the fastest way to become a property expert guaranteed

Graham van Zyl

www.ccaassaalliinnee.co.za

[email protected]

Don’t wait for the FFOORR SSAALLEE sign

This eBook may be sent to your friends and distributed in any

manor as long as it remains unchanged and not sold

Copyright © 2008 Graham van Zyl All rights reserved ISBN: 978-0-620-43690-8 Second Edition 2009 of 94

THE FASTEST WAY TO BECOME A PROPERTY EXPERT GUARANTEED

How to evaluate the worth of a property without leaving your desk

How much you should be paying for the property

(the difference between price and value)

How you can buy a property that does not have a FOR SALE sign

The best deals are created, not sold

How to take the emotion out of the purchase

How to purchase a property without any risk to you whatsoever

This book has been called:

The 7 Step ‘Missing Guide’ for Property Investors

by several of its readers

BY

GRAHAM VAN ZYL Financial Planner

Investment Consultant

Certified Estate Agent

with

WYNAND DU TOIT Certified Financial Planner

Editing by Lesley-Caren Johnson

Author of The Ultimate South African Business Companion

This edition specifically focuses on property investments in South Africa

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TABLE OF CONTENTS

1. Foreword.............................................................................................................................................. 4

2. Determine what it is you actually want ................................................................................................. 5

3. Investment Strategy ............................................................................................................................. 6

4. STEP 1: Goal, Identify your personal investment criteria...................................................................... 7

5. STEP 2: How to structure the deal ....................................................................................................... 8

5.1 Managing risk ................................................................................................................................... 9

6. STEP 3a: Where do you want to buy ................................................................................................. 15

6.1 Area growth.................................................................................................................................... 18

7. STEP 3b: How much should you pay ................................................................................................. 30

7.1 Property Valuation.......................................................................................................................... 30

7.2 Who and what determines the value of property............................................................................. 31

7.3 Initial area investigation .................................................................................................................. 32

7.4 Confirm the rental values in the area .............................................................................................. 36

7.5 Capital Growth................................................................................................................................ 37

7.6 LightStone Automated Valuation Report......................................................................................... 38

7.7 Cash flow ....................................................................................................................................... 44

7.8 Financial Calculations..................................................................................................................... 45

7.9 Financial Terms.............................................................................................................................. 47

7.10 How much are you prepared to pay for the property....................................................................... 49

8. STEP 4: You don’t have to wait for the “FOR SALE” sign .................................................................. 53

8.1 Sales Agreements .......................................................................................................................... 54

8.2 Submit your offer ............................................................................................................................ 57

9. STEP 5: Due Diligence ...................................................................................................................... 58

9.1 General .......................................................................................................................................... 58

9.2 Confirm Income.............................................................................................................................. 59

9.3 Confirm Expenses .......................................................................................................................... 60

9.4 Evaluate the figures and scenarios................................................................................................. 62

10. STEP 6 Confirm the sale.................................................................................................................... 63

10.1 Bond finance .................................................................................................................................. 63

10.2 The seller did not accept your offer................................................................................................. 65

10.3 STEP 7: Property Management...................................................................................................... 66

11. Emotion ............................................................................................................................................. 69

12. Property Cycles.................................................................................................................................. 69

13. Property Title Types........................................................................................................................... 70

13.1 Full Title.......................................................................................................................................... 70

13.2 Sectional Title................................................................................................................................. 71

14. Property Terms .................................................................................................................................. 73

15. Motivated sellers ................................................................................................................................ 78

16. Background........................................................................................................................................ 79

17. How money is made .......................................................................................................................... 80

17.1 Money is an Idea ............................................................................................................................ 80

18. The pie is big enough......................................................................................................................... 81

19. Bad Ideas........................................................................................................................................... 82

20. Your money is losing value ................................................................................................................ 82

21. Keep Your Credit Record Healthy ...................................................................................................... 84

22. Acknowledgements............................................................................................................................ 87

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23. Conclusion ......................................................................................................................................... 89

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1. Foreword

No matter which property magazine you pick up, the line “calling all investors” is always there on at least one

property listed for sale. Why would you ever need all the investors, you only need one investor.

The sad fact is that the best investment property is not found in those advertisements. By the time you have

read the advert, it is too late - you are competing with thousands of hopeful “investors”. Basically there are

only three methods to really get to know about the great investments out there:

1. You can speak to various competent property brokers who make it their focus in life to be up to date with

genuine investment property.

2. You can track potential investments yourself.

This obviously involves work, time and effort otherwise there will be no need for property brokers.

3. You can make use of a combination of these two methods.

This is the approach that is recommended. The best investments are not necessarily found behind the “FOR

SALE” signs, the best investments are not always listed or advertised, the best investments are created by

savvy investors.

Would you like to be that ONE investor? You can be, if you know what you are looking for and how to go

about it.

This electronic publication was specifically written to fill in the missing pieces of the puzzle – the information

that so many property advisors do not discuss. A lot of property investors would already have been exposed to

some form of initial investment training such as seminars, books, online discussions and the like. Yet, most

investors cannot say with certainty that they purchased their investment property according to their personal

criteria. Most properties are purchased against other peoples criteria. It is often heard that “because my

advisor told me it is a good deal, I took it”. But was it really a good deal for the purchaser, or was it simply a

good deal for the advisor?

The idea for the book came about when the author interviewed hundreds of property investors who had

already attended several training seminars, investors who have read several books and investors that are part

of formal investment clubs. It was found that there was a major gap in the education and knowledge of these

investors. Most of these people had already purchased some sort of investment property but did not exactly

know why.

This is an interesting situation as youwould presume that if you are about to invest quite a bit of money in any

venture, you would certainly do your homework before you simply signed on the proverbial dotted line and

handed over the money. Strangely enough, this was not the case. Most people interviewed simply stated that

they believed that they were doing things correctly because somebody else told them so.

In some instances these investors were fortunate enough that their investments turned out not to be the worst

they could have made. Other investors did not fare so well with their advised investment choices.

“You don’t have to wait for the FFOORR SSAALLEE sign: The 7 Step ‘Missing Guide’ for Property Investors” was

written specifically to bridge the gap left by so many seminars and books as well as training that stops short of

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actually showing people how to accurately and correctly evaluate an investment property. This book is for

people who are genuinely interested in property investment in its true sense. The book address in a practical

step by step approach, the various considerations a potential investor must take cognisance of when looking to

invest in property.

2. Determine what it is you actually want

When I ask people how much money they want to make, they often say “I want to make as much money as

possible”. My next question is how much are you willing to risk, to get what you want? The answer is “As little

as possible”. These answers are extremely vague.

With this next question I get straight to the point when I ask “Do you know what your ideal weight is?” Most

people do not reply to my question as they normally do not want to tell other people, but the point is made. If

you intend to go on a diet to lose weight, you know exactly what your ideal weight is and it is not “as little as

possible”. There is a specific number (or rather a specific weight you would like to be) and you more often than

not know by how many kilograms you need to lose to get to that specific weight.

To take this thought process a little further, answer the following questions honestly:

• How many years should your oldest child spend in grade 10 at school?

• How much does that new car cost you want to buy?

• How many girlfriends should your husband have?

(For those in doubt, the answer should be zero)

• What would you like your salary increase to be this year?

(You obviously have a minimum number at the back of your mind that you are willing to accept)

The point is simply this, you have no problem getting very specific with almost everything in your life, but when

it comes to your finances or investment plans, you suddenly clam up and become rather vague. You leave

these important decisions to other people to help or decide for you. If other people decide for you, they might

not make the decisions you want them to make. Getting specific is good even if you only decide to buy one

investment property every 10 years. That is still better than not doing anything at all.

There are many books and media regarding goal setting. My aim here is not to dwell on this, but I do want to

leave you with one universal truth, goals must be written. Write down your goal right now, no matter what it is

and commit to it. Be realistic about your goal, this way you will not be scared of failure. Commit to your goal

by adding a penalty clause for yourself if you do not reach your target within the allocated time.

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3. Investment Strategy

Figure 3-1 The 7 Step Investment Process is an illustration of the process which should help you keep track of

what the recommended steps are when you evaluate an investment.

Figure 3-1 The 7 Step Investment Process

The entire process of property investment can seem a bit overwhelming if you look at it for the first time. There

are many new things to learn and you can get lost in the detail. In order to avoid getting caught up in too much

detail, it is always a good idea to know where you are going. Figure 3-1 The 7 Step Investment Process above

is a good visual guide to assist you through this process.

This entire section is devoted to removing the emotion from purchasing investment property. Emotion should

not have anything to do with the price of an investment property. Emotion, just adds complications. If you can

separate the emotion from the deal, then you are well on your way to becoming a proficient property investor.

If you have never purchased a property before, you are probably unsure of what you should accept as your

investment criteria. Let’s still take it one step at a time.

The process of choosing or defining your investment criteria for me is very similar to dining out. Some people

walk into a restaurant knowing exactly what their preference is or what they are going to order, in fact they

went to the specific restaurant because of the type of food they would like to have. Other people first need to

see the menu, take a little time to decide, and only then do they order their food.

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At first I initially fell into the second category. I needed to see the menu before making a decision as I did not

really know what I wanted. Now that I know exactly what I want, I no longer need a menu. In fact, when it

comes to property investments, I now ask to speak to the chef directly and create the menu for him.

If you already know your investment criteria, this evaluation process should not take you longer than an hour or

two to complete. If you do not have a clear idea as yet as to what your specific investment criteria is, this

process will however take a little longer.

Whether you have an investment criterion or not, this section will take you through the different evaluation

steps one by one and in doing so, will help you to identify what your possible investment criteria could be.

4. STEP 1: Goal, Identify your personal investment criteria

Deciding what you are going to invest in

could be a daunting task in itself. There are

so many different types of property

investments out there, each one bringing a

new flavour to the pot. You can easily get

stuck here if you start to think too much

about it. You can equate this process as

similar to choosing a stock to invest in as a

trader. The choices are almost infinite and

the investment strategies are also

seemingly endless.

Don’t lose your head here. If the truth be

told, you might already have some

background with property investment. Most

people would first purchase a property to

live in, your primary residence - that

decision would normally be very emotional,

especially if you purchased it with your life

partner.

The good thing is, if you have already purchased a home, you have some exposure to the process. If you

have not yet purchased a home to live in, this is also not a problem as we will be going through the step-by-

step process of how to purchase a property.

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There are several different types of investment property such as:

• Residential full title houses

• Residential townhouses

• Residential student housing / communes

• Residential blocks of flat

• Commercial mini factories

• Commercial office space

• Commercial retail

• Commercial showrooms

• Commercial self storage units

This list goes can go on and on….

The one thought I would like to leave you with is that the opportunity is created by you, the investor. Property

investing does not need to fit into a box. Each and every deal has the potential to be totally unique. It is up to

you to ensure you make it fit to your investment criteria.

Investment property need not be nearly as emotional as buying a home to stay in. You can take a more

analytical approach. For the purpose of this section, you will look at entry level sectional title units as these

units are abundant in South Africa.

If you later find that your choice of investment property is not entry level townhouses in security complexes, the

steps to evaluate most investment property is similar, so this will be a good base to work from.

5. STEP 2: How to structure the deal

Here you will get to deal with different

investment structures such as buying

property in your personal capacity

versus trusts and companies.

Depending on what you plan to do with

the property, whether you plan to keep

the property for as long as you can and

leave the investment to your

grandchildren’s’ grandchildren, or if you

are planning to speculate by buying for

a bargain price and try to quickly sell it

again at a higher price in order to

realise a profit. Choosing the correct

entity within which to purchase the

property into will affect your buying

strategy and the amount of tax you

could be liable to pay once the property

is operating at a positive cash flow

level or when you decide to sell the

property.

You should know why you are buying the property and plan for it accordingly. It is always a good idea to keep

at least one investment entity on file, just in case you need to move on a deal.

When I have asked people “would you like to make a couple of million rand in the next year or two?” all of them

will normally answer a resounding “Yes, I would.” My second question is “are you were willing to lose

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everything you have in order to achieve this?” All of them have answered “No, I would not like to lose

anything”.

How would you then go about ensuring that you have as little as possible risk? The answer lies in legal

structures consisting of companies, close corporations and trusts. We will be discussing the most basic of

structures and the focus is not to write a legal guide, but rather to set you on the path to helping you choose

the correct investment structures for your property or other investments.

Have you ever wondered how wealthy families keep their assets within the family for centuries, passing the

assets on from one generation to the next?

They do it by using different legal structures such as companies and trusts. Strangely they do not necessarily

own the assets directly; they simply have the means to make use of the assets as the assets are actually

owned by the various companies or trusts.

Before you embark on simply purchasing assets either in trust or company structures, I highly recommend that

you seek advice from several experts on the subject in order to understand all the benefits and implications of

working with companies and trusts.

There is nothing to fear, it is simply a subject that can get very complicated very quickly depending on who you

speak to. There are several legal and tax implications to consider, but most importantly, you need to know

how to work with the different entities. This is not difficult, but I would still recommend that you at least

understand it.

5.1 Managing risk

When you accumulate property, or any other asset which will grow significantly in value over time, it is always

important to consider the correct entity within which to place the assets. Depending on your goals, it becomes

clear that accumulating wealth in your own name might not always be the most cost effective strategy in the

long run. Let’s look at some of the considerations.

You cannot fail to acknowledge the importance of separating assets from liabilities, either during the

accumulation phase or at any other stage for that matter. This simply means that you should always try to

safeguard those assets which are unencumbered (without debt) from those which are potential liabilities (such

as bonded properties).

Why would you go through the process of setting up these structures?

You can do this in case of an unforeseen event taking place, like your partner making bad financial decisions

which could get your business into serious trouble, or when creditors strike, it is then possible to hedge your

losses considerably.

There are many myths surrounding the use of trusts, companies and close corporations for investment

purposes. You often find that even qualified professionals disagree in terms of preferred entities. It is

suggested to consider the purpose, the term, the amount of partners and the nature of the investment or

venture before you commit to a specific structure or entity.

Let’s take a closer look at some of these entities available to you.

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5.1.1 Close Corporations

A close corporation can be used to set up a business where there are normally no more than 10 members. A

close corporation is a very simple entity to establish and does not come with all of the expensive and onerous

requirements of a company. The member is effectively a shareholder and a director.

5.1.2 Companies

A company is founded in a similar fashion to a close corporation, but is a more formal structure. The

shareholders and directors are allocated and appointed separately. Here the director need not be a

shareholder and a shareholder does not need to be a director.

There are two types of companies namely a private company and a public company. A private company is

recognised by the wording “XYZ Company Name (Pty) Ltd”. A public company will not have the (Pty) section

listed in the name. In a private company, there can be up to 50 shareholders. There are normally only a few

directors appointed for the company.

A public company is the type of company that you see listed on the stock exchange. You can obviously have

thousands of shareholders for these types of companies. Companies are more strictly governed than close

corporations.

5.1.3 Most of the differences are listed in Vital Statistics

Always split your personal life from your business life, it is separate and should remain so. Make sure you

understand your needs and explain them to your consultant. Establish what you need not what you want; you

can always add more entities later.

Choose your beneficiaries carefully. Removing them could trigger taxable events, especially when the assets

are financed. Choose your partners carefully and make sure they understand their duties, interview your

administrators and make sure they note all resolutions, minutes, taxes and the company deeds.

Table 5-1 Business Entity Comparison The focus of this section is not to go into accounting and law practices

for entities but merely to highlight some of the various entities available for use.

Keep in mind that shareholding in a company and membership in a close corporation are seen as assets in

your personal estate and will thus increase the value of your estate at death, which will in turn increase the

amount of effective estate duty payable.

5.1.4 Trusts

There are a lot of misconceptions about trusts; therefore I thought it might help to go into some detail regarding

trusts. Trusts are entities, created by agreements called a trust deed and registered by a letter of authority with

the Master of the High Court.

A trust is set up by a founder who makes certain capital available to the trustees of the trust, who are in turn

tasked to manage and expand this capital for the benefit of trust beneficiaries.

The assets held in trust will not form part of the founder or trustee’s estate. A trust can also be established

without the express requirements of annual audits which make trusts a relatively inexpensive entity to manage

over time.

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• Asset Protection

A discretionary trust is a trust managed by two or more trustees using their discretion in making decisions. This

agreement by the trustees to manage the assets and possible liabilities of the trust for the benefit of the

beneficiaries separates the assets from natural persons.

