Most people, when thinking about property investing, think about one thing: rental income. But according to Milan Milosevic, a serial property investor, there are up to 20 different strategies to skin the property cat.
Milosevic recently held a free property workshop at the Southern Sun Cape Sun Hotel in Cape Town. One thing you have to know about these free workshops: 11 times out of 10 it’s a teaser event to get you to come to a paid event. They issue a few juicy tidbits of information and the rest of the questions you’re now dying to ask? Well, you’ll have to fork out some cash to get your answers.
But if you go in with some common sense, you can pick up a few things. Like all the right questions to ask. But first, some juicy tidbits. Milosevic, originally from Serbia but married to a South African woman, admitted that he first got into the property game the way most new people do: a rental property (in Pretoria). But he had a bad tenant and he lost a significant amount of money getting him out (the law always favours the tenant, apparently).
Then he spoke to some seasoned investors and discovered that flipping properties was the fastest way to amount some capital – and the best part? In some cases, it requires zero money down.
One bit of information that really pricked my ears was this: property is one of few investments where you can use other people’s money (OPM). And by other people, we mean the banks and other credit providers.
Think about it, if you go into the bank and ask them to give you a loan to buy some stocks, you’re not likely to be approved.
But go in and say you’d like to invest in property and, provided you qualify, they’ll give you, in some cases, up to 100% of the cash required.
When buying a property, Milosevic’s guiding principle is that you make your money when you buy, not when you sell. In other words, it must be a good deal from the get go – otherwise the chances of turning a profit – or making your investment worthwhile, become slim. One strategy he advises is never pay more than 70% of a property’s market value (which is based on the area and other factors), and know all the numbers going in. The latter applies particularly when purchasing a property at auction. Properties at auction can go for up to 50% less than the market value – particularly distressed properties – but some of these homes come with hidden costs. Once the auctioneer announces, “Sold!” the buyer is liable for such costs as:
All of which can erode the profit you stand to gain. It’s important to do your homework here.
This sounds counterintuitive when your goal is to make a profit. But if we want to hold true to not having to put down any money when flipping, we have to sell quickly. The only way to do that is if you’re selling a bargain.
Think 5-10% off. Milosevic also advises selling through alternative platforms, like Facebook. But remember, know your numbers. Make absolutely sure that after all the costs (which sometimes involves minor fixes and refurbishes) are counted and you walk away with cash in your pocket.
Milosevic says he hasn’t turned a profit lower than R60 000 so far, all inclusive.
When using OPM, credit cards and personal loans are welcome. This makes us nervous - credit ratings, interest rates, etc.
But, if you plan to sell quickly and pay off your loan immediately, you’re in a position to negotiate a better interest rate (and you don’t pay any interest because, ideally, it's paid before the first payment goes off).
All that said about flipping a property, and it’s just the first strategy to succeeding in property investing. Rental, despite the risk of a wayward tenant who looked good on paper, is still a viable source of passive income.The trick is to have many rental properties, Milosevic says at least eight, so if one tenant defaults, your still have seven others paying up.
One last bit of free information from Milosevic, was to find people who’ve done what you want to do, and ask them how they did it. Knowledge is power. Of course, this is where he mentions the speakers at his paid event, but look in your own networks. Perhaps an uncle of a colleague made a fortune investing in property. Reach out to that uncle. Not only that, the internet is full of free information. The bookstores have a whole section on investing in property. Arm yourself with the following questions, add to it, and get to work: