the northern suburbs of Johannesburg. Sandton is known for being one of the financial hubs in and around Johannesburg. You do not need to buy the entire Sandton area just yet, but a good start will be if you focussed your attention on an area nearby.

If we take the areas near and surrounding the Sandton area, specifically Sunninghill and Paulshof, all we need to start is a map of the area. I simply used my Garmin MapSource software which came with the GPS to encircle an area that I would like to investigate. In this case, I chose a rough 20km² area indicated below and started to work from there.

Another very useful tool is Google Earth. Simply take the GPS co-ordinates and get a true birds’ eye view of what your target area looks like while you sit comfortably behind your computer. These Google Earth satellite pictures are not always as up to date as I would like them to be, but they do give you a good indication of what the structures and layout are for the target area.

An excellent feature is that you can zoom in and out, pan around and change your viewing angles in order to better understand what your target area looks like. These are not the only tools available but you can see that it is very powerful in gathering information by simply sitting at your computer. This is very useful as you can effectively see what the development trend is in an area if you monitor it over time.

Don’t think for one second that you cannot afford to purchase properties in any specific area. Dolf de Roos has often said “The deal of the decade is available at least once a week”. Everybody’s circumstances change all the time. We are looking for motivated sellers, and they are out there all the time. Why? Because relationships change from loving marriages to ugly separations, people get into financial difficulty, some people immigrate. There are hundreds of reasons; the fact is you only need one reason, for the deal of the decade to present itself.

Get to know some of the property sales listing values in the area. Simply search the internet using the area names that you have chosen like “Sunninghill properties for sale”. Hundreds of listings will come your way in no time. Most of them have pictures attached and a full description of the property. They would normally describe the property in further detail for instance, “two bedroom, one bathroom unit in secure complex, single carport”. There will also be articles of what is happening in the area such as a new shopping centre might be erected or that new roads are allocated in the area.
See our Free Property Investing Tools and Downloads for examples of this.

Now you have enough information to get a “feel” for the area. I recommend that you then take a drive around the area to further familiarise yourself with it. This helps me immensely as I can then picture the area where I drove very clearly. This particular area is well established, it has a lot of sectional title schemes in close proximity to each other, it has a lot of shopping facilities, office parks, recreation, hospitals, entertainment, retail and good access to roads and highways. Big corporate companies are also in the area which is very good thing as these companies do not usually want to move premises too often as this can be very costly. This means that there will be a need for housing for our prospective tenants who want to live close to their place of work.

Most of the information can be acquired using just your computer as this information is freely available on the internet. You can simply do an online search on the areas you are looking to investigate.

Area Growth

Each and every property sale in South Africa is registered in the deeds registration offices. There are several deeds registration offices namely Bloemfontein, Cape Town, Johannesburg, Kimberly, King Williams Town, Pietermaritzburg, Pretoria, Vryburg, Umtata, and Mpumalanga.

The information registered in these offices is made available to the public. In order to actually perform a comparative market analysis, you will need data sourced from the deeds registration offices. There are several search engines on the market that provide access to the deeds registration office.

From SAPTG (South Africa Property Transfer Guide), a property data website, I then sourced the following information regarding the history of the property transfer registrations in the deeds office. SAPTG’s Suburb Trends, which tracks median* property price in both high and low baskets, clearly shows constant growth for the last 5 years as can be seen in the example in the figure below. This means that property values are currently stable in the area and has predictably increased over the last couple of years. This is not the final valuation for the area but it is a good indication that we are targeting a stable investment area.

STEP 3b:
How much should you pay

There are several different ways which the value of a property is determined, but the most commonly used method to value a property is called a comparative market analysis.

The intention of a property valuation is to stipulate in clear tangible facts what the investor is actually purchasing. This should be the goal for any real estate agent dealing with investment properties.

Most real estate agents work for the seller of the property, therefore they are called "sales agents". It is the function of the sales agent to fetch as high a price for the seller as he possibly can. This also ensures that the estate agent receives the biggest commission he possibly can, which is all fair and well. The sales technique used by most sales agents is largely emotional leverage in order for you to purchase the property

I have personally never seen that the bank valuation of any property increase because of the type of bathroom tiles installed in a property. Valuations are based on several tangible factors, like latest sale values for comparative units in the area. I am also a registered and licensed estate agent, but I am focussed on the needs of the purchaser, which in my opinion is helping the purchaser make an informed decision based on the investment figures. My goal is to take the emotion out of the sale in order for investors to make an informed decision based on the facts.