This is a very effective way to separate and protect all paid up properties and assets. Resolutions, contractual

agreements and minutes are required to formalise these transactions.

5.1.5 Estate Duty

Estate duty is the taxation of wealth, form one person to another person, on death. Estate duty is payable by

any person who is a resident in the South Africa at the time of his / her death. Where your assets are located,

is irrelevant, your estate duty will be calculated on your total estate at 20%.

One of the ways to reduce estate duty is by establishing an inter vivos trust. This is simply a trust established

while you are still alive, therefore referred to as “trust of the living”. Careful planning and proper structuring of

your vital life cover is extremely important, and with the trust you can ensure that your loved ones will benefit if

they are the nominated beneficiaries.

5.1.6 Capital Gains Tax

On your death all your assets are deemed to be sold as you cannot hold onto them in death. When you leave

a property to your children, the house might have increased considerably in value from the time you originally

purchased it.

Your estate will be obliged to pay capital gains tax that could be calculated at as much as 10%.

5.1.7 Private Capacity

Most new property investors choose to purchase residential properties in their own personal name as the entry

costs are lower. Don’t forget to consider the long term effects of this decision. Careful planning is needed.

5.1.8 Risk Cover

If you are not a cash investor and will have to apply for a mortgage loan. You must be absolutely certain that

nothing will prevent you from meeting your commitments to the lending institutions. This security is normally

inexpensively available via life assurance companies who will guarantee a certain payout in the event of your

death, disability or severe illness of an insured life.

This means that even though you may not be able to work and produce income, you can still receive income or

even a large lump sum from an insurer. There are too many examples of investors who lost everything to

ignore the correct implementation of a sufficient amount of risk cover. You can even factor the cost of this risk

cover into your investment calculations right next to levies, bond payments and management fees.

The following table will give you a basic overview of the difference between the various entities one can

choose as investment holding vehicle:

5.1.9 Vital Statistics

Always split your personal life from your business life, it is separate and should remain so. Make sure you

understand your needs and explain them to your consultant. Establish what you need not what you want; you

can always add more entities later.

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Choose your beneficiaries carefully. Removing them could trigger taxable events, especially when the assets

are financed. Choose your partners carefully and make sure they understand their duties, interview your

administrators and make sure they note all resolutions, minutes, taxes and the company deeds.

Table 5-1 Business Entity Comparison

(Year = 2011) Personal Capacity Close Corporation Company Trust

Nature

All assets, liabilities,

income, expenses

and taxes are directly

connected to the

individual

A separate legal entity

is formed which can

attract rights and

obligations on its own.

A separate legal entity

is formed which can

attract rights &

obligations on its own.

A legal relationship

created by a person

(founder) through

placing assets under

control of another

person (trustee) for

the benefit of a third

person (beneficiary)

Tax Rate Sliding scale 18 - 40% 28% 28% 40%

Capital Gains Tax

Rate

Paid on 25% of gain

at marginal tax rate.

Highest rate is

therefore 10% of gain.

Paid on 50% of gain

at tax rate of 28%.

Therefore CGT is

14% of gain.

Paid on 50% of gain

at tax rate of 28%.

Therefore CGT is

14% of gain.

Paid on 50% of gain

at tax rate of 40%.

Therefore CGT is

20% of gain.

Estate Duty

All assets for a part of

the individual’s estate

and are taken into

account for estate

duty calculation.

The value of the

membership is

included in the estate

of the member.

The value of

shareholding is

included in the estate

of the shareholder.

The assets held in

trust are separate

from the estate of the

trustee in the case of

a discretionary trust.

Transfer Duty

No transfer duty on the first R500 000,

+

5% on the amount between R500 000 and R1 000 000,

+

8% on the purchase amount above

R1 000 000.

Liability of Debts

The individual is fully

responsible in his

personal capacity

As a juristic person

the CC is liable,

although the

members can become

jointly and severally

liable under certain

conditions

The company is liable

for its debts and not

the shareholders.

Usually the company

directors are required

to provide personal

securities for

company debt and

can thus be

personally liable

A trustee would need

to provide personal

surety for the liabilities

of the trust and will

personally be held

responsible if there is

insufficient trust

capital to settle debts

Although the table above gives some indication of the nature and taxability of the various entities available it is

by no means an exhaustive comparison and the decision on which entity to use should still be based on the

individual’s needs and strategy.

5.1.10 Protection against creditors

You need to protect your assets against the unfortunate and sometimes unexpected onset of creditor claims.

These claims may arise out of legal action, tax claims, divorce orders and negative market conditions such as

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rapidly increasing interest rates, which in turn causes a whole range of other challenges for the property

investor.

5.1.11 The value of planning ahead

If you’re planning to leave a legacy to future generations, it makes a tremendous amount of sense to consider

the cost of transferring assets at death. The following example should explain:

Imagine you purchased four investment properties of R500 000 each in your personal capacity. Twenty years

later the bonds are settled and the property values have increased by 8% compounded per annum, and are

now valued at R9 300 000. The following expenses would become payable on death:

Table 5-2 Estate Duty Example

Description Assets held in

Personal Capacity

Assets held in

Correctly Structured

Legal Entities

Purchase price of 4 properties R2 000 000 R2 000 000

Average annual growth rate 8% 8%

Term 20 Years 20 Years

Value at death R9 300 000 R9 300 000

Minus Executor’s fee (3.99%, VAT inclusive) - R371 070 Does not form part of estate

Minus Capital Gains Tax (10% of gain) - R730 000 Does not form part of estate

Remaining estate R8 198 930

The assets are held in

structures and do not form

part of the estate. The

value of the assets are still

R9 300 000 and growing

Less current 4A Estate duty abatement - R3 500 000 Not Applicable

Dutiable estate R4 698 930 R 0

Minus Estate duty at 20% - R939 786 R 0

Total cost of transfer R2 040 856 R 0

Remaining Asset Base R7 259 144

R9 300 000

and growing unaffected

As you can see from the example given, it clearly makes a lot of sense to plan before you purchase. The costs

to your estate would look vastly different if the properties had been purchased into a well thought out structure

consisting of companies and / or trusts.

Within these entities (if they are correctly structured and maintained), the assets such as property, does not

form part of your personal estate. If you have structured your estate correctly, you will not be liable for

executor’s fees, capital gains tax or unnecessary estate duty. The benefit of your investments could then be

enjoyed by many generations to come.

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The other factor to remember is that the R2 040 856 is payable in cash. Will you have that amount of money

available in cash? The answer to this specific problem is that some of the assets will have to be liquidated or

sold to raise the funds needed to cover the costs.

It goes to state that you will have to forgo at least one of your investment properties as a result. How is that for

a forced sale and you might not even be in financial trouble at the time! Congratulations, you have just

become a motivated seller.

• Estate Freezing

The worst news is still to come. Hold onto your dentures for this one….On your death; your estate will be

frozen. This means that your remaining family, husband or wife and the children, will not even have access to

your bank accounts or any of the funds in it.

This is not possible you say. Oh yes it is, and it happens every single day. Families are left stranded without

funds simply because they did not plan ahead. The winding up of your estate can take on average two years

or more. That is a long time without money.

If your money is held in legal structures and you have structured your estate correctly, your surviving family

who are dependant on this income, will be taken care of financially. This example is a very simplistic look at

the benefits of structuring your investment criteria. These examples are only to give you a broad overview

without getting too technical about it.

It is strongly advised that you consult with a licensed and expert financial planner that specialises in these

types of structures before you embark on your investment career. The money you will spend here will be your

best return on investment if you listen to and heed good advice.

As an astute property investor, you will follow a defined set of rules and you will take the business of property

investment seriously. You will create an abundance of capital value and passive income over time. You

should put as much effort and planning into the structure and risk planning of the investment strategy, as you

would put into choosing the correct property.

Your structure need not be as complex as any of the examples. Your structure could be as simple as only

having established a single company or trust. This will at the very least ensure that at the time of your death,

which is unfortunately the only thing we can really be sure of in the investment arena, your assets are

protected and that your estate and family is taken care of.

• Guardians Fund

By law, minor children cannot inherit in South Africa. If both parents pass away and you do not have a will and

at minimum a correctly structured testamentary trust, your assets will be liquidated and the proceeds will be

allocated to the governmental Guardians Fund. Your children will be taken care of by the government and they

will not have access to any of the funds, or what will be left of it, until they are adults.

We delve deep into all these issues mentioned above with practical examples of how the correct

use of these different entities compliment each other.

Please contact us at [email protected] or through our website www.casline.co.za

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6. STEP 3a: Where do you want to buy

The very first question you will normally

ask when it comes to purchasing property

is “where do I find good investment

properties?”

There are lots of different investment

strategies, so it stands that there are

various answers to this question. One

piece of advice is that it is recommended

that you buy in areas you are comfortable

and familiar with.

I guarantee that in no time at all you will become an expert in your chosen investment area if you only follow

these steps once. Most people do not even go through these couple of steps. With the tools and advice given

with this book, you can perform these simple steps and become an expert in your chosen investment area.

You don’t necessarily have to visit each property before you decide to submit an offer to purchase. I like to buy

in areas where there is a proven track record of steady growth which can be sustained. Let’s take the northern

suburbs of Johannesburg. Sandton is known for being one of the financial hubs in and around Johannesburg.

You do not need to buy the entire Sandton area just yet, but a good start will be if you focussed your attention

on an area nearby.

If we take the areas near and surrounding the Sandton area, specifically Sunninghill and Paulshof, all we need

to start is a map of the area. You can simply use your GPS software which comes with your device to encircle

an area that you would like to investigate. In this case, let’s chose a rough 20km² area indicated below and

start to work from there.

Graham van Zyl


[email protected]





Figure 6-1 Map view of target area

Another very useful tool is Google Earth. Simply take your GPS co-ordinates and get a true birds’ eye view of

what your target area looks like while you sit comfortably behind your computer. These Google Earth satellite

pictures are not always as up to date as you would like them to be, but they do give you a good indication of

what the structures and layout are for the target area.

An excellent feature is that you can zoom in and out, pan around and change your viewing angles in order to

better understand what your target area looks like. These are not the only tools available but you can see that

it is very powerful in gathering information by simply sitting at your computer. This is very useful as you can

effectively see what the development trend is in an area if you monitor it over time.

Graham van Zyl


[email protected]





Figure 6-2 Google Earth view

Source: www.googleearth.com

Don’t think for one second that you cannot afford to purchase properties in any specific area. Dolf de Roos

has often said “The deal of the decade is available at least once a week”. Everybody’s circumstances change

all the time.

You are looking for motivated sellers, and they are out there all the time.

Why?

Because relationships change from loving marriages to ugly separations, people get into financial difficulty,

some people immigrate. There are hundreds of reasons; the fact is you only need one reason, for the deal of

the decade to present itself.

Get to know some of the property sales listing values in your area. Simply search the internet using the area

names that you have chosen like “Sunninghill properties for sale”. Hundreds of listings will come your way in

no time. Most of them have pictures attached and a full description of the property.

These properties are normally described in detail, for instance, “two bedroom, one bathroom unit in secure

complex, single carport”. You will also be able to find articles about what is happening in the area such as a

new shopping centre might be erected or that a new road is allocated in the area.

Now you have enough information to get a “feel” for the area. You can now take a drive around the area to

further familiarise yourself with it. This helps you immensely as you can then picture the area where you drove

very clearly.

Graham van Zyl


[email protected]





The Sunninghill area is well established, it has a lot of sectional title schemes in close proximity to each other,

it has a lot of shopping facilities, office parks, recreation, hospitals, entertainment, retail and good access to

roads and highways.

Big corporate companies are also in the area which is very good thing as these companies do not usually want

to move premises too often as this can be very costly. This means that there will be a need for housing for

your prospective tenants who want to live close to their place of work.

Most of this information can be acquired using just your computer as this information is freely available on the

internet. You can simply do an online search on the areas you are looking to investigate.

6.1 Area growth

Did you know that each and every property sale in South Africa is registered in the deeds registration offices.

There are several deeds registration offices namely Bloemfontein, Cape Town, Johannesburg, Kimberly, King

Williams Town, Pietermaritzburg, Pretoria, Vryburg, Umtata, and Mpumalanga.

The information registered in these offices is made available to the public. In order for you to actually perform

a comparative market analysis, you will need data sourced from the deeds registration offices. There are

several search engines on the market that provide access to the deeds registration office.

All deeds office search engines will most likely charge you a monthly subscription fee as they in turn pay for

the use of the data. I prefer to use the services from www.LightStone.co.za. What I like about this services

provider, is that they have always found the information I needed, I have used most of the search engines

available, but not all of them give you all the detail required.

For example, in addition to the normal search results that a deeds office search will provide such as the sales

price and sales date, you can also find out

• What the current registered bond is for the property

• How many times a property has been refinanced and to what value it was refinanced to

• Which financial institution granted the bond

This is very useful information if you intend to apply for a bond as it is a record that the banks already found

value for the specific property. You can even go so far as to apply for a bond with the same financial

institution.

From LightStone, a company that specialises in data aggregation, you can then source the following

information regarding the history of the property transfer registrations in the deeds office.

LightStone provides property data which tracks median property price in both high and low baskets. The

related data clearly shows constant growth for the last 5 years as can you can see in the examples in Figure

6-7 Sunninghill Suburb Trends: Growth and Activity. This means that property values are currently stable in

the area and has predictably increased over the last couple of years.

This is not necessarily the final valuation for the area but it is a good indication that we are targeting a stable

investment area.

Graham van Zyl


[email protected]





6.1.1 LightStone Suburb Report

The following data were obtained from

www.LightStone.co.za

Note: When you subscribe to Lightstone, just mention that you have read this book

The Suburb Report is a specialized report developed for investors or homeowners looking to buy in a particular

suburb and includes the following elements:

• A map showing the suburb boundaries

• Sales Activity: A table showing the sales activity for the suburb for the last 3 months and last 12 months

respectively by:

• Transaction type (new residential sale, repeat residential sale)

• Property type (freehold, sectional title, estate)

• Price bands (<R400k, R400-800k, R800k-1.5m, R1.5-3.0m, >R3.0m)

• Bond market Activity: A table showing the bond registration activity for the suburb for the last 3 months

and last 12 months respectively by:

• Bond type (ordinary loans, further advances, switches in, total registrations, switches out)

• Institution

• Suburb Trends Analysis for the last 5 years by property type:

• Average prices

• Sales volumes

Graham van Zyl


[email protected]





Figure 6-3 Sunninghill Suburb Trends Area Map

The Suburb Details section shows a map with the outline of the suburb which assists the user in visually

referencing the area.

Graham van Zyl


[email protected]





Figure 6-4 Sunninghill Suburb Trends: Tenure of Owners

The Tenure of Owners graph depicts the tenure of ownership in the suburb and is a measure of ownership

stability.

Figure 6-5 Sunninghill Suburb Trends: Age of Residents

The Age of Residents bar graph shows the age distribution of owners in the suburb and is split into residents

and recent sellers.

Graham van Zyl


[email protected]





Figure 6-6 Sunninghill Suburb Trends: Market Stock

Graham van Zyl


[email protected]





Figure 6-7 Sunninghill Suburb Trends: Growth and Activity

The Suburb Trends graphs show the average price and total volume of sales in the suburb by property type for

the last 5 years.

Graham van Zyl


[email protected]





Figure 6-8 Sunninghill Suburb Trends: Lending by Institution

The Lending by Institution graph shows the total bonds registered by bank by year for the past 7 years in the

suburb.

Figure 6-9 Sunninghill Suburb Trends: Bond Information

Deeds Office Information *All ZAR Values in R'000

Up to Aug 2009 Last 3 Months Last 12 Months

Count % Value % Avg Count % Value % Avg

Bond data

ORDINARY LOAN

ABSA 11 16.7 10,050 16.5 914 49 18.8 38,612 16.8 788

FNB 14 21.2 14,200 23.3 1,014 42 16.2 39,172 17 933

INVESTEC 7 10.6 7,205 11.8 1,029 32 12.3 30,212 13.1 944

NEDBANK 18 27.3 17,182 28.2 955 59 22.7 50,629 22 858

OTHER 3 4.6 2,750 4.5 917 13 5 13,643 5.9 1,049

OTHER BANK 2 3 980 1.6 490 3 1.2 1,680 0.7 560

SAHL 3 4.6 1,420 2.3 473 7 2.7 3,910 1.7 559

SBSA 8 12.1 7,183 11.8 898 55 21.2 51,897 22.6 944

Total 66 100 60,970 100 924 260 100 229,755 100 884

FURTHER ADVANCE

ABSA 5 33.3 1,008 14.1 202 13 21.7 4,363 16.2 336

FNB 1 6.7 2,000 28.1 2,000 11 18.3 6,540 24.3 595

INVESTEC 2 13.3 1,100 15.4 550 6 10 3,060 11.4 510

NEDBANK 3 20 2,200 30.9 733 11 18.3 5,294 19.7 481

OTHER 0 0 0 2 3.3 2,150 8 1,075

SAHL 0 0 0 1 1.7 800 3 800

SBSA 4 26.7 820 11.5 205 16 26.7 4,708 17.5 294

Total 15 100 7,128 100 475 60 100 26,915 100 449

Graham van Zyl


[email protected]





Deeds Office Information *All ZAR Values in R'000

Up to Aug 2009 Last 3 Months Last 12 Months


SWITCH IN

ABSA 4 30.8 5,491 45.7 1,373 10 23.3 12,866 28.2 1,287

FNB 1 7.7 950 7.9 950 15 34.9 14,730 32.3 982

INTEGER 0 0 0 1 2.3 1,200 2.6 1,200

INVESTEC 0 0 0 1 2.3 1,110 2.4 1,110

NEDBANK 3 23.1 2,815 23.4 938 8 18.6 7,293 16 912

OTHER 2 15.4 967 8 483 4 9.3 5,867 12.9 1,467

SAHL 2 15.4 1,040 8.7 520 3 7 1,770 3.9 590

SBSA 1 7.7 756 6.3 756 1 2.3 756 1.7 756

Total 13 100 12,018 100 924 43 100 45,592 100 1,060

Bank Totals

ABSA 20 21.3 16,548 20.7 827 72 19.8 55,840 18.5 776

FNB 16 17 17,150 21.4 1,072 68 18.7 60,442 20 889

INVESTEC 9 9.6 8,305 10.4 923 39 10.7 34,382 11.4 882

NEDBANK 24 25.5 22,197 27.7 925 78 21.5 63,216 20.9 810

OTHER 5 5.3 3,717 4.6 743 19 5.2 21,660 7.2 1,140

OTHER BANK 2 2.1 980 1.2 490 3 0.8 1,680 0.6 560

SAHL 5 5.3 2,460 3.1 492 11 3 6,480 2.1 589

SBSA 13 13.8 8,759 10.9 674 72 19.8 57,361 19 797

Total bonds registered 94 100 80,115 100 852 363 100 302,262 100 833

SWITCH OUT

ABSA 4 30.8 2,892 28.9 723 13 30.2 8,878 28 683

FNB 1 7.7 500 5 500 4 9.3 4,104 12.9 1,026

INVESTEC 2 15.4 2,060 20.6 1,030 2 4.7 2,060 6.5 1,030

NEDBANK 2 15.4 860 8.6 430 7 16.3 4,500 14.2 643

OTHER 1 7.7 2,000 20 2,000 4 9.3 3,665 11.5 916

SAHL 0 0 0 1 2.3 1,500 4.7 1,500

SBSA 3 23.1 1,683 16.8 561 12 27.9 7,040 22.2 587

Total 13 100 9,995 100 769 43 100 31,746 100 738

BONDS CANCELLED

ABSA 0 0 0 1 50 70 41.2 70

FNB 0 0 0 1 50 100 58.8 100

Total 0 0 0 2 100 170 100 85

The Bond Information table shows the bonds registered in the suburb split into bond type (ordinary loan, further

advance and switch) and institution. The registrations for both the last 3 months and the last 12 months are

shown.

Graham van Zyl


[email protected]





Figure 6-10 Sunninghill Suburb Trends: National, Provincial and Municipal Ranking

National Ranking (Freehold): Number of suburbs: 5178

Suburb Municipality Province Rank Mean Valuation (R)

LAND EN ZEEZICHT CITY OF CAPE TOWN WESTERN CAPE 540 1,527,802

HEUWELSIG MANGAUNG FREE STATE 541 1,525,920

THE ISLANDS ESTATE LOCAL MUNICIPALITY OF MADIBENG NORTH WEST 542 1,525,842

SILVAMONTE CITY OF JOHANNESBURG GAUTENG 543 1,524,845

DUNVEGAN EKURHULENI METROPOLITAN GAUTENG 544 1,522,117

SUNNINGHILL CITY OF JOHANNESBURG GAUTENG 545 1,520,178

SCHOONGEZICHT CITY OF CAPE TOWN WESTERN CAPE 546 1,518,797

MUCKLENEUK CITY OF TSHWANE GAUTENG 547 1,517,019

ALBANY ETHEKWINI KWAZULU NATAL 548 1,516,250

GLENADRIENNE EAST CITY OF JOHANNESBURG GAUTENG 549 1,512,667

LINDEN CITY OF JOHANNESBURG GAUTENG 550 1,511,098

Provincial Ranking (Freehold): Number of suburbs: 1763


VANDERBIJLPARK CE 6 EMFULENI GAUTENG 267 1,537,857

HELDERBLOM AH MOGALE CITY GAUTENG 268 1,534,468

PINEHAVEN MOGALE CITY GAUTENG 269 1,531,131


DUNVEGAN EKURHULENI METROPOLITAN GAUTENG 271 1,522,117


MUCKLENEUK CITY OF TSHWANE GAUTENG 273 1,517,019



PATLYNN AH CITY OF JOHANNESBURG GAUTENG 276 1,511,000

NORWOOD CITY OF JOHANNESBURG GAUTENG 277 1,509,200

Municipal Ranking (Freehold): Number of suburbs: 637


BRIDLE PARK AH CITY OF JOHANNESBURG GAUTENG 169 1,555,882

DOUGLASDALE CITY OF JOHANNESBURG GAUTENG 170 1,554,879

FOURWAYS CITY OF JOHANNESBURG GAUTENG 171 1,548,420

MILLGATE FARM CITY OF JOHANNESBURG GAUTENG 172 1,540,000





PATLYNN AH CITY OF JOHANNESBURG GAUTENG 177 1,511,000

NORWOOD CITY OF JOHANNESBURG GAUTENG 178 1,509,200

MOUNTAIN VIEW CITY OF JOHANNESBURG GAUTENG 179 1,505,000

Graham van Zyl


[email protected]





National Ranking (Sectional Scheme): Number of suburbs: 1859


IFAFI LOCAL MUNICIPALITY OF MADIBENG NORTH WEST 527 722,072

ARBORETUM MANGAUNG FREE STATE 528 721,918

CONSTANTIA KLOOF CITY OF JOHANNESBURG GAUTENG 529 721,802

ROOIHUISKRAAL NORTH CITY OF TSHWANE GAUTENG 530 721,776

SCOTTBURGH CENTRAL UMDONI KWAZULU NATAL 531 721,470

SUNNINGHILL CITY OF JOHANNESBURG GAUTENG 532 718,373

MAROELADAL CITY OF JOHANNESBURG GAUTENG 533 718,194

VERMONT OVERSTRAND WESTERN CAPE 534 717,826

FOURWAYS GARDENS CITY OF JOHANNESBURG GAUTENG 535 717,338

SASOLBURG EXT 6 METSIMAHOLO FREE STATE 536 717,273

LINKSFIELD CITY OF JOHANNESBURG GAUTENG 537 716,757

Provincial Ranking (Sectional Scheme): Number of suburbs: 810


WAVERLEY CITY OF TSHWANE GAUTENG 219 724,776

MORNINGSIDE HILLS CITY OF JOHANNESBURG GAUTENG 220 724,095

GLEN ATHOLL EXT 1 CITY OF JOHANNESBURG GAUTENG 221 722,558


ROOIHUISKRAAL NORTH CITY OF TSHWANE GAUTENG 223 721,776





VANDERBIJLPARK SE 2 EMFULENI GAUTENG 228 715,614

HONEYDEW RIDGE CITY OF JOHANNESBURG GAUTENG 229 714,106

Municipal Ranking (Sectional Scheme): Number of suburbs: 341


PAULSHOF CITY OF JOHANNESBURG GAUTENG 115 728,397

BRECKNOCK AH CITY OF JOHANNESBURG GAUTENG 116 726,500

MORNINGSIDE HILLS CITY OF JOHANNESBURG GAUTENG 117 724,095

GLEN ATHOLL EXT 1 CITY OF JOHANNESBURG GAUTENG 118 722,558






HONEYDEW RIDGE CITY OF JOHANNESBURG GAUTENG 124 714,106

BERGBRON EXT 1 CITY OF JOHANNESBURG GAUTENG 125 712,857

The Suburb Ranking tables enable users to identify those suburbs most similar in average price to the subject

suburb. The ranking is provided against other suburbs in the municipality, province and country

Graham van Zyl


[email protected]





Figure 6-11 Sunninghill Suburb Trends: Transfer Information

Property Transfer Information *All ZAR Values in R'000

Last 3 Months Last 12 Months


Property Data

NEW

EST

R0 - R400000 0 0 0 1 20 400 11.2 400

R400000 - R800000 1 50 575 32.9 575 2 40 1,150 32.2 575

R800000 - R1.5mil 1 50 1,175 67.1 1,175 2 40 2,025 56.6 1,013

R1.5mil - R3mil 0 0 0 0 0 0

Greater than R3mil 0 0 0 0 0 0

Total 2 100 1,750 100 875 5 100 3,575 100 715

FH

R0 - R400000 0 0 0 0 0 0

R400000 - R800000 0 0 0 0 0 0

R800000 - R1.5mil 0 0 0 0 0 0

R1.5mil - R3mil 0 0 0 0 0 0


Total 0 0 0 0 0 0

SS

R0 - R400000 0 0 0 0 0 0

R400000 - R800000 1 20 685 9.4 685 4 44.4 3,085 29.5 771

R800000 - R1.5mil 2 40 2,245 30.9 1,123 3 33.3 3,060 29.2 1,020

R1.5mil - R3mil 2 40 4,330 59.6 2,165 2 22.2 4,330 41.3 2,165


Total 5 100 7,260 100 1,452 9 100 10,475 100 1,164

REPEAT

EST

R0 - R400000 0 0 0 1 1.3 245 0.2 245

R400000 - R800000 1 6.3 570 2.4 570 2 2.7 1,040 1 520

R800000 - R1.5mil 7 43.8 8,085 34.4 1,155 46 61.3 54,029 53.1 1,175

R1.5mil - R3mil 8 50 14,875 63.2 1,859 26 34.7 46,420 45.6 1,785


Total 16 100 23,530 100 1,471 75 100 101,734 100 1,356

FH

R0 - R400000 1 14.3 291 3.2 291 3 9.4 892 2 297

R400000 - R800000 1 14.3 725 8.1 725 3 9.4 2,025 4.5 675

R800000 - R1.5mil 3 42.9 3,815 42.4 1,272 13 40.6 16,174 36.2 1,244

R1.5mil - R3mil 2 28.6 4,160 46.3 2,080 13 40.6 25,560 57.2 1,966


Total 7 100 8,991 100 1,284 32 100 44,651 100 1,395

Graham van Zyl


[email protected]





Property Transfer Information *All ZAR Values in R'000

Last 3 Months Last 12 Months


SS

R0 - R400000 0 0 0 4 2.3 520 0.4 130

R400000 - R800000 30 75 19,393 64.9 646 118 69 77,135 61.7 654

R800000 - R1.5mil 10 25 10,503 35.1 1,050 49 28.7 47,452 37.9 968

R1.5mil - R3mil 0 0 0 0 0 0


Total 40 100 29,896 100 747 171 100 125,107 100 732

Totals Per Price band

R0 - R400000 1 1.4 291 0.4 291 9 3.1 2,058 0.7 229

R400000 - R800000 34 48.6 21,948 30.7 646 129 44.2 84,435 29.6 655

R800000 - R1.5mil 23 32.9 25,823 36.2 1,123 113 38.7 122,740 43 1,086

R1.5mil - R3mil 12 17.1 23,365 32.7 1,947 41 14 76,310 26.7 1,861


Total Transfers 70 100 71,426 100 1,020 292 100 285,542 100 978

The Transfer Information shows the number of property transfers for the suburb split into New (first time

registrations) and Repeat sales. The new and repeat data is further split into free hold (FH), sectional scheme

(SS) and Estates (EST) shown in a 3 month and 12 month view.

Please note that LightStone obtains data from a broad range of 3rd party sources and – despite the application of proprietary data

cleaning processes – cannot guarantee the accuracy of the information provided in this report. It is expressly recorded that information

provided in this report is not intended to constitute legal, financial, accounting, tax, investment, consulting or other professional advice.

LightStone reports do not contain any confidential information relating to the property owner or any owners residing in the suburb. All

bond, home loan and property registration information in the reports is from the Deeds Office where information on all property

registrations, property transfers as well as all registered bonds / home loans are kept. This is public domain information and accessible

by any person.

How to best use and analyse the data in these reports are discussed in detail in our workshops.

Note that these are workshops and not seminars.

The intent is to interact with each other and ask all the questions that are needed to get a full and

comprehensive interpretation and understanding of the data in order for you to analyse any potential

investment according to your specific investment criteria.

We work through very specific real world investment examples which include at least one commercial

and one residential property evaluation.

To attend of one of our workshops, please book through www.ccaassaalliinnee.co.za

Graham van Zyl


[email protected]





7. STEP 3b: How much should you pay

7.1 Property Valuation

There are several different ways which you

can use to determine the value of a

property. The most commonly used

method to value a property is called a

comparative market analysis.

The intention of a property valuation is to

stipulate in clear tangible facts what the

investor is actually purchasing. This

should be your goal also.

7.1.1 Estate Agents

A professional Estate Agent can add a lot of value to your transaction. Estate agents are a workforce that can

help you find many investment possibilities. You have to find someone or a team of people that you are

comfortable working with.

In most cases, it is the function of the estate agent to fetch as high a price for the seller as he possibly can.

Estate agents are paid on a commission basis which is all fair and well as he deserves to be paid for adding

value to the deal. Make sure that the estate agent you deal with also has your interests as the investor at

heart.

I have personally never seen the bank valuation of any property increase because of the type of bathroom tiles

installed in the property. Valuations are based on several tangible factors, like latest sale values for

comparative units in the area.

If an estate agent is focussed on the needs of the investor, which in my opinion is helping you as the purchaser

make an informed decision based on the investment figures, the goal should then be to help you take the

emotion out of the sale in order for you to make an informed decision based on the facts.

Try this, next time you speak to an estate agent who is marketing you an investment property, just ask these

few questions in order to determine who you are dealing with:

1. How much money am I going to make when I buy this property?

2. How big is the unit in m²?

3. What is the comparative market rental for a similar unit size in the area?

4. Why is this property a good investment?

5. Where do you prefer to buy your investment properties?

If the estate agent is confused by these questions, then he/she might not understand your specific needs as an

investor and you might want the talk to somebody you can trust to guide you with your investment property.

Graham van Zyl


[email protected]





If you were purchasing shares on the stock exchange, your first question would be "how much money is this

going to make me". The broker will give you at least an average percentage growth for the last couple of

weeks or months. He will also tell you to only hold onto the shares for so long and then sell to realise a profit.

This is at the very minimum tangible advice with at least some sort of plan to realise profit.

It should be the intention of the evaluation to help clarify in real terms the investment criteria and to remove any

emotion there might be with the purchase. Buying an investment property is a business deal, nothing more. If

you buy it only based on your emotion, you are already in trouble.

If you make contact with the right team of real estate agents, you will have an endless supply of investment

property. A professional estate agent will know his area he works in like you know your car, your spouse and

your job. An estate agent that overflows with useful information about the goings on of any given area is

definitely somebody you should talk to.

7.2 Who and what determines the value of property

When the question is asked “who and what determines the value of property”, often people say that the bank

determines the value of a property. Some say that they themselves start with the listing price or the asking

price and then work their way back from there.

The value of a property has always been primarily determined as a transaction between a willing buyer and a

willing seller. Don’t forget that the prospective seller also has the right to refuse an offer he feels is too low.

Therefore you, the buyer in association with a willing seller, determine the value of the property. The banks

are in effect insurance against this decision as they will underwrite this by confirmation of a mortgage bond, if

you applied for it.

