Starting my buy-to-let portfolio in South Africa - Some questions

[Marno Fourie]

I have been reading, listening to podcasts, audio books, jumped on a ton of forums, asking everyone I come into contact with who is involved with real estate investments and even gone as far as to start taking some online courses on the topic - perhaps I am stuck in the "analysis paralysis" phase, or perhaps I just have these last couple of questions answered before I can go on to buy my first property in South Africa...

I have the finances in place for a deposit, but I just don't seem to know where to start.

Here are some questions that might help me clear things up:

1. How long after buying a property can one refinance and use the equity as a deposit on the next property?

2. Is it worth buying a brand new (or under development) flat/apartment off plan? (considering I can get it with no deposit and of course no transfer costs)

3. With regards to Section 13sex of the tax act - does this mean I need to own at least 5 NEW units, or can I benefit from this as long as one of the five properties is a newly built unit?

4. Should I first establish a trust (or legal entity) of some kind as a foundation to buy all my future properties in its name? Or is it better to do it in my personal name?

5. Any advice or resources that you can share for finding local auctions or properties under market value? Or should I first focus on buying a "safer/non fixer upper" property at market value to gain some experience and build up a team of contractors, before heading in this direction?

Any help would be greatly appreciated!

[Willem Botha]

Hi Marno

My opinion, 

1) You mentioned that you have a deposit ready, the banks in SA have a very strange way to look at investment / rental properties. In my experience you will battle to get re-financed and get your deposit back - the bank will most likely look at a 70 to 80% value only. The only way this might work quickly is if you have significant capital gain on the property. 

2) If you can get something that have a positive cash-flow from day one - it will be an excellent buy. Don't know if such deals exist these days.

4) The trust route is a good option BUT be aware of the associated costs - Banks charge more fees on trust mortgages, this initiation fee is higher and you might end up with a higher interest rate as well. If you plan to do this in a serious manner is probably is still worth the additional fees since it will be better in the long run for you. 

5) This is the most difficult part. Sheriff auctions are available online but be careful for rates and taxes or any other monies due on these. If you can find the right properties at the right price you are off to a great start. 

It does seem that you need to figure out what route you are comfortable with, what your risk tolerance is and how much time you have to do this. You, and only you know the answer to all these questions. You have to "pick" a starting point - educate yourself as much as possible on that specific approach and pull the trigger.

Good luck.