Try this, next time you speak to an estate agent who is eagerly marketing you their "best investment property", just ask these few questions in order to determine who you are dealing with:

• 1. How much money am I going to make when I buy this property?
• 2. How big is the unit in m²?
• 3. What is the comparative market rental for a similar unit size in the area?
• 4. Why is this property a good investment?
• 5. Where do you prefer to buy your investment properties?

Most estate agents are normally totally confused by the first question as they do not even know why you would be asking such a thing. If the estate agent answers anything like: "It is a lovely two bedroom one bathroom unit with a spectacular view, its own garage and ........." then he/she clearly does not understand investment property.

Another tell-tale sign is the last question asked. Most estate agents tell me they have not started their investment portfolio as yet. The excuse I have personally received a number of times was "I am waiting for the right time before I start investing". This then tells me this person does not even believe in the product they are selling. By giving this answer, the agent is effectively telling me that now is not the right time to be buying property. How can you trust information from this person?

If you were purchasing shares on the stock exchange, your first question would be "how much money is this going to make me". The share broker will give you at least an average percentage growth for the last couple of weeks or months. He will also tell you to only hold onto the shares for so long and then sell to realise a profit. This is at the very minimum tangible advice with at least some sort of plan to realise profit.

This is a simple example of emotional purchases and this is why most estate agents only work for commission. If a person tells you to buy their product, but he has never used his own product and has no intention to use his own product, what does that make him?

It should be the intention of the evaluation to help clarify in real terms the investment criteria and to remove any emotion there might be with the purchase. Buying an investment property is a business deal, nothing more. If you buy it only based on your emotion, you are already in trouble.

I am not against real estate agents, not at all, I am also a registered estate agent. All I am trying to say is that if you make contact with the right team of real estate agents, you will have an endless supply of investment property. I am however biased against real estate agents that are selling homes as investment property using only the emotional tools available to them.

Initial property parameters

You need to evaluate what your personal investment criteria are before you submit an offer on the property. This section will help you understand what the impact is of changing the different investment criteria. The question you should be asking yourself the whole time is, “Will you buy this property?” If the answer is “No, I will not”, then you need to ask “What do you need to change here in order for you to purchase the property?”

The following table lists the initial investment criteria entered in order to evaluate the potential purchase:

As can be seen, you will have to make some assumptions in order to get an understanding of what the potential investment figures look like. Remember the idea at this point in time is not to be as accurate as possible. The point of this exercise is to evaluate if this is your type of property investment.

Now is the time to play around with the different scenarios in order to gain an understanding of what your specific investment criteria could be. Over time, your investment criteria could obviously change, remember that this is just a starting point.

The figures entered here are projected into different calculations as can be seen in table below. The income statement is projected for the monthly income and expenses.

Note: These values are calculated using the Property Evaluation Spreadsheet made available when the book is purchased.

Comparing the proposed price of R8730/m² to be paid for the 63m² unit, it is still below the maximum of R9127/m². R8730/m² is also between the average and the median prices paid over the last two years. Whatever your criteria are, these figures are only here to assist you in making your decisions.

When we look at the initial purchase criteria, which will obviously change as we get more information, this property will reach a break even point in year 8. Most importantly, you need to remember that this is only the first evaluation of the figures. As you investigate the purchase, you will adjust these figures to suit an outcome you are willing to accept.

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

Conditions precedent: Due Diligence and Approval Clauses

The sales agreement / “offer to purchase” is a written and signed agreement whereby the seller agrees to sell a property to the purchaser at an agreed purchase price. This agreement is a legal binding document once singed by both the seller and the purchaser so take care of what you sign. Once you have signed the offer to purchase, the seller can hold you responsible to perform to what was agreed to in the offer.

It is not necessary to be overly technical with regard to contracts, but it is a very good idea to familiarise yourself with some of the aspects of contracts. Contracts are written in a language all their own and some of them can get extremely confusing. Legalese need not be painful, in most cases, it is actually just a higher form of English. Just read a contract slowly and at your own pace. If you really do not understand what the writer is trying to say, contact an attorney who will be able to clarify the detail. No matter what, be sure that you understand the contents of the contract and more importantly, be sure to understand what the consequences of not keeping to the contract conditions are, before you commit to a sale.

In all the offers that I submit, a conditions precedent clause is added to it. Due diligence is a phrase meaning “the needed investigation” that will prove that the property is worth purchasing. These are four simple paragraphs which enables you the purchaser to take two weeks to investigate the property and at the end of the two weeks, if you determine that the purchase price is too high, or that the property expenses are not suitable to you, or if you just feel that the deal is not for you, you can simply walk away from the deal as this is clearly stipulated in the sales agreement.

The conditions precedent clause is available in the Offer to Purchase document when you purchase the tools.

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