R100 000 invested in SA property 10 years ago worth a whopping R2m today
Realestateweb community member Wayne Lee shares his investment success story.
An interesting Moneyweb article recently showed that R100 000 invested offshore ten years ago would now be worth R80 000. Clients who invested that R100 000 in South African property now have R2m!
Quite simply we took the cash and bought four sets of semis in Bez Valley. Paid between R100k and R150k. Transfer duty and deposits amounted to R25k each. Ironically top performing investments like these were redlined and deposits were required. Anyway cash flow has never been negative since inception and for this example I will assume all the rental profits were used for holidays. These semis do not go for less than R650k now, so there we go. Simple as that!
I know the analyticals are salivating at the thought of poking holes in the above so I’ll throw some defences in early. However, don’t lose sight of the fact that most of our clients who followed us still do not understand internal rate of return calculations, but they do understand their balance sheets.
1) I did use poetic license considering I have used a specific property portfolio and compared it to a general index. Outsourcing investment decisions can be risky but dealing with specialists can reduce the risk. Also sharing on the upside may be a plan. We share on the upside with our clients. If we are effective, our clients buy more.
2) Gearing is what it is, when used correctly – a fabulous leveraging tool. Doing it without good rental flow or dealing with overpriced property is risky.
3) The 10 years before the last 10 just weren’t as good! I agree. I started buying in 1993 and by 2 000 I had had virtually no growth. But I knew I was closer to the end of my bond terms which was always my aim: To have investments mainly paid by tenants giving me cash flow in 20 years. The ebb and flows of growth through inflation and macro-economics is just part of the package. I had never bought for that, but over time I know my inflationary, leveraged growth will do wonders. That is why I smile at investors analysing their investments over the last two years. They are not investors but rather speculators who missed the last little boom and are too impatient to wait for the next one.
Many of our non-clients would be thinking – that is a no-brainer. Had they been exposed to such an investment they definitely would have done it. I don’t think so. In 1999 we did 300 presentations and two people agreed. The next year our concept started to gain some traction. Interest rates had gone from 18% to 24% at the end of 1998 and fear was abundant and optimism rare. Madiba had retired and now the ANC was really going to run this country into the ground. “Will the last to leave, please turn off the lights?” was the standard joke, and 7-11 was not a convenience store – it was our exchange rate with the dollar and pound. So if you were unsure about emigrating the next best option was to get all your investments offshore.
The Perfect Storm
* Gross rentals in excess of 14% can be attained.
* Residential property is an imperfect game full of emotion which when managed allows for arbitraging.
* South African consumption from transportation to accommodation is shifting despite the banks continuing their Apartheid-based-cheap-property finance models to maintain their vehicle divisions.
* Negative sentiment following the economic crisis is high.
The reality of this missed investment opportunity must be seen in context. The negative sentiment in 1999 of the South Africans with capital was obscene, only matched by the euphoria of the desire for offshore investments. The difference in Returns on Investment is extraordinary. As Kiyosaki says, most people are led by peer pressure developed at school. If that is how your gut leads you, do your best to do the opposite to your gut. The peer pressure drives demand and drives price.
The returns of buying low and selling high are unbelievable. It’s just not that easy to do!