In an established area, you have a historical record to use as reference. If you look at the information

registered in the deeds office, it gives you historical figures for the purchases that took place in the various

areas.

A historical model by itself cannot predict the future; it can only show you the past performance up until the

present day. So now you can take the historical values and you can effectively manipulate these figures by

projecting the growth in the areas to determine that the value of property should be.

The figure you achieve should obviously be close to a figure you are comfortable with. As there is a track

record, you can now substantiate your findings with facts.

Graham van Zyl


[email protected]





7.3 Initial area investigation

If you take the Sunninghill area, and you search the deeds registration offices (using www.Lightstone.co.za) for

sectional title schemes in this suburb, the result should be a list similar to this one. Not all the sectional title

schemes in Sunninghill are listed in the following example but it should give you an idea of what the process is.

List of Sectional Tiltle Schemes registered in Sunninghill

ANTIGO FALLS, SUNNINGHILL, SUNNINGHILL EXT 52

ASHLEY, SUNNINGHILL, SUNNINGHILL

BANGALORE MEWS, SUNNINGHILL, SUNNINGHILL EXT 128

BARINGO, SUNNINGHILL, SUNNINGHILL EXT 125

CEDAR VALLEY, SUNNINGHILL, SUNNINGHILL EXT 74

CLUB GRACE, SUNNINGHILL, SUNNINGHILL

DUNA MANOR, SUNNINGHILL, SUNNINGHILL EXT 21

EALINGTON, SUNNINGHILL, SUNNINGHILL EXT 156

ELMWOOD, SUNNINGHILL, SUNNINGHILL

GRACE AVENUE, SUNNINGHILL, SUNNINGHILL EXT 7

GRACE LANE, SUNNINGHILL, SUNNINGHILL EXT 7

GRACE PARK, SUNNINGHILL, SUNNINGHILL EXT 7

GRACELAND TWO, SUNNINGHILL, SUNNINGHILL

INYANGA, SUNNINGHILL, SUNNINGHILL EXT 155

KEARSNEY, SUNNINGHILL, SUNNINGHILL EXT 158

KESWICK, SUNNINGHILL, SUNNINGHILL EXT 159

LA GARITTA, SUNNINGHILL, SUNNINGHILL EXT 124

LISA PLACE, SUNNINGHILL, SUNNINGHILL EXT 2

MAROELA-JAKARANDA-PALM, SUNNINGHILL, SUNNINGHILL

SABI SANDS, SUNNINGHILL, SUNNINGHILL EXT 21

SAN LORENZA 2, SUNNINGHILL, SUNNINGHILL EXT 86

SAN VITTO, SUNNINGHILL, SUNNINGHILL EXT 67

SERENGETI SANDS, SUNNINGHILL, SUNNINGHILL EXT 102

SHIMBALI SANDS, SUNNINGHILL, SUNNINGHILL EXT 149

SINGATI SANDS, SUNNINGHILL, SUNNINGHILL EXT 130

SUNNINGHILL GATE, SUNNINGHILL, SUNNINGHILL EXT 115

THE CREST, SUNNINGHILL, SUNNINGHILL EXT 120

TUDOR ROSE LODGE, SUNNINGHILL, SUNNINGHILL EXT 76

TURKANA, SUNNINGHILL, SUNNINGHILL EXT 153

VIA AVELLANO, SUNNINGHILL, SUNNINGHILL EXT 121

VIA VERCELLI, SUNNINGHILL, SUNNINGHILL EXT 148

VILLA ROSETO, SUNNINGHILL, SUNNINGHILL EXT 131

VILLA TOBAGO, SUNNINGHILL, SUNNINGHILL

VILLA TORRE, SUNNINGHILL, SUNNINGHILL EXT 150

As an example, I could have picked any of these sectional title schemes in the area. In an effort to avoid that

the unit owners of a specific complex be inundated with phone calls from potential buyers, I have chosen not to

name a specific scheme for the example. The example will simply be stipulated as “Townhouse Complex”.

The figures used in the examples are however based on actual transactions. The information supplied by the

deeds search engine is listed below.

Note: Just to be fair, not all deeds search engines give all the correct or latest information, there are certain

search engines that have great functionality and accuracy of data while others do not.

Graham van Zyl


[email protected]





The deeds search engine provides the following information for each of the units in the scheme:

1. The sale price

2. The unit number

3. The unit size in m²

4. The calculated Rand paid per m²

5. The name of the purchaser

6. The name of the seller

7. The sale date

8. The registration date

Table: 7-1 Townhouse complex deeds office registrations

TOWNHOUSE COMPLEX, SUNNINGHILL, SUNNINGHILL

Sales Price

Unit

Size R/m2 Purchaser Seller Sale Date Transfer Date

Unit number: 1

R 510,000 96 5,312 FERREIRA CHARL DOBLE RUSSELL KEITH 2006/08/16 2006/11/16

R 350,000 96 3,645 DOBLE RUSSELL KEITH ERF 80 KELVIN CC 2003/04/10 2005/08/24

Unit number: 2

R 430,000 63 6,825 KOK AREND MOUNTJOY KEVIN 2006/01/19 2006/06/26

R 235,000 63 3,730 MOUNTJOY KEVIN ERF 80 KELVIN CC 2003/04/15 2005/08/24

Unit number: 3

R 370,000 96 3,854 HARDING CHAD ERF 80 KELVIN CC 2003/04/23 2005/08/24

Unit number: 4

R 690,000 96 7,187

BREEDT GERHARDUS

CHRISTIAAN GOVENDER PREMANATHAN 2006/05/17 2006/09/21

R 580,000 96 6,041 GOVENDER REENA ROYAL JOYCE 2005/01/13 2005/08/24

R 300,000 96 3,125 ROYAL JOYCE ERF 80 KELVIN CC 2004/11/15 2005/08/24

Unit number: 5

R 245,000 63 3,888 DAVIES PETER JOHN ERF 80 KELVIN CC 2003/04/23 2005/08/24

Unit number: 6

R 580,000 96 6,041 POONAN ASHLIN

CRABB HENRY DAVID

EDWARD 2005/08/30 2005/11/28

R 360,000 96 3,750 CRABB HENRY DAVID EDWARD ERF 80 KELVIN CC 2003/04/22 2005/08/24

Unit number: 7

R 675,000 96 7,031 NAIDOO KREAN N D DYER FAMILY TRUST 2007/10/15 2008/02/15

R 350,000 96 3,645 N D DYER FAMILY TRUST ERF 80 KELVIN CC 2003/11/15 2005/08/24

Unit number: 8

R 525,000 63 8,333

MEDICO ANTONIO FRANCO

DAL

MCCALLUM KABELO JAMES

MOKHINE 2007/03/15 2007/07/11

R 435,000 63 6,904


MOKHINE

SALZWEDEL VINCENT

SEARLE 2005/10/05 2006/01/23

R 235,000 63 3,730 SALZWEDEL VINCENT SEARLE ERF 80 KELVIN CC 2003/04/10 2005/08/24

Unit number: 9

R 630,000 96 6,562 KRIEL SPENCER CAMERON VIGLIOTTA ANTONIO 2006/05/06 2006/08/16

R 350,000 96 3,645 ABREU VANESSA SHEILA DE ERF 80 KELVIN CC 2004/04/15 2005/08/24

Unit number: 10

R 370,000 96 3,854 HARDING CHRISTINA ERF 80 KELVIN CC 2005/12/02 2006/09/20

Unit number: 11

R 235,000 63 3,730 MCNEIL KIRSTY HELEN ERF 80 KELVIN CC 2003/04/10 2005/08/24

Unit number: 12

R 712,000 96 7,416 THANTHONY KAMLANATHAN NOVEVE NOSIPHO SHEILLA 2007/10/03 2008/01/17

R 580,000 96 6,041 NOVEVE NOSIPHO SHEILLA NHLAPO NKOSANA ALFRED 2005/05/13 2006/02/06

R 450,000 96 4,687 NHLAPO NKOSANA ALFRED BAY TOWER PROP 60 CC 2004/07/01 2005/08/24

R 370,000 96 3,854 BAY TOWER PROP 60 CC ERF 80 KELVIN CC 2003/04/10 2005/08/24

Graham van Zyl


[email protected]





Not all the transfers registered for the scheme is printed in this book but the information given here should be

enough to illustrate the exercise.

• What to do with this information

Armed with this information you can now use it to see what the actual sales values are in the scheme. The

information could now simply be transferred to a spreadsheet which you can utilise to manipulate figures that

will help make sense of all of this for you.

Remember that you do not have any formal information on this scheme as yet, like sales contracts, plans or

lease agreements. You are looking down the rabbit hole in order to determine if this is a scheme you will

consider investing in., but rest assured, once you are done with this process, you will be an expert regarding

the scheme and you will also have set the ground work to becoming an expert in the area, this I guarantee.

• The number of units in the scheme

You can also see that there are 90 units registered in this scheme. This information could be very useful and

can even influence your investment strategy. The more units there are in the scheme, the better chance there

is that somebody might sell their unit.

• Who were the developers

From the sales listings, you can clearly see that the first registered owner of these sections were in fact a

company called “ERF 80 KELVIN CC”. This was obviously the company used by the developer of the scheme.

If you like, the members of this closed corporation could also be traced in order to verify who actually built this.

For your purposes here, this will however not be necessary.

The first registration date for sales from this development is shown as August 2005. All the units of a sectional

title scheme are registered simultaneously in the deeds registration office. Therefore it is fair to presume that

the developer handed these units over for occupation close to August 2005.

• Know the m²

Did you notice that all sales are listed in m²?

This is important as it is an extremely useful measurement and in fact it is a standard used worldwide. If you

get to know your average figures per m² in an area, there isn’t an estate agent, developer, seller, buyer, in fact

anybody in the real estate industry that can pull the wool over your eyes.

It is very useful to see what the last recorded sales for the previous year were, this should also give you the

highest values paid for these properties. For instance you will find out that according to the information given

in this example, you can then determine that the average sale per m² in this complex since 2007 is R7810/m².

You could also determine that the highest value paid for a property in this scheme was R9127/m².

Graham van Zyl


[email protected]





• Why you should know m²

Knowing this information allows you to determine that there are various property sizes registered. This gives

you more insight into the types of units that are in this scheme.

There are two property sizes registered according to the deeds records and they are 63m² and 96m² sized

units. You can also deduce from these statistics that the majority of the units built in this scheme could be a

two or a three bedroom townhouse and that a third of the scheme most likely consists of one or two bedroom

units. All this and you have not even visited the site as yet!

With a little more effort, you can easily refine the data even further and group the different unit types together

with their respective data. You can also take the previous year or two’s figures as this gives you better

accuracy when it comes to estimating the current values of the different property sizes within the scheme.

Table: 7-2 Townhouse Complex average sale values since 2007

Townhouse Complex average sale values since 2007

Unit Size = 63/m² 96/m² Scheme

No of Units in Complex = 30 60 90

% of Scheme = 33% 66% 100%

Average = R 7,345/m² R 6,819/m² R 7,810/m²

Median = R 8,294/m² R 7,458/m² R 7,750/m²

Max = R 9,127/m² R 8,125/m² R 9,127/m²

• Size does matter

Interestingly enough, you will also notice that larger units sell for less R/m² than smaller units. I have a theory

about this and I can assure you with all the sectional title units I have investigated, this little phenomenon is

constant. I believe that one of the factors that influence the higher sale prices of smaller units are when

potential new or even first time buyers purchase property, they obviously want the very best their money can

buy.

The larger units do sell for a higher price, but very few first time home owners investigate the R/m² of a

property, they mostly purchase purely on emotion. They see the higher priced units and aspire to live in them

one day but for now, they will accept a slightly lesser unit, they might rationalize that the property they are

looking to purchase is only one bedroom smaller.

They think they are only paying for one bedroom less, where in reality they are actually paying more per m²

every time. Therefore the sale prices of smaller units are higher per m² than that of larger units.

• Buy to Sell OR Buy to Let?

The above phenomenon goes even further in that value and capital growth for the smaller units in the scheme

grows at a higher rate than that of the bigger units because of it. If your plan is to buy for speculation, smaller

units are always the better option.

If you are buying for capital growth, then the smaller units are still the better option. If you are buying for cash

flow, your chances that the rental received is closer to the expenses, also in most cases are again better with

Graham van Zyl


[email protected]





the smaller units. This is good news for investors. Knowledge is power only if you apply it. At least now you

know this little fact. How you apply it is up to you.

• Where to apply for a loan?

In addition to the normal search results that most deeds office search engines will provide such as sales price

and sales date, LightStone will also give you all the bond registrations. This means that you can see what the

highest registered bond is for the scheme.

This is especially useful if properties have already been refinanced by the existing owners. It shows you which

financial institutions have already found value in the scheme.

This is excellent ammunition if you intend to apply for a bond as it is a record that the banks have already

found value for the specific property. You can even go so far as to apply for a bond with the same financial

institution. In fact, the banks make use of www.Lightstone.co.za technology to help them valuate properties.

7.4 Confirm the rental values in the area

This is quite simple to do. You can simply contact a couple of rental agents in the area and ask what the rental

for a two bedroom unit in and around your target property is. The rental agents will most likely give you a

standard answer of say anything between R4000 and R5000 for the type of property you are looking for.

Just keep asking and searching for answers using the internet, contacting rental agents in the area and cross

referencing your target property with similar properties. More often than not, when you simply type in the name

of your target property on a search engine, you will get quite a few listings related to the scheme.

From here you can easily see what the actual requested rentals are. Simply follow the links provided with the

listing, phone the owners or estate agents and they will gladly share information with you. One such 63m² unit

investigated was confirmed to be a one bedroom unit listed for rental of R4800.

It is recommended that you look at a “worst case scenario” when you are evaluating investment property.

Having said that, let’s look at a worst case scenario in case the landlord was too optimistic when he listed the

property for rent.

If you knock this rental down to R4500 it could be more realistic. You will confirm this figure with your

correspondence with the various rental agents in the area.

If you take the rental of R4500 for a 63m² unit, it equates to R71/m² for the rental of this unit.

Rental per m² = Unit rental divided by unit size

Rental per m² = R4500 / 63m²

Rental per m² = R71/m²

This seems fair as other investigations done for this area showed an average rental for these types of units fall

between R65/m² and R75/m². You must confirm the true rental income by comparing all the information

received from your investigations. It is also a clear example of how useful the m² comparisons can be.

Now you have the initial facts regarding this scheme, already you are an expert in the value paid per m² and

the average rental achievable in the area per m².

Graham van Zyl


[email protected]





7.5 Capital Growth

As you can see from the information obtained from the deeds office (in section 6.1 Area growth), over time the

value of property increases if the correct conditions are prevalent. You can track these figures by simply

accessing the deeds registration information available.

Good capital growth areas are normally associated with a steady stream of new development, expansion and

improvement of the existing infrastructures such as the addition of new shopping malls, road and access

infrastructure upgrading on a regular basis as well as businesses being established in the area.

All these, and a lot more factors, ensure that people want to stay near and in areas. If an area is well

maintained and it is close to everything people need and want, it is only natural that people would want to stay

there.

You can measure the capital growth in the annual average price increase for properties in the area. Usually

the average size of properties in an area does not increase dramatically but the value of the property is

perceived to be more. It is quite simply supply and demand.

As the demand goes up for certain types of properties in the area, so does the price for the properties increase

as people are willing to pay more to stay in the area.

Table: 7-3 Townhouse Complex unit 8 sales

TOWNHOUSE COMPLEX, SUNNINGHILL, SUNNINGHILL

Sales Price

Unit

Size R/m2 Purchaser Seller Sale Date Transfer Date

Unit number: 8

R 525,000 63 8,333 MEDICO ANTONIO FRANCO

DAL


MOKHINE 2007/03/15 2007/07/11

R 435,000 63 6,904 MCCALLUM KABELO JAMES

MOKHINE

SALZWEDEL VINCENT

SEARLE 2005/10/05 2006/01/23

R 235,000 63 3,730 SALZWEDEL VINCENT SEARLE ERF 80 KELVIN CC 2003/04/10 2005/08/24

If you take the specific case of unit no 8 in Townhouse complex, the developer sold the 63m² unit in 2003 for

R245 000 which equated to R3730/m². Two years later, that same unit was sold for R435 000 which equated

to R6904/m². In 2007 the same unit was sold for R525 000 or R8333/m².

If you further compare the R8333/m² with the figures averaged using the entire scheme as shown in Table: 7-2,

this initial valuation of the property seems to be fair enough.

Table: 7-4 Townhouse complex 8 sales percentages

UNIT 8: TOWNHOUSE COMPLEX, SUNNINGHILL, SUNNINGHILL

YEAR 2003 2004 2005 2006 2007 2008

Sales Price R 235 000 R 435 000 R 525 000 R582 750

R/m² R 3 730/m² R 6 904/m² R 8 333/m² R 9 250/m²

Increase from

last sale 85.11% 20.69% 11%

Accumulated

increase from

2003 123.40% 147.97%

Graham van Zyl


[email protected]





Up until 2007, the unit shows a 123% increase in price over five years. There aren’t too many other

investments that grow at this particular rate. If you further project that the average growth for the Sunninghill

area is currently calculated at 11%, simply project 11% for 2008 on top of R525 000. This then shows that you

could theoretically achieve more than R585 000 for this unit.

If you compare the example of unit 8 Townhouse Complex with the average statistics derived for the

Sunninghill area (Table: 7-2), it is clear that the specific unit number 8 in Townhouse Complex is outperforming

the average sales increases in the area.

Table: 7-5 Sunninghill average sectional title sales for the last 5 years

AVERAGE SECTIONAL TITLE SALES VALUES FOR SUNNINGHILL FOR THE LAST 5 YEARS

YEAR 2002 / 2003 2003 / 2004 2004 / 2005 2005 / 2006 2006 / 2007 2007 / 2008

Ave Sale R 380 000 R 472 000 R 550 000 R 625 500 R 675 000 R 750 000

Yearly

increase 24.21% 16.53% 13.73% 7.91% 11.11%

5 year

increase 97.37%

These steps are all designed to help you determine the true market value of a property. There are many other

factors that influence the value of property but as a guideline, these few steps, if followed, should be enough to

give you a clear idea of what the property is currently valued at.


7.6 LightStone Automated Valuation Report

LightStone is a company that specializes in property data. They have developed some very useful tools to

assist with the valuation of property. In the LightStone Automated Valuation Report, there are various items

that I am specifically interested in.

The LightStone Valuation Report is a comprehensive report that helps agents, buyers and sellers to establish

the fair value of a property. The report contains the following information (where available):

• Property details

• Title deed number

• Erf/unit details (as per the South African Deeds Registry)

• Street address details

• Erf/unit size

• Lat/long coordinates

• Owner details (as per the South African Deeds Registry)

• Valuation details

• Last sales date and last sales price

• Estimated value – a statistically generated estimate of the value of the property based on information

obtained from the Surveyor General, the Deeds Office, banks, estate agents and other sources

Graham van Zyl


[email protected]





• Safety score – the statistical probability that the property would sell for more than 90% of the

estimated value. In simple terms, the probability that the estimated value is not an over-prediction

• Accuracy score – the statistical probability that the property would sell for within 20% of the estimated

value. In simple terms, the probability that the estimated value is correct

• Expected high and expected low - the statistically generated upper and lower bound within which the

property is expected to transact

• Municipal valuation details

• Assessed rates value and date of rates valuation

• Zoning/usage of property

• Aerial/satellite image showing the property and the 15 most recent comparable sales

• A table showing the details of the 15 most recent comparable sales

• Graphs showing suburb price and volume trends

LightStone has also made it very easy to cross reference any data in connection with the specific property your

interested in. For instance, the search mechanisms to find a specific property include any of the following

information such as:

• The owners name. Any part of the name would be sufficient such as

• Only the first name or

• Only the surname or

• Only the middle name or

• ID number

If it is a legal entity, you can initiate the search by either providing the

• Company name or

• Company registration number

If you have some of the property details you can even search by providing any of the following :

• Province

• Municipality

• Deedtown

• Estate name

• Erf and/or portion

• Sectional title name

• Sectional scheme umber

• And unit number

Or if you only have a street address, you can start your search by simply providing any of the following:

• Street name

• Suburb

• And street number

Any of the above mentioned items will give you a starting point to search for any property you might be

interested in. Once you have identified and selected your target property, all the data above for your specific

Graham van Zyl


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target property will be made available. It is truly a tremendous search facility that puts unequalled power at

your fingertips.

The following are extracts from the LightStone Automated Valuation Report as an example of what information

is instantly available to you. In an effort to avoid that the unit owners of a specific complex be inundated with

phone calls from potential buyers, I have chosen not to name a specific scheme for the example. The example

will simply be stipulated as “Townhouse Complex”, further this, I have also altered a couple of the property

details in an effort to maintain a certain amount of anonymity. I do however believe that there is enough data

here to show you how easy it really is to get detailed information on any potential property.

Figure 7-1 LightStone Valuation Report: Property Details

Property Details:

Property Type: SS

Province: GAUTENG Municipality: CITY OF JOHANNESBURG

Township: SUNNINGHILL

Erf #: 1545 Portion #: 0

SS Name: SS COMPLEX SS Unit #: 8

Suburb: SUNNINGHILL Street: ENDYMION ROAD

Street #: 312

Last Sales Date: 20070315 Last Sales Price: R 525,000

Size (Registered): 63 Coordinates (Lat\ Long): -26.0126, 28.0631

Size (Cadastral): Not recorded in Deeds Registry

7.6.1 Municipal Valuation

Property rates are used by the municipality to provide services, such as roads, street lighting, storm water

infrastructure and parks, which are shared by everyone and which are not used to raise revenue. These rates

are levied in terms of a rates policy.

The rates policy determines how the various categories of property will be treated for rates and which

categories will receive rebates. The actual amount that will be paid by each property owner is determined as

cent-in-the-rand based on the value of each property as contained in the valuation roll. This is done in the city’s

annual budget.

Prior to July 2007 all levy payments were comprised of the rates and taxes of the scheme, the insurance

payment for the replacement value of the buildings and any other charges as listed by the body corporate.

Therefore the levy payment incorporated your rates and taxes amount due to city council.

City councils have now changed the manner in which rates and taxes for sectional titles are calculated and

recovered. They are now implementing individual assessments and billing for sectional title properties. It simply

means that each property will now be billed on its associated market value and not as a percentage share of

the entire scheme. Owners are now individually liable for their rates and taxes and not the scheme as a whole.

As per the Municipal Property Rates Act 2004, properties were duly valued, and should be re-valued at least

every five years, in order to take into account changes in the market value of properties. This should ensure

that the valuation roll stays up to date and that property rates are levied in a fair and equitable manner.

Graham van Zyl


[email protected]





Figure 7-2 LightStone Valuation Report: Municipal Valuation

Valuation: R500 000 Year of Valuation: 2007

Zoning/Usage: SECTIONAL TITLE

The Municipal Valuation Details are the valuation details provided by the relevant municipality and represent

the market value assessed for rates purposes as at the date of valuation. The Usage (Zoning) refers to the

purpose for which the property can be used.

Figure 7-3 LightStone Valuation Report: Valuation Details

Valuation Details:

Estimated Value: R 530,000

Safety Score: 94% Accuracy Score: 88%

Estimated High: R 620,000 Estimated Low R 470,000

Risk Quality Grade: 69 % Distressed Sales Factor: 68%

The Estimated Value is a statistically generated estimate of the value of the property based on information

obtained from the Surveyor General, the Deeds Office, banks, estate agents and other sources. It should be

seen as a guide to the value of the property only and should be used in conjunction with other factors – such

as the extent of improvement or deterioration since the last sale – to determine the fair value of the property.

The Safety Score is the statistical probability that the property would sell for more than 90% of the estimated

value. In simple terms, it is the probability that the estimated value is not an over-prediction.

The Accuracy Score is the statistical probability that the property would sell for within 20% of the estimated

value. In simple terms, it is the probability that the estimated value is correct.

The Expected High and Expected Low are the statistically generated upper and lower bounds of the range

within which the property is expected to transact. The range should be seen as a guide only and changes in

the condition of the property or area should be taken into account.

Graham van Zyl


[email protected]





Figure 7-4 LightStone Valuation Report: Aerial Photograph

The Aerial/Satellite Imagery obtained from both the relevant municipality (where available) and from Google.

Both images offer zooming and panning functionality that enables users to examine the property and the area

in detail. The municipal imagery offers measurement functionality that enables users to determine the distance

between points or the area under roof.

The municipal imagery also shows the location of the comparable sales referred to in the comparable sales

and enables accurate comparative analysis.


Figure 7-5 LightStone Valuation Report: Comparable Sales

Graham van Zyl


[email protected]





# Suburb Street Number Erf Sectional Title Unit Sales Date

Transfer Date

Sales Price

Size (m2) R/m2

1 SUNNINGHILL ENDYMION 312 1545 SS COMPLEX

20 20090519 20090911 300,000 63 4762

2 SUNNINGHILL ENDYMION 312 1545 SS

COMPLEX 36 20090518 20090820 675,000 96 7031


COMPLEX 35 20090304 20090619 580,000 63 9206


COMPLEX 32 20090115 20090325 520,000 63 8254


COMPLEX 41 20090112 20090318 570,000 63 9048


COMPLEX 38 20080922 20081209 500,000 63 7937


COMPLEX 27 20080825 20081202 710,000 96 7396


COMPLEX 54 20080819 20081120 650,000 96 6771


COMPLEX 68 20080513 20080905 500,000 96 5208


COMPLEX 28 20080406 20080623 750,000 96 7812


COMPLEX 59 20080209 20080331 575,000 63 9127


COMPLEX 61 20080114 20080425 738,000 96 7688


COMPLEX 52 20071205 20080326 725,000 96 7552


COMPLEX 77 20071018 20080222 497,000 63 7889


COMPLEX 7 20071015 20080215 675,000 96 7031

Offer to purchase Average Sales Price: R 597,667

The Comparable Sales Table shows the details of the 15 most relevant comparable sales and the Comparable

Sales Map shows where these comparable sales are in relation to the subject property.

Figure 7-6 LightStone Valuation Report: Bond Details

Bond Details:

INSTITUTION BOND AMOUNT BOND NUMBER REGISTRATION DATE

ABSA R 505,000.00 SB117753/2007 20070711

Figure 7-7 LightStone Valuation Report: Amenities

Amenities:

Amenity Suburb Distance (km)

SUNHILL CENTRE SUNNINGHILL 0.6

CHILLI LANE SHOPPING CENTRE RIVONIA ROAD 0.8

THE SQUARE SHOPPING CENTRE SUNNINGHILL SUNNINGHILL 1.1

THE CORE SHOPPING CENTRE SUNNINGHILL 1.4

CAMBRIDGE CROSSING PAULSHOF 1.9

SUNNINGHILL SHOPPING CENTRE SUNNINGHILL 2.3

PETERVALE CENTRE PETERVALE 2.5

MUTUAL MEWS RIVONIA 2.5

Graham van Zyl


[email protected]





The Amenities listing shows the closest amenities to the subject property including the suburb they are in and

distance from the subject property.

Please note that LightStone obtains data from a broad range of 3rd party sources and – despite the application of proprietary data cleaning processes –

cannot guarantee the accuracy of the information provided in this report. It is expressly recorded that information provided in this report is not intended to

constitute legal, financial, accounting, tax, investment, consulting or other professional advice.

LightStone reports do not contain any confidential information relating to the property owner or any owners residing in the suburb. All bond, home loan

and property registration information in the reports is from the Deeds Office where information on all property registrations, property transfers as well as

all registered bonds / home loans are kept. This is public domain information and accessible by any person.

www.LightStone.co.za


You can clearly see how easy it is to obtain accurate and very specific information about any subject property

you might want to investigate. Most of our clients will first search their own properties to get a good “feel” for

what the reports give them. Once they are comfortable with the data that is provided, they then start to focus

on potential investment properties.

7.7 Cash flow

You can choose to focus on the cash flow generated by the property. Properties that are cash flow positive

from the outset are more scarce and harder to find. The number of offers you will submit will most likely be a

lot more than if you only purchased properties for their capital growth.

If you take the example of unit 8 in Townhouse Complex, the rental income generated at R4500 per month will

most likely not even cover the bond repayment if you purchased the property at R585 000. Therefore if you

are looking to purchase the property at a rate equal or close to the income generated by the property, you will

definitely get more resistance from the sellers.

There is always one or two sellers that really need to sell their property and the amount they owe on the

property could be very little. In these instances, your chances of realising a sale are still good. Just know that

you will be working harder to find these bargain sales, but they are most definitely worth the effort.

In the event that you do purchase a property that is cash flow positive from day one, you also still get the huge

advantage of benefiting from the ongoing capital gain. If everybody purchased bargains all the time, the capital

gain would stagnate, but the market has always been a healthy supply of very few bargains and a lot of

property sold closer to true value. Therefore your property will increase in value by default as long as there are

only a few properties purchased at bargain rates.

Property owners are very educated these days as to the value of their property. That means that you as an

investor will have to do more work to find the bargains, but I can tell you they are out there and when you find

them, not if you find them, when you find them, the deal of the decade is always spectacular.

Graham van Zyl


[email protected]





7.8 Financial Calculations

When planning your investment property purchases, performing the necessary financial calculations are some

of the most important activities that you should be doing when evaluating investment property. For centuries it

has been clearly established that the wealthiest people in the world either found their wealth in property or they

are safeguarding and keeping their wealth by investing in property.

It is possible that some of them were lucky with a “gut feel” approach, but it is more likely that the people that

succeed are informed about their decisions. It is recommended that you also be informed about what you are

buying.

What is not always communicated as clearly is how they achieved this. Most people are afraid of taking the

first step towards investment, because of the lack of knowledge or understanding. The aim of this section is to

clarify for you what sometimes seems like complicated calculations. Here you will see that it is as simple as

can be.

• Wouldn’t you like to know how much money you will make with a specific property before you purchase

the property?

• How will that specific property investment affect your other investments in your property investment

portfolio?

• How will your investments affect your personal budget?

If you do not have the correct tools to help you calculate and answer these questions, you will most probably

never purchase investment property. I believe that all investors need to ask these questions before they

purchase a property.

With the right calculations, your task of planning your property investments is made infinitely easier. There are

many people that have written their own investment software on a spreadsheet to help them plan their financial

needs. You should know that it can get very complicated very quickly, especially if you bring refinancing into

the equation.

Most people can work out fairly easily how much the bond payment is and what the rental income is going to

be for a specific property. They add the levy payment as an expense and get a warm fuzzy feeling that the

investment is going to be a good one for them. Most of these “do-it-alone” people seem to forget a couple of

things though, like:

• How do you know if you are paying to much for the property according to your investment criteria

• Have you allowed a vacancy factor

• Do you factor in that there will be costs to maintain the property

• Are you going to manage the property yourself or are you going to pay a rental agent to provide this

service

• Have you taken inflation into consideration

• Do you know how much the property is expected to increase in value by, if at all

• Did you allow for transfer and registration costs

• Did you allow for expenses associated with refinancing the property

• Are there any capital costs, like repairs that need to be affected

• What is the rent / value / income ratios and is this acceptable

• What happens when you pay a deposit and is it worthwhile to pay a deposit

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• What is the effect on the deal when the purchase price and the bond amount is not the same

• What will the annual and monthly shortfall payments be, if any

• When does this property break even (no more shortfalls)

• When do you start to make money

• If you are planning to sell the property within a few years, what will the potential profit be

• When is the right time to refinance the property and how much should be refinanced

• What is the return on investment

You need to analyse, structure and present your offer to purchase for the property in order to get the best

results. It is of the utmost importance that every transaction is treated in a scientific and calculated manner.

If you want to succeed, you cannot simply go on your “gut feel”. You need to use calculations and software. I

have also previously done a lot of things on gut feel and I can assure you that knowing the figures for a

property you are about to purchase, makes your decision a lot more calculated.

If you do not take the time to perform your financial calculations, you will limit your growth and it is most likely

that you will not operate on a very large scale either. To buy one or two properties as an investment and to

make the calculations yourself is very easy.

However, it is often seen that people with small portfolios stagnate. They think they have reached their limit in

terms of affordability and available time. When these investors discover financial calculations through a

software tool like a Microsoft Excel spreadsheet or other software, suddenly there is no stopping them. The sky

is the limit.

