First time property investing in Cape Town – what’s the deal?

So you’re thinking of investing in your first property – everyone’s saying it’s a ‘buyer’s market’ and property ‘is the best investment’ according to many, so let’s see what we can find out about buying your first property.

I'd like one of these please...

Perhaps you’ve read a few books like Rich Dad Poor Dad, you’ve looked at some properties, maybe even put in an offer or two or you’ve already bought something. There are a lot of terms thrown around out there like ‘investing with nothing down’, ‘positive cash flow from day one’ and ’100% bonds’. I thought I’d ask an expert in the field, someone who could paint a clearer picture of property investment and most importantly, someone who could give advice on the South African market.

Jason Lee, author of Making Money Out Of Property In South Africa (this is a great book to start with if you’re keen on investing in property in South Africa, check it out here), had the following advice for us newbies in the property market.

I asked Jason about the key Rich Dad Poor Dad-type concepts, such as investing with nothing down and receiving positive cash flow from rent income from day one. He had this to say:

‘Rich Dad Poor Dad was born in America where interest rates are traditionally low and most property investments are cash flow positive from the date of transfer. With our traditionally high interest rates in South Africa it is very difficult to find properties that are cash flow positive off the bat. It is for this reason that I outline my two prong approach to investing in property in SA in my new book Fast Forward your Retirement through Property.

The two prong approach involves doing both income deals (properties that you buy on a buy-to-let basis and hold for a medium to long time frame) and capital deals (properties that you buy and sell as quickly as possible for short term profit). The profits from the capital deals are then reinvested into the income deals to reduce the gearing and make the properties cash flow positive.

I highly recommend that investors read this book to understand the two prong approach and particularly issues regarding timing the market. 100% bonds are still available but these are the exception rather than the norm. The key is to find good properties at bargain prices and present yourself correctly to the bank in your finance application. My origination team can assist investors looking to procure bonds for property deals in the correct format.’

When keeping an eye on things, one will see a lot of new development out there (the CBD, Pinelands, Maitland and Muizenberg seem to be very popular areas). They are usually advertised with benefits such as a low deposit or rental income guarantee.  Jason explains:

‘New developments are a very good option provided you buy from reputable developers and you know exactly what you will be getting for your money. Developers are under pressure to get presales in current market so a number of them are offering attractive rental guarantees and discounted prices. My advice is to buy in small developments (less than 20 units) to make sure you are not competing with hundreds of other investors trying to sell or find tenants.’

This is more like it... (for now!)

When looking into new developments I noticed a UDZ tax allowance was sometimes mentioned. Being a tax allowance I decided to look into it. A UDZ is an Urban Development Zone and there are 2 such UDZ areas in Cape Town:

• Parts of the Cape Town CBD with integrated Corridors, and CBD, East City, Salt River, Woodstock, Observatory, Maitland up to the railway bridge, Mowbray, Athlone and Gatesville
• Bellville CBD in vicinity of Voortrekker Road

Now, how will you benefit if you buy a property in one of these areas? Essentially as a tax payer you can reduce your taxable income and pay less to SARS. The incentive is like a depreciation allowance – it’s calculated on a percentage of the purchase price and is spread over a number of years. I’m not going to get too technical on this but it will be of benefit to you, so keep your eyes and ears open and if you come across a development mentioning a UDZ tax allowance look into it, the numbers could be a pleasant surprise.

But what happens if you’re not earning enough to get a bond on your own? According to Jason it’s quite simple:

‘Better to own a smaller percentage of something than 100% of nothing. I own all my properties with partners and that is why I say that property is the greatest team sport ever invented.’

In conclusion and with regards to finding good property deals Jason sums it up succinctly:

‘There are bargains everywhere depending on your price range. I prefer not to stock pick but encourage investors to look at all areas thoroughly to gauge prices and value for money.’

If you want to get serious about property (and come on now, why shouldn’t you), get your hands on one of Jason Lee’s books below, they will give you that head start you’re looking for.

Jason's first book, recommended to get you started

The new book - I'm going to get my copy now

For more advice you can visit Jason’s website at www.jasonlee.co.za. There you have it. I hope this answers some of your questions and will help you get started if you haven’t already. Good luck out there, make it happen.

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