All Forum Posts by: Leanne Hunt

#askbp

I think this is a great idea and really practical. My question would be, how willing would you be to accept negative cash flow if the capital appreciation on your property was guaranteed?  In a complex where there is a homeowner association and where levies are payable for upkeep of lawns and tennis courts, security, etcera, it is hard to cover loan repayments each month.  Yet the demand for comfort and secure is growing, making units in enclosed estates increase in value.  Likewise with apartment blocks that offer a swimming pool, gym and doorman, for example.

There is a difference between acting in good faith for tenants who have themselves shown good faith and simply being soft. I have had several experiences of tenants defaulting after just three or four months in a flat, using elaborate excuses that usually involve death of a parent or loss of income. I used to give them the benefit of the doubt, hoping that my generosity of spirit would be reciprocated with a concerted effort to repay debt. But the reality of the market is that live to the limit of their means and it is impossible for them to find more money as time goes by. Plus, as a property owner, I don't get to skip repayments on my loan or HOA levies, so why should the rules be different for my tenants? It's tough but that's the way business works. Also, having a property manager to enforce the terms of the lease removes some of the guilt/doubt associated with pleading tenants. My role is to provide rental accommodation to people who can pay for it, not to support people who, for whatever reason, can no longer pay their bills.

Thanks for all the great input. I appreciate what Andreas says about the strategies of growth versus stability. Yes, my properties are in South Africa and we are in rather a different position from the US and Far East. I am financing properties in the region of 8.5% and 8.7% at the moment and rates are likely to rise another quarter of a percent by the middle of the year.  Not that this is as bad as it has been. Fifteen years ago, I financed my home with a 19% interest rate.  I can only envy investors who can buy  with interest rates close to zero.

What has been said here confirms my assessment that refinancing would be a mistake.  The rental market is also sluggish as people battle with debt and unemployment.  I am even holding off expanding my portfolio until I can fill some more vacant units.  The point about sitting with cash in a market where prices are inflated also makes good sense.  I'm going to sit tight until rates on this side of the world come down.

I often read that it is a good idea to refinance a property as soon as possible to release money for another deal. This makes sense when the new loan can be obtained at the same or a lower interest rate, but when interest rates have gone up it is surely inadvisable?  Rates are on the rise where I live, and although I have seen huge appreciation in my properties over the last 10 years, meaning I could refinance to release a lot of money, I would be repaying the loan at a much higher rate.  This makes it risky in terms of vacancies because I would have to meet higher mortgage payments without income, and I don't want to have to do that.  Any thoughts from experienced investors who have faced this challenge?

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Actually, the whole idea of partnering with someone worries me. To date, my investmments have not shown a good return and I am reluctant to drag anyone else into what might be for them quite a difficult commitment.  I'm trying to approach my property holdings as a business rather than a retirement plan though I guess they are essentially the latter.

Cost will have to be negotiated with the contractor, and my friend would prefer to go with a good, reputable contractor at a higher price than a cheap contractor who might rip her off — especially as she will have to manage the project remotely. What I find interesting is that, in Malawi, the contractor has to have funds of his own to take on the project, almost as if he is investing in it himself at the outset. This ensures that he doesn't run out of money and disappear, or that he isn't so cash-strapped that he is working on the edge all the time. This adds a dimension of security andmeans the project gets properly finished before she pays the full amount.

Just for interest's sake, I thought I'd share a story from Africa. A friend of mine owns a piece of land near a major city in Malawi. As she works in South Africa and seldom goes home, she has not yet developed it. Last year, however, she got word thatpeople were moving onto the land and that the chief in the area was growing impatient.  He insisted that she either sell the land or build on it, as it was becoming difficult to protect the land against squatters.

My friend has little money to invest, and building costs in Malawi are high. She has in mind to first fence the property, then lay a foundation, then build a room or two, all the time working to save for the next phase. I thought about it and concluded that it would be better to borrow a lot of money and complete a project, since she can at least earn rental on a finished house. However, it is doubtful whether the bank will loan her enough for a whole house and besides, overseeing a managing the project long distance, especially in Africa, is high risk.

Then it occurred to me that she could build lock-up storage garages. We have all heard about the floods in Malawi, and apparently, flooding is an annual event. Most houses are made of mud bricks so partially collapse when the rains come. Proper brick storage units with secure locks could provide shelter for crops, vehicles, furniture, machinery and anything else that needs to be kept while rebuilding happens. They will also bring in a good rental income and be far quicker to build than a house with all its detailed finishes.

I am keen to know if anyone else has experience with building in Africa or with lock-up storage units. As a fairly new investor and someone who does not have experience in the building trade, the logistics of a project like this are beyond me. Other than that, any useful contacts would be appreciated.

Well, this question requires some thought. I started off answering emails, which included moving an appointment to sign transfer documents for a purchase on a unit bought from a developer. Then I received an SMS from a different lawyer to say that my transfer on a different unit had been lodged at the deeds office. Midday was spent washing the dogs, shopping for groceries, ordering kitchen equipment online and doing handwork while listening to an audio book on understanding cash flow. The afternoon saw me meeting an agent at a new unit and gathering the numbers necessary for assessing the deal. I'm fairly ineperienced at calculating rate of return and such like, but regular exposure to BP helps a lot. Dipping into blog posts and reading forum posts has become a regular part of my everyday routine.

Jake, it feels odd to be saying welcome as you have been a member of BP for a lot longer than me, but welcome anyway! Your story is very inspiring. I have two daughters who are interested in real estate investing after university and I am excited for what they may be able to accomplish by starting young. I admire your courage and determination. May 2015 bring with it lots of great opportunities and learnings!