In all businesses, computers and software serve to make life a lot more comfortable. Businessmen use custom

built software to help them to make thorough analyses and projections, guiding them to make the right

business decisions. Property investment is a business and should be approached like one in order to get the

maximum returns.

What are the important factors that influence your decisions as a property investor?

Here are a few:

• Bond payments

• Cash flow

• Capital growth

• Rental income

• Expenses

It would be easy to monitor these variables if youved in a world where nothing changes. However the world

seems to constantly change. Consider what you think the following effects will be on your cash flow if you only

go on gut feel.

• What happens if the interest rate goes up or you lose a tenant or the capital value of the property

decreases?

• What is the effect if some of these things happen at the same time?

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• Are you aware of the capital growth of the investment and the possibility of using that to expand your

portfolio? In other words, do you know how to implement safe and profitable refinancing in order to enjoy

the fruits of your labour in your own lifetime?

Don’t react, respond! Plan for your worst case scenario and then simply deal with the situation when it arises.

You have planned for it, so simply execute your plan.

7.9 Financial Terms

There are several financial indicators that can be used in order to determine investment criteria. You can get

very technical about the financial figures. As an investor, you purchase investment property for various

reasons, therefore there are various strategies.

You need to find your own strategy that you are comfortable with. Do not get bogged down by getting too

technical about things. Once you have determined your own investment criteria, simply evaluate your

investment options and go from there.

There is an expression called “Analysis paralyses” and it applies to you if you over analyse situations to the

point that you will most likely not commit to an endeavour. These terms are stated here in order to help you

understand the process and the mindset needed to evaluate an investment property. They are not intended to

be the “be all and end all” when it comes to property investment evaluation. Please keep these words in mind

when you evaluate a property for investment purposes.

7.9.1 Yield

The word yield is very often used by property investors. It is the very first indicator some investors use to

determine if a property is even worth investigating. The yield is also known as the “Internal Rate of Return”

(IRR) and is expressed as a percentage of the amount invested in the property, rather than the property’s

value.

Yield can also be thought of as a general term that refers to income in relation to the cost of the investment. It

is therefore also an indicator of the efficiency or quality of an investment.

A property might be a good investment proposition if its yield is greater than the rate of return that could be

earned by alternate investments of equal risk such as investing in other similar properties.

You can compare all their investment returns against putting your money in an interest bearing bank account.

Although this method of comparison clearly does not operate on the same level risk, the argument is if the

bank gives you a better return than investing in a property, you simply do not invest in the property.

There are all sorts of comparisons similar to the one mentioned above. You can compare against shares and

fixed deposit returns. No matter what your criteria is, there are a couple of terms used in the property

investment industry that is a good idea to familiarise yourself with.

There are several different applications and implementations of the yield. There is for instance a net yield and

a gross yield:

• a gross yield is simply the percentage amount derived by dividing the annual income by the amount

invested

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• a net yield is the return shown as a percentage after costs such as rental agents fees, levies, rates and

taxes, and the like

Mathematically the yield could be shown as:

a. (Gross) Yield = Annual income

Purchase price

This is the yield that is very often used by investors as there are no frills associated with the calculation. You

simply take the annual rental income and divide it by the proposed purchase price. If the figure is not

something you can live with, then either look for quick ways to improve the income generated by the property

or lower the purchase price.

An example of this is:

(Gross) Yield = (R4500 x 12) x 100

R550 000

= 9,81%

b. (Net) Yield = Annual income minus expenses

Total amount invested

The representation of the net yield takes a bit more work to confirm as you will now take a closer look at

improving the income. The expenses are also brought into the calculation which means that the total amount

needed for the investment could vary depending on if / how you can minimise expenses. These different

variations of cost cutting on expenses will influence the calculation result.

If you are more interested in cash flow, then the yield of a property will most likely be your focus point. A low

yield would indicate a high price paid for the property in relation to the income generated by the property. A

high yield would then also indicate a low price paid for the property in relation to the income generated.

7.9.2 Return on Investment (ROI)

The return on investment indicator is mostly used to include the capital growth that is associated with a

property. Therefore ROI is more influenced by the potential earnings than that of the immediate earnings as is

the case with yield.

Return on Investment = _____Net Return_____

Total amount invested

The Net Return can be expressed as the equity available for the property after a period of time minus any

capital expenses incurred and the shortfall payments for the year.

Net Return = Equity growth – (Accumulated shortfall for the year + Capital expenditure)

Note: Although the transfer duty payable is a cash expense, it is also tax and does not normally form part of

this Net Return calculation.

Graham van Zyl


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If you are more interested in the future property value than the cash flow aspects of an investment, you would

most likely want a good ROI and might be less concerned with a lower yield figure. In most cases, this is what

property investors in entry level sectional title townhouses are looking for, a good Return on Investment.

As you can see, it could be very easy for somebody to manipulate a figure to reflect what they want to show. If

you know what you are looking for and understand what it means, then it does not matter how an indicator

such as the yield or the ROI is shown. You will be able to calculate and confirm it for yourself. In fact, in all

cases it is highly recommended that you do confirm all the investment figures for yourself before you commit to

a purchase.

7.10 How much are you prepared to pay for the property

How much you are prepared to pay for a property depends on what your investment plan is. If you are buying

for capital growth you might be willing to pay a little more for a property than if you were buying it for cash flow

purposes only.

Each person has his own internal set of parameters he is willing to accept. For a long time, with every single

property I purchased, as I signed the offer, I was thinking “I am paying too much”. Maybe it is just me, but

even if I buy the bargain of the century my thoughts are drawn towards the thinking that I am paying too much

for the property.

I have purchased some real bargains and there was still a small part of me that believed I could have

negotiated a better deal. This was because I did not do the correct homework to ensure that I knew what is

happening in the area and with the property. I also did not have clear goals of what I was looking for nor had I

defined my purchase criteria. I simply purchased based on information given to me by sales agents.

There is no need to guess any more, as you will now know why you are buying property and how much you

are willing to pay.

When you start investing in property with clear goals and defined parameters; the feeling of “I am paying too

much for this property” will be eliminated. It will become a prepared document delivery function, a proposal if

you like, that you deliver to a customer. If the customer does not accept your proposal, you have a choice of

changing the proposal to suit the customers’ needs, or you can prospect another customer.

These are all just business deals, there is very little emotion attached to it. The best advice I heard from a very

famous real estate author called Dolf de Roos was “Never fall in love with the property, fall in love with the

deal”. These words have been stuck in my head every single time I look at purchasing a property.

Graham van Zyl


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7.10.1 Initial property parameters

You need to evaluate what your personal investment criteria are before you submit an offer on the property.

This section will help you understand what the impact is of changing the different investment criteria. The

question you should be asking yourself the whole time is, “Will you buy this property?”

If the answer is “No, I will not”, then you need to ask “What do you need to change here in order for you to

purchase the property?”

The following table lists the initial investment criteria entered in order to evaluate the potential purchase:

Table: 7-6 Initial property evaluation inputs

INVESTMENT PROPERTY EVALUATION

63 m² TOWNHOUSE COMPLEX UNIT

PROPERTY INFORMATION EXPLANATION

Valuation R 580,000 This is the current estimated value of the property

Purchase Price R 550,000 The proposed purchase price

Mortgage R 550,000 The total loan from the bank

Expected Capital

Expenditure R 0 If you needed to replace carpets, paint the unit

Interest Rate on Loan 10 % p.a. The in interest rate issued against the bank loan. This will

vary from time to time.

Term of Loan: 20 Yrs. This is the bond term, in some cases the term could be

extended to 30 years

Vacancy/Collection losses 4 % of Rental The % of time the unit will be vacant. (4% = half a month)

Rental Management 10 % of Rental The % of the monthly rental income that will be paid to a

rental agent as a fee for managing the unit on your behalf

Repairs/Maintenance 4 % of Rental The % of rental income that will be allocated to repairing

the unit per annum (4% = half a month’s rental)

Annual Increase of Income 10 % p.a. The amount by which the rental income will increase each

year

Annual Increase of Expenses 10 % p.a. The amount by which the property expenses will increase

every year

Annual Appreciation Rate 15 % p.a. Capital growth rate

Approximate Transfer Costs 10 % of total

Let’s assume that you purchased this property in a trust,

therefore 8% transfer duty is payable plus another 2% was

added for transfer and registration costs

Buildings Area 63 m² The size of the property in square meters

You will have to make some assumptions in order to get an understanding of what the potential investment

figures look like. Remember the idea at this point in time is not to be as accurate as possible. The point of this

exercise is to evaluate if this is your type of property investment.

Now is the time to play around with the different scenarios in order to gain an understanding of what your

specific investment criteria could be. Over time, your investment criteria could obviously change, remember

that this is just a starting point.

The figures entered here are projected into different calculations as can be seen in Table: 7-7 Initial property

evaluation results. The income statement is projected for the monthly income and expenses.

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7.10.1.1 Income

With residential rental income there is normally only one source of income namely the monthly rental amount.

• Rental Income

Monthly rental is paid by the tenant occupying the premises. The actual rental income currently being paid by

the existing tenant might not be market related. As stipulated earlier, do your homework on this to ensure that

you are confident about the true rental achievable for the property.

• Vacancy Losses

It is very likely that your property will be empty sooner or later, even if it is just tenants moving in and out.

Rather than it taking you by surprise, factor it into your financial calculations as a loss of income. This is often

referred to as a vacancy factor and is expressed in a percentage of the monthly rental.

7.10.1.2 Expenses

Most of the expenses are self explanatory.

• Bond Payment

Every month the bond, or the mortgage as it is sometimes referred to, is payable to the bank. This is the loan

amount granted by a financial institution.

• Rental Management

If you have contracted a rental agent, this is the monthly fee payable to the agency. It is also normally

calculated as a percentage of the rental income received.

• Administration

If you have internal staff, other than the rental agency contracted, that help you monitor your investment

properties, you could list those expenses under administration.

7.10.1.3 Shortfall

The monthly income for this property is calculated at R4 320. The expenses for running this property are

calculated at R 6,697.62. The difference between these two figures is R2 377.62. This is called the monthly

shortfall. Every month, the property will need a cash injection of R2 377.62 in order to break even. This can

also be seen as your monthly investment contribution to the property.

Graham van Zyl


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Table: 7-7 Initial property evaluation results



Income Statement

Income Expenses

Description Amount Description Amount

Rental R 4,500.00 Bond Payment R 5,307.62

Minus Vacancy Losses R -180.00 Rental Management R 450.00

Repairs/Maintenance R 180.00

Property taxes / Levy R 760.00

Insurance

Electricity

Water

Refuse

Advertising

Security

Garden Services

Fire Protection

Administration

Total R 4,320.00 R 6,697.62

* ACQUISITION DATA

Purchase Price R 550,000 Monthly Shortfall * R 2,378

Mortgage R 550,000 1st years cash

investment * R 83,531

Transfer Costs R 55,000 Gross Yield * 9.82%

Capital Expenditure R 0 1st years Net Return * R 130,463

Deposit R 0 Return on Capital * 156.18%

Purchase Value * R 8,730.2 m² Rent / Bond Ratio * 84.78%

Property Value * R 9,206.3 m² Rent / Purchase Ratio * 0.82%

Equity Purchased * R 30,000 Rental Value * R 71.4 m²

Note: These values are calculated using the Property Evaluation Software available from www.ccaassaalliinnee.co.za

Comparing the proposed price of R8730/m² to be paid for the 63m² unit, it is still below the maximum of

R9127/m². R8730/m² is also between the average and the median prices paid over the last two years.

Whatever your criteria are, these figures are only here to assist you in making your decisions.

Graham van Zyl


[email protected]





8. STEP 4: You don’t have to wait for the “FOR SALE” sign

You don’t have to wait for the “FOR SALE”

sign to go up when you want to purchase

property. You have already determined

where you would like to buy properties, so

you can simply use the tools courtesy of the

information age to help you find the

registered owners of these properties.

Once you have their details, submit an offer

to purchase with the special “conditions

precedent due diligence” clause, which

allows you at the very minimum two weeks

to investigate whether you actually want to

commit to the property or not.

The intention is not to submit an offer to purchase to every person that lives in the Sunninghill area. You have

already determined what type of unit you are looking for, therefore target those units that specifically meet your

criteria.

In this example, let’s look at the 63m² units in Townhouse Complex. Obviously you would like to get the best

deal out there, but I recommend that you make a decent offer for a property and not a silly figure as a sales

price.

Use the information links available through our website www.ccaassaalliinnee.co.za to isolate the unit types you

would like to invest in.

Most property owners (sellers) do not actually know the true value of their property and not all people are ready

to sell their property. I have had a lot of offers accepted, but I had a lot more offers rejected.

You have already determined what you are willing to pay for property in the area. The next step is to contact

the owner and make an offer. It is not recommended to give verbal offers on the phone as this normally starts

the emotions up on the other side of the line.

Rather get all the prospective sellers’ details and submit a written offer to him. This way you avoid discussing

the price telephonically. The offer is received by the prospective seller on paper and he has time to evaluate

the offer and deal with his thoughts regarding the potential sale.

It is a good idea to wait a day or two before you contact the prospective seller again. Simply enquire about the

status of the offer and if everything was in order.

If the prospective seller wishes to make changes, ask him to substantiate the proposed changes with

supporting documentation. For instance if the owner tells you that the property is worth more than you are

offering, do not argue, simply ask him to send you the rental contract that substantiates the increase in asking

price.

Graham van Zyl


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I believe that a lot of people just need to be reminded that they can sell their property.

8.1 Sales Agreements

The sales agreement or offer to purchase is a written and signed agreement whereby the seller agrees to sell a

property to the purchaser at an agreed purchase price. This agreement is a legally binding document once

singed by both the seller and the purchaser so take care of what you sign. Once you have signed the offer to

purchase, the seller can hold you responsible to perform to what was agreed to in the offer.

It is not necessary to be overly technical with regard to contracts, but it is a very good idea to familiarise

yourself with some of the key aspects of contracts. Contracts are written in a language all of their own and

some of them can be extremely confusing.

Legalese need not be painful, in most cases, it is actually just a higher form of English. Just read a contract

slowly and at your own pace. If you really do not understand what the writer is trying to say, contact an

attorney who will be able to clarify the detail. No matter what, be sure that you understand the contents of the

contract and more importantly, be sure to understand what the consequences of not keeping to the contract

conditions are, before you commit to a sale.

An offer to purchase basically only needs four things to be binding for the sale of immovable property, these

are:

• Identify the SELLER

• Identify the PURCHASER

• Identify the PROPERTY

• Confirm the SALES PRICE

•

All the other information contained in the sales agreement adds further conditions to these four major

requirements. Let’s take a closer look at some of them.

In general there are a few points to consider when signing a sales agreement.

• Witness

It is always a good idea to get witnesses to confirm your contract. In the sales agreement there are specific

places provided for the witnesses to actually witness the signatures of the buyer and the seller.

• Open spaces

Do not leave any open spaces in the contract. Either complete these empty spaces in the sentences with

words or delete them. This is to ensure that the other party does not fill them in for you. If there are changes

to the contract or the empty spaces have been filled in, initial all of these amendments, insertions and

deletions. By signing your initials next to these changes, you in effect confirm that you have read and

understood them.

• Be specific

The sales agreement must be unambiguous and clear. Do not use statements like “to be determined or

agreed at a later date” - be specific such as “occupation will be taken on registration”.

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• Retain a copy

Make sure you always get a copy of the contract even if the seller has not yet signed it. This is always good

for record keeping purposes. If there is a dispute later on, at least you have a copy of the document as you

signed it.

8.1.1 The parties

The parties to the sales agreement are the buyer and the seller. If there is an estate agent involved in the

deal, the estate agent is not a party to the agreement. It is important to take this into consideration as the

conditions of the sales agreement are related to the parties (buyer and seller) and not the estate agent as the

estate agent merely facilitates the transaction. Here is an example of the parties’ details section of the sales

agreement:

1. PARTIES

Make sure that the person you are dealing with is actually the registered owner of the property. This is easily

achieved by simply referencing your deeds search results.

The parties to this Agreement are:

1.1 Name………………………………The sellers details.………………………………………….……..

ID/CC/PTY/Trust………………………….……………………………………………..………………..

Address……………………………………….………………………………………………………..….

Postal. ...………………………………………….……………………………………………………….

