I PURCHASED a townhouse (100% bonds) for each of my daughters when they were young. Over the years the tenants paid off most of the bonds and the properties grew in value.
Within 10 years I was able to take out second bonds of R300 000 on each property. (New bond repayment still covered by the rental.)
I then gave each daughter a R300 000 scholarship and it cost me NOTHING!
Up to now, my tenants have also paid for my aircraft and my car.
How did I stumble across this great buy-to-let idea?
First, what is a buy-to-let property? Simply put, this is a let-able or already let property that one acquires for the sole purpose of leasing out to tenants for the sake of investment.
When I first started buying townhouses, I searched far and wide for mentors but found a dearth of teachers and educational material on the subject.
I had read Robert Kiyosaki’s book, Rich Dad Poor Dad, which helped me tremendously, but it did not give practical, local, South African property advice.
Still, I could see enough of the benefits to disregard the bad stories that I had heard about investing in property so I went ahead and took the plunge.
At the time (2001), my daughters were approaching their teens with private school fees and university fees looming. I had to face the hard facts.
A year at university costs in today’s money costs about R80 000:
• University fees R30 000
• Books, stationery R5 000
• Residence R30 000
• Pocket money R15 000
• Total R80 000
A four-year degree therefore amounts to about R320 000 in today’s money.
In keeping with what I called educated experimentation, I bought two one-bedroom townhouses in Morningside, Sandton in 2002.
I was fortunate enough to get a bargain, buying them for R130 000 each including transfer and bond costs (R50 000 less than their market value). The bank happily granted 100% bonds, so bond repayments were approximately R1 600 per month and levies R400 per month.
Both units were already let to tenants for about R2 300 per month (plus water and electricity), so the buy-to-let property formula worked well and from the first day of ownership my rental income paid the bond and levies every month.
I had my fair share of struggling with bad-paying tenants while I was still green in the market, but my rental deposits were sufficient to tide me over the humps.
Each year the rentals increased, and happily for me the bond interest rate came down, creating a very positive and increasing cashflow situation each month.
Today (nearly a dozen years after I purchased the properties) I can happily say that my eldest daughter finished a four-year arts degree at Wits University last year. My second daughter is 18 months away from finishing her four-year degree in nature conservation.
Thanks to the two buy-to-let properties, they both enjoyed the benefits of a full scholarship including tuition, residence fees, books and pocket money without their dad having to put his hand in his own pocket once!
Wait, I lie - I did pay for an attorney to register my trust back in 2002.
I now coach property investment at www.organicgrowth.co.za
*Neil Vorster is on LinkedIn.