(hereinafter referred to as “the Seller”), and

1.2 Name…………………Your company name / trust name / you personally………………….……..

ID/CC/PTY/Trust………………………….……………………………………………..………………..

Address……………………………………….………………………………………………………..….

Postal. ...………………………………………….……………………………………………………….

(hereinafter referred to as “the Purchaser”).

8.1.2 The property

Ensure that you are actually purchasing the correct property. There have been many cases of the owner not

really knowing what his section is. The section is normally confused with the door number. The door number

might be 21 but the section could be identified in the sectional plan as section 5. This often happens as the

owners don’t normally pay attention to this. If this is the case, you will lose the sale as the contract will not be

valid.

It is a very simple procedure to cross reference and check with your deed search results. The property must

be identified and normally looks something like this.

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2. DESCRIPTION OF PROPERTY

If it is a full title property:

• a) Freehold Stand No …278.... in the Township of …Sunninghill…… in the District of…Sandton.… being

Street Address ……112 Naivaisha rd, Sunninghill…..

•

If it is a sectional title property:

• b) A UNIT CONSISTING OF Section/s…21.…being Flat/Townhouse/Door No…..5……in the Scheme

known as

…..TOWNHOUSE COMPLEX…, SS No …123/2005 (Pretoria)… Stand No…1876/0….. Township…Sunninghill

… and the Seller’s right of exclusive use of the following areas ………………………………………………………..…

together with all and any fixed improvements (if any)

NOTE: The door number might not be the same as the registered section number for the scheme.

8.1.3 The purchase price and bond application

You must stipulate the purchase price you are willing to offer for the property. Don’t just write the offer number

value, it is best to confirm the number amount written by writing the purchase price in words as well. If there is

ever a dispute regarding the purchase price, the words will carry the most weight in order to clarify the dispute.

Therefore write clearly, legibly and concisely.

Note that the purchase price is stated as R550 000 and that a bond of R550 000 is requested. Therefore you

are asking for a 100% loan amount from the bank.

If you wish to put a deposit down for the sale, it is recommended that you pay the deposit to the conveyencer

and not the seller or an estate agent. Paying a deposit is not a legal requirement for a sales transaction.

Nowadays the financial institutions will most likely ask for a deposit but it is still not a contractual obligation to

pay a deposit for second hand property. When you apply for finance with the banks, simply arrange the

required deposits with the bank.

In the sales agreement, the purchase price and finance normally looks like this:

3. PURCHASE

3.1.The purchase price payable by the Purchaser to the Seller shall be the amount of R.…550 000……

(……Five hundred and fifty thousand rand……) payable as follows:

R..0…… (……zero.…) to be deposited with the Conveyancer within 30 days of acceptance of this offer. The

conveyancer shall deposit this sum in an interest bearing trust account for the benefit of the Purchaser.

The balance of R..…550 000…… (……Five hundred and fifty thousand rand……) shall be paid to the Seller

upon registration of transfer of the Property into the name of the Purchaser and shall be secured by means of a

bankers or other guarantee.

3.2 This sale is subject to the conditions in section 20 of this document being fulfilled, further this, the sale is

also subject to the condition that the Purchaser is able to raise a loan of … R..…550 000…… (……Five

hundred and fifty thousand rand……)....upon the security of a first mortgage bond to be passed over the

property at prevailing building society or bank terms and conditions within 35 (thirty five) days after the notice

of acceptance as per section 20 of this document.

Graham van Zyl


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8.1.4 Occupation

It is recommended that you stipulate occupation on registration, unless you know exactly why and when you

would like to take occupation if this date is to be before the date of registration of the property. You can always

later on reach agreement with the seller regarding occupation by simply using an addendum to the sales

agreement.

8.1.5 Conditions precedent: due diligence and approval

In all the offers that I submit, I add a conditions precedent clause. These are four simple paragraphs which

enables you the purchaser to take two weeks to investigate the property and at the end of the two weeks, if

you determine that the purchase price is too high, or that the property expenses are not suitable to you, or if

you just feel that the deal is not for you, you can simply walk away from the deal as this is clearly stipulated in

the sales agreement.

The full due diligence clause is stipulated in the Sales Agreement which is made available through our website

www.ccaassaalliinnee.co.za.

8.2 Submit your offer

Understand that you will be following a step by step method to determine if you are comfortable with the

investment purchase. You will have more than enough time to get all the information you would need in order

to make a decision. It is almost like a “money back guarantee”. Once you have determined your initial offer

price, simply submit the offer in writing to the seller.

If the seller agrees in writing to the sales agreement you submitted by signing the sales agreement in full, then

you can continue your due diligence investigation.

Graham van Zyl


[email protected]





9. STEP 5: Due Diligence

Due diligence is a phrase meaning “the

needed investigation” that will prove that the

property is worth purchasing.

You should add a special due diligence

clause to the sales contract stipulating that

the purchaser reserves the right to conduct

a due diligence for a period of 14 days.

During this period, the due diligence

investigation will be performed. If the

results of the investigation are not

satisfactory to purchaser, then the sale is

simply cancelled or a new contract is drawn

up to reflect the changes you wish to

implement.

9.1 General

It is always a good idea to visit the property yourself as soon as you possibly can. Arrange with the tenant to

access the unit in order for you to get a good impression of what the property and the tenant are actually like.

9.1.1 Confirm Ownership

It is advisable to request a copy of the title deed of the property. You can simply request this through your

deeds search engine. A copy of the title deed will normally be emailed to your requested email address within

a couple of days. Reading through the title deed, be sure to confirm the ownership, the size of the unit and if

there are any servitudes restrictions registered against the property.

9.1.2 Confirm who the managing agent is

The managing agent is specialist management company appointed by the body corporate to help with the daily

running of the scheme. Find out who the managing agents are, and if there are indeed managing agents

appointed. Sometimes the body corporate prefers to do things themselves. You would normally be able to

find this out by simply looking at the monthly levy statement.

9.1.3 Confirm the sectional title scheme’s financial position

Ask the seller if he has a copy of the latest financials for the scheme. If the seller cannot provide you with the

latest audited financials for the scheme, you can simply contact the managing agent yourself, say that you are

a potential buyer and ask for a copy.

Some bodies corporate will charge you a fee before they issue the financials, only a few hundred rand

normally, but it is highly recommended that you do see what the financial position is of the body corporate that

you will be buying into. Remember, that if you buy the property, you will be liable for your percentage share or

participation quota of the financial position of the body corporate.

Check that the body corporate financials are acceptable for your purposes. Financial statements can be very

complicated, but you are checking to ensure that the body corporate does not have any major debt. If fact,

what you would like to see is that the financials reflect that there is a surplus of funds.

Graham van Zyl


[email protected]





9.1.4 3rd Party property inspection

It is strongly advised to use a third party property inspector to inspect the property. Even if you have

personally visited the property already, it is still recommended that you appoint a third party inspector to go and

inspect the property on your behalf. Up until a few years ago, these property inspectors were basically

unheard of in South Africa. Nowadays there are many active property inspection franchises operating in most

of the major cities.

These inspectors are trained to see problems that the average investor would overlook. Every property I have

purchased in the last couple of years was inspected by a third party inspector, even if I visited the property

myself. This independent property inspection will give you a totally unbiased report of the condition of the

property. It will also give you the necessary information to decide if any serious maintenance will be needed in

order for you to factor this into your projections and if need be, adjust the sales agreement accordingly.

One of the main objectives of such a 3rd party property inspection is to determine the structural integrity of the

individual property. They should also evaluate the cosmetic aspects and specifically observe the following:

• Structural

• Roofing

• Internal and external walls

• Foundations

• Basic electrical

• Basic plumbing

• Moisture build-up and damp

• Cosmetic

• Condition of paint on the internal walls

• Condition of the plaster

• Status of floor and wall tiles

• Installation / condition of cupboards

• Installation of showers, basin and baths

• Functionality of taps, lights and if applicable intercoms etc

• Installation of all doors and windows

As you can see, these reports are quite comprehensive and well worth the cost.

9.2 Confirm Income

9.2.1 Rental Agreements

Confirm the rental income for the property by obtaining the rental contract. It is also advisable that you contact

the rental agent if there is a rental agent involved. Ask for the last six months worth of monthly rental

statements for the unit to be faxed to you. This will confirm whether or not payments were in fact made by the

tenant and also what date each month payment was made.

Keep in mind that when you purchase property, you also purchase the tenant with the property. This is a very

important consideration. In your due diligence investigations you will find out if there is an existing lease

agreement and get a copy of the existing lease agreement. You will also do more background work to find out

if this is a good paying tenant. If it is a bad paying tenant, you will be buying this problem as part of the deal. It

is not a big problem and there are many ways around it.

Graham van Zyl


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Let’s look at the implications of a tenant occupying the premises. In the Chapter 14.1.3 Occupation and

Registration, we referred to the fact that when you purchase a property, you in effect also purchase the tenant.

If you find that the tenant who is currently occupying the premises is a bad paying tenant, and you do not want

that tenant to also be a problem for you, you could simply change your offer to purchase agreement

accordingly.

One thing you could do if your investigation finds that the existing tenant is not a tenant you wish to have the

pleasure of dealing with, simply state in your offer to purchase agreement that occupation and registration

must only be submitted once the existing tenant has vacated the premises. This will ensure that the

conveyencer cannot submit for registration before the existing tenant has removed himself from the premises,

therefore ensuring that your problem tenant is no longer a problem. You will however now have to place a new

tenant, but with the old one gone, this should not take long at all.

9.3 Confirm Expenses

9.3.1 Levies, Rates and Taxes

Each property is subject to rates and taxes. In the case of a sectional title unit or a unit forming part of a home

owners association, there will also be a levy charged by the body corporate. Get this information from the

owner in the form of the actual statement issued by the company that collects the rates and taxes and the

levies.

9.3.2 Insurance

Some properties will need additional insurance, but is highly unlikely that a residential sectional title unit will

need additional insurance cover.

9.3.3 Bond Repayment

This is simply a financial calculation which takes the following into consideration

• The current interest rate

• The total loan amount

• The term of the loan (i.e. 20 years)

The result is a monthly payment amount payable to the bank

9.3.4 Maintenance

Every property will require some maintenance sooner or later. Remember that although the tenant is liable for

breakages, you as the owner are still responsible for basic wear and tear. It is very likely that every couple of

years you will need to replace the carpets, give the place a coat of paint, service the plumbing and so forth.

The easiest way to ensure the availability of funds as and when maintenance requirements crop up, is to away

on a monthly basis, a percentage of the rental income as a provisional fund which will effectively be used to

cover the eventual expenses.

9.3.5 Vacancy

You must accept that your property will be vacant sooner or later. It is best to make a provision for this also.

Now that you know about this, simply provide for the event. The vacancy is normally expressed as a factor or

a percentage. For instance, you could allocate a 4% per annum vacancy which equates to half a month for the

year that you expect the property to be vacant.

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9.3.6 Other

There could be other expenses associated with the property such as gardening services and the like. Once

again, just make sure that you are aware of these and factor them into your calculations.

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9.4 Evaluate the figures and scenarios

Once you have gathered all the necessary information and figures, capture the data into your investment

software calculator and start to play with the various scenarios.

Let’s assume that the due diligence proved that the:

• rental income is only R4000 and not R4500

• that the levy payable is on R610 and not R760 as estimated

The provisional projection could be adjusted accordingly as shown in Table: 9-1 Due diligence property

evaluation results. Just as an example, the purchase price was reduced from R550 000 to R500 000 in order

to adjust the investment to the reduced rental income confirmed by the due diligence investigation.

Table: 9-1 Due diligence property evaluation results



Income Statement

Income Expenses

Description Amount Description Amount

Rental R 4,000.00 Bond Payment R 4,825.11

Minus Vacancy Losses R -160.00 Rental Management R 400.00

Repairs/Maintenance R 160.00

Property taxes / Levy R 610.00

Insurance

Electricity

Water

Refuse

Advertising

Security

Garden Services

Fire Protection

Administration

Total R 3,840.00 R 5,995.11

ACQUISITION DATA

Purchase Price R 500,000 Monthly Shortfall * R 2,155

Mortgage R 500,000 1st years cash

investment * R 75,861

Transfer Costs R 50,000 Gross Yield * 9.60%

Capital Expenditure R 0 1st years Net Return * R 182,306

Deposit R 0 Return on Capital * 240.31%

Purchase Value R 7,936.5 m² Rent / Bond Ratio * 82.90%

Property Value R 9,206.3 m² Rent / Purchase Ratio * 0.80%

Equity Purchased R 80,000 Rental Value * R 63.5 m²

* Note: These values are calculated using the Free Property Evaluation Software available from

www.ccaassaalliinnee.co.za.

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Comparing the new proposed price of R7936/m² to be paid for this 63m² unit is still below the maximum of

R9127/m² and still between the average and the median prices paid over the course of the last two years.

Notice that the yield is now closer to a 10% gross yield, which is a gross yield indicator that is used by many

investors.

These figures are not in place here to set a benchmark for purchasing investment property, the figures are

simply an illustration in order to clarify the example.

10. STEP 6 Confirm the sale

At this point, your initial offer will need to

be changed to reflect your findings.

Contact the owner formally in writing

informing him that you will not be

concluding on the offer submitted to him,

and issue him a new offer to purchase

for his perusal. This must all be done in

writing

If you chose not to amend the original

offer and wish to proceed with the sale

as is, then you can also inform the seller

of your intentions.

In either case, if the seller accepts your

offer, congratulations, you have

completed the first step in securing your

investment property. The work is not

over yet, but you are well on your way.

10.1 Bond finance

In most instances the sale will also be conditional upon the purchaser arranging suitable finance. The sales

agreement that accompanies this book includes such a suspensive condition of finance. There are several

different views on how to obtain finance with banks. Some people like to try and get pre-approved for a loan,

while others only look at finance once the deal is on the table. Once again these are personal preferences that

you will become more comfortable with as your investment career progresses.

The last couple of years saw a new industry take hold in the South African market with regard to bond finance.

That industry is commonly referred to as “Bond Origination”. The function of the bond originator is to apply for

finance on your behalf. They are third party companies that essentially submit the application and the

supporting documentation for the deal, on your behalf, to the bank. These agents and agencies work mostly

on a commission basis only. Therefore, they are motivated to get you the finance as they will earn commission

on the transaction.

In some cases I prefer to deal directly with the banking institutions. I don’t mean to speak to some telephone

jockey either, I mean building relationships within the banking industry. Yes, you can still do that. It takes a

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little more time and effort to do so, but the results are much better than simply submitting a finance application

to some unknown person at a bank branch. The personal touch cannot be beaten.

• Prepare your application

Each bank has unique products regarding finance. Find out from each of the banks how their different

products work and decide how this will best suit your needs. The banks also have different application

procedures and you will get to know them as you go along.

These procedures also change from time to time. Good advice is to be prepared and diligent in your

application and don’t rush the job. It takes time for credit control to go through all their criteria. Be patient and

follow up ever week or two, but don’t rush them, just follow up. I have found that just following up without

rushing the result, produces very good results.

• Interest rate

The interest paid on your bond is normally the biggest expense when it comes to investment property. Always

try to get the best interest rate you possibly can, this will minimise expenses. Typically the banks will lend

money at prime rate minus 1 – 1.5%. I have seen cases where the banks issued prime minus 2.5% and more

but this is not the norm for most applications.

10.1.1 National Credit Act

Since the NCA (National Credit Act) came into effect, property investment has changed dramatically from a

lending perspective. Prior to the act, it was extremely easy to obtain a loan from the various financial

institutions. Many people I know of managed to get several mortgage loans they did not actually qualify for,

strictly speaking.

There are many experts on the NCA and just as much information available regarding the act and the

implications it has on financials institutions. Just go to any of the major banking institution websites such as

ABSA, Nedbank, FNB and Standard Bank and you will find reference to the NCA.

The basic rule of thumb is that the NCA was established to regulate reckless lending. In other words, to a

large degree, the onus is on the financial institution lending you the money, to ensure that you can actually

afford to repay the loan. The act itself is much more intricate but this is the definitive item for our purposes

here.

The lending criteria were extremely strict when the act came into effect. Since then, the finance houses have

seen what the actual implication of the act is and how they can work in conjunction with the act. When the act

first came into effect, almost every mortgage application I know of was declined. As time went by and the

lenders got to understand the act better, and obviously the various panels of attorneys that advise these

lenders, more mortgage bonds were approved. There are still not nearly as many mortgage bonds being

approved as before the NCA though. The banks are simply being cautious.

The catch phrase these days are “affordability” or “disposable income”. Each bank has set their own criteria

for this but basically your disposable income is the money you have left over after you have covered all your

monthly costs. As an example, if you earn R20 000 per month and all your monthly expenses comes to

R12,000, you have R8,000 as disposable income.

If you truthfully declare all your earnings and spending to the bank and your disposable income is indeed

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R8 000 per month, you could then service a bond to the value of R8 000 monthly. At an interest rate of 10%

per annum and a twenty year loan term, you would theoretically be able to service a bond amount of

R960,000. The banks do however have the last say.

The various banks also have different products available now. Some are more progressive than others. The

ideal situation is to sit down with a capable adviser and assess what loan amounts you would be able to qualify

for. Always take your personal interests into consideration when making financial decisions. It is after all your

money, not the advisers’ money you are dealing with.

Having said all this, I would like to state that in very simple terms, the bank makes money by earning interest

on payments made from the people they lend money to. There are of course many more aspects to banking

but simply put, a bank exists to lend you and me money. We pay interest on the amount borrowed, and the

bank makes income because we repay the loan in most cases to a very high profit margin for the bank. All is

fair in business.

Without people borrowing money, the banks essentially do not have an income. Therefore the banks must still

issue loans, the only difference now is that they are much stricter during the application process to ensure they

don’t end up paying for their own loan.

10.2 The seller did not accept your offer

It is highly likely that many of the properties you investigate, you will not necessarily finalise as a purchase.

Simply keep these owners and property details on record. You never know when you might be interested in

one of these properties at a later stage or when these potential sellers might contact you again.

A lot of the owners will also keep your details on record. If you have conducted yourself in a professional

manner, these owners will surely want to deal with you in future transactions. Never burn a bridge where there

is no need to. If the offer was not acceptable to you and the seller, then simply move onto the next property.

You will most likely be dealing with many other property investors, if the owner does not want to sell the

particular unit you contacted him for, it could be that the owner has several different properties. Sooner or later

all property investors are looking to sell some property as different deals come their way, their focus might

change and their property investment portfolio will therefore be adjusted accordingly.

Graham van Zyl


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10.3 STEP 7: Property Management

Property Management is one of the most

important aspects of investment in property.

Without this, your constant stream of

income to help support your investment

choice, will not succeed.

By far the biggest fear most people have

when it comes to property investment is bad

tenants. I think the reason for this is that

this is the most unpredictable of all the

factors influencing your investment.

Everyone knows about some horror story

regarding tenants.

Rental agents are the answer to your fears here. The only good rental agent is somebody that has been

referred to you. The sad fact is that the rental agency you chose is only as good as the rental agents working

there. Rental agents do change agencies often as this is the most thankless job I have done, or see anybody

do.

It has always been strange to me why people would try to bargain with their rental agent. As I said, being a

rental agent is the most thankless job I have ever come across. I have placed my share of tenants for my own

properties and even on behalf of other people’s properties.

I do not bargain with the rental agents I appoint. I pay them exactly what they ask for. If the agency does not

perform or deliver service, I simply change the agency.

The tenant most certainly thinks that he is paying too much for the monthly rental. Remember that tenants are

savvy shoppers too. They will screen the various adverts in the news papers, on the internet and also drive

past the various “TO LET” signs. They phone all these adverts and confirm if this is where they would like to

stay.

There are also “professional tenants” as I call them. These people normally only pay the rental deposit and the

first month’s rental. They seem good on paper, but as soon as they have moved into the property, they do not

pay any longer. It is normally followed by a long and very painful and costly process to get these people out of

your property.

I have a standing order with my rental agents, and I have several rental agents working for me. My standing

order is that the tenant will also be screened by me personally, before they are allowed access to my units. I

use various credit services and the Tenant Application Form made available with this book to help evaluate my

tenants.

Prevention is the only remedy against bad tenants. How do you distinguish a bad tenant from a good tenant?

You can perform several financial and other background checks and draw up a profile of what your ideal tenant

should be. Doing background checks always helps, but you cannot predict the future, you can only use the

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past to determine if this potential tenant will be a good payer or not. An experienced rental agent with a solid

track record can help you enormously when it comes to property management.

Most owners still want to manage or be part of the management process of their property. Specifically, they

want to have some control over the tenant. I think it is human nature to some degree that people would still like

to have control or at least perceived control.

It has been my experience that when first time property owners do their own tenant administration, they

invariably get the shorter end of the stick as some tenants are experts at emotional manipulation. The process

normally follows the following pattern.

The owner places an advertisement for the rental of his property or he starts canvassing friends / family /

colleagues to let them know that there is an excellent rental unit that is in need of a tenant. At this stage the

owner is already emotionally tied to the process, because there is effort involved with “selling” the rental of his

property.

The owner receives a couple of calls, some are from referrals and if you are lucky a couple more from the

advertisement that you placed in the local newspaper. Now you have a different problem, you need to meet

these people and interview them. In some cases owners want to do background checks on these potential

tenants, but the landlord does not have the tools nor does he know of some of the legal pitfalls that exist if you

do background checks without proper authorisation.

The owners are not sure of the typical tenant profile that is expected to occupy a unit such as theirs and

therefore do not know if they should first speak to the single mother, the retired gentleman, the student looking

to get away from home or the bachelor who has just landed his first real job at a nearby company. The result

is that they show all these people the unit and listen to each one of the potential tenants’ reasons for wanting to

occupy this particular unit.

The potential tenant also has questions and queries about the lease agreement that you purchased from the

nearest stationary shop, the rental escalation and the option to renew. The owner instantly needs to become a

legal expert and good judge of character, because he does not want to make the wrong choice here.

Of course this process has now taken more than two weeks, because not all the tenants could get to the unit at

the time you first made the appointment. You rescheduled and the tenants have rescheduled the

appointments. Some of the tenants even told you that they are looking at other units in the area which made

you even more nervous to get the place rented.

The problem that you are faced with is that you are already too emotionally involved in the process. You

cannot make an objective decision. You also now start to think that if you do not place the tenant soon, that

you will be losing a lot of money therefore you make a hasty decision and place one of your candidate tenants.

The deposit is paid and the first month’s rental is paid in advance and you feel good. The second month

though the tenant phones you to let you know that his cash flow is a bit tight this month and he asks if you

cannot take the deposit as the rental this month. This is where your problems start. The deposit is never

recouped, there is damage to the unit and the tenant starts running behind on the rent.

These are some of the reasons why owners who want to be property investors should not manage their own

properties. When owners are playing manager for their properties, they normally do not have the time to focus

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on the business of property investment, which is where the big money is made, not the few rand you save on

tenant administration.

I highly recommend that you make use of rental agencies to help you manage your investment properties. The

right rental agents will make your investment property career infinitely easier. Keep in mind that rental

agencies have one of the highest staff turnover statistics when it comes to people dealing with tenants. In

choosing a rental agent, the best advice here is to use agents that are recommended by people in the

investment industry.

If you feel that you would like to manage your first couple of investments, go for it. I speak from experience

when I say keep in mind that if you get bogged down with tenant issues, your focus will most definitely be on

the management of tenants, instead of the management of property investments.

Just work it out for yourself; you normally pay much more in levies, rates and taxes than you pay your rental

agent. The money you pay your rental agent is a small amount to pay for somebody else to take all the hassles

off your shoulders. Now you have lots of time available to buy more property. Saving a few Rand on property

management has never made anybody rich; rather use your rental agent to ensure that you can leverage your

income. Pay a little bit now to make a lot later!

Tenant administration is the biggest risk, if you can get to grips with this risk, your return on investment be

almost unlimited as you can effectively make solid investment decisions which will not be based on emotion.

Rent is normally payable by the tenant by the first day of the month. In a lot of cases this does not happen.

The management company still has to double check payments; follow up on non payments and all sorts of

administrative tasks. Your rental can take as long as 7 days to be confirmed and paid over to you depending

on the company. Therefore, expect that in some cases your rental agent will only be able to pay you your

rental due by the 10th of the month.

This is a reality of property management. Rental payments do sometimes come in late. To assist with your

cash flow management, it may be preferable to have your bond debit order scheduled for the 15th of the month.

This allows for a couple of days in the case the rental is paid late.

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11. Emotion

As soon as you think about property, you become very emotional. I think a lot of this has to do with the way

you were raised. Property after all equates to security in most people’s opinion. It symbolises safety and

comfort. Whenever I have been on a long trip, I start to miss home. It is strange that this happens, but home

is not just the bricks and mortar, home is actually all the happy memories associated with the structure.

I would think about my wife, my children, my dog, the lawn, the driveway, the colour scheme, and so on. It is

not the room I miss, it is the people I care about that stay there and the loving memory I have of them in the

various places in the house. My youngest son is such an active little guy. At three years old, he had so much

energy that even though I put him to bed at 19h30, sometimes at 22h00 at night he was still running up and

down the passage of the house. It is not the passage I miss or his room, but the memory of my energetic son,

running as quick as he can through the house.

I also do not miss mowing the lawn at all. I miss the times I would relax with my family outside on the freshly

cut lawn, playing with the waterslides and entertaining friends. This is what home is for most people and when

they go look at buying investment property, these emotions instinctively come along with the territory of brick

and mortar.

Fear is often the biggest factor that will prevent any person from taking the first step towards investing. The

unknown has always caused doubt which actually leads to fear. It is only natural that you do not want to lose

our hard earned income. In order for this healthy fear not to paralyze you as an investor, many people would

look around for a strong partner who is experienced and financially sound, rather than go it alone.

Property investment, like any other investment mechanism, can be very emotional. There is an inborn highly

emotional connection when it comes to property. Let’s face it, wars have been fought over land on many

occasions. Most of these wars are well documented. It is quite simple, he who owns the land controls what

happens on that land. Now I do not recommend that you invest in war zones. Remember what I said in the

beginning of the book, I am a very cautious investor. I recommend that you invest in very safe established

areas where the growth has proven to be sustainable.

Fear exists because questions are not answered in a satisfactory manner. The question we get most often is

obviously, “Can I afford the property and what happens if there are changes in the market conditions?”

It is recommended that with any business decision you do not let your emotions guide you, rather let your

intellect guide you. The numbers must add up. If the numbers make sense, a lot of the emotion will be

removed from the deal. Property investment and purchasing a home that you plan to live in, are two very

different things. Don’t get emotional about the property you purchase for investment.

If you cannot overcome your fear, it will paralyze you and it will physically prevent you from making good

unemotional decisions.

How do you overcome fear? You do the thing you are afraid to do. Just start, you will see what I mean.

12. Property Cycles

All investments work in cycles. The stock market even has trends that are updated to the second. Property

cycles are fortunately much slower than the stock market. It takes years to adapt to various cycles. If you can

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start to identify the industry indicators including that of property cycles, you can position yourself to take

advantage of them.

Property investment, like all other investments are influenced by certain factors. These various factors, as with

any other growth industry, can be used to indicate market cycle changes. These cycles are dependant on a

number of factors and the biggest factors contributing to these cycles are:

• When interest rates are high, people are less inclined to invest in property as it costs a lot more to keep

the investment. You pay the bank more for the money that you borrowed from them. This contributes to

drive the demand for property down and as this happens, property prices stagnate and in some cases

diminish to negative growth for certain types of properties.

• If interest rates are low, the cost of a loan is much less which means that for the same amount of

repayment to the bank, you could now afford two properties in stead of one. As people buy more property,

the demand for property increases which invariably increases the price of property.

• Other influences are the rate of the population growth, the supply and demand for property and specifically

certain types of property at specific times, the country and the worlds economic situation, inflation rate and

legislation. Obviously there are more reasons than just what was mentioned here that influence property

and any investment cycles but these are some of the factors that will affect the markets directly.

13. Property Title Types

There are basically only two types of property in South Africa namely Full Title property and Sectional Title

property. All properties whether they are full title or sectional title are registered in the relevant deeds

registration offices around the country.

13.1 Full Title

Full title property can be defined as basically owning the piece of land including the soil and everything on it

like water, all permanent improvements for example buildings, its associated permanent fittings and everything

growing on the piece of land that has a root system attached to the land.

For instance, the title deed for a full title property will not specify that there is a 450m² house, with three

bedrooms and two bathrooms on the property. The title deed only states that the property is 890m² and that

the purchase price is registered at R1,2 million. In other words, the house that is built on the property is

regarded as a permanent fixture of the land and therefore will form part of the sale.

Some properties form part of an estate. An easy example of such properties is golf estates. Houses are built

all around the golf course and while the houses are mostly purchases as full title, these estates usually have a

home owners association that governs the do’s and don’ts on the whole premises. These associations have

rules that must be complied with such as nominating a few real estate agents who will be allowed to list

properties for sale in the estate and if the case may be, lease the properties to prospective tenants. They will

also then nominate and manage the general upkeep of the property which will include the gardening services

and the security in the estate.

Regular meetings will be held and there will also be a levy charged by the home owners association which

covers the expenses incurred.

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13.2 Sectional Title

The Sectional Titles Act states that a unit, being a sectional title unit comprising of a section and an undivided

share in the common property as apportioned by the participation quota, is deemed to be land. This is a

second type of title to land which came into effect in 1973 whereby ownership of sectional title buildings are

now measured in the horizontal and vertical strata. Therefore two or more different owners can now own

separate units situated in the same building.

This does sound complex but it is quite simple. Before the sectional titles act came to be, if you wanted to buy

unit 12 on the second floor, you needed to buy the entire building. You could not separate unit 12 from the rest

of the building, you had to purchase the whole building as one entity for say R5 million.

Once the sectional title act came into force and if the building was duly sectionalised, you could purchase unit

12 on the second floor without paying for the entire building. Now we are able to purchase a section of the

building at say R500 000 and have your ownership rights to only unit 12 registered.

If you are an owner of a sectional title unit, you need to remember that the occupants form part of a community

and the living areas are normally much more densely populated. Therefore stricter rules were written to avoid

chaos in these so called townhouse complexes.

There are also a couple of naming conventions a sectional title owner should be familiar with. These are:

• Section

Every sectional title scheme has a sectional plan. The sectional plan is in effect the general layout of the

scheme which shows all the different properties or sections. Each one of these sections has a unique number

that identifies it on the plan layout. This section is the number that is registered on the title deed. This

normally includes your townhouse (number 12 on the second floor) and the garage situated on the ground

floor, if you bought it. Take note that the section number on the plan might not be the same as the door

number of your unit. It happens quite regularly that the section numbers do not co-inside with the door

numbers.

The boundaries of your section are the midpoint of all the walls, floor and ceiling. Effectively you only own the

half from the midpoint of each of the boundary walls of your section, the half from the midpoint of the floor

towards your section and half from the midpoint of the ceiling that form the boundaries of your property.

The roof is not part of your section, it is part of the common property. So is the outer half from the midpoint of

your ceiling, floor and boundary walls are in fact part of the common property.

• Unit

A unit consists of your section plus your undivided share of the common property. If your geyser is not situated

in your section, but for instance situated in the ceiling space of the scheme, the geyser still forms part of your

section and the sectional titles act specifically makes provision for this.

• Common Property

The common property includes all the land, walkways, hallways, stairs, foundations, swimming pool, lapa, all

the parts of the buildings, driveways, roofs, parking areas and the like that is not owned as a section by

another owner. The common property is also owned by each owner of a section

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• Exclusive use rights

Exclusive use rights are your right as the owner of a section, to exclusively use a specific area like a carport /

garden which actually forms part of the common property.

• Body Corporate

The body corporate consists of all the owners of units in the scheme. If you are an owner of a sectional title

unit, you are the body corporate. It is an association which exists to represent the scheme.

• Levy

The levy is an administrative fund which is required by law to be set up by the body corporate. All owners of

sections contribute to this fund in accordance with their participation quota. This contribution to the fund is

commonly referred to as the levy. All the expenses of the scheme are paid from this fund.

• Trustees

The trustees are elected by the owners and are responsible for the daily tasks of running the scheme. They

must manage the scheme in accordance with the law. They will hold regular meetings to discuss these tasks

and action what is needed

• Participation Quota (PQ)

The participation quota is the percentage share you have in the common property. This is a direct relationship

between the floor size of your section(s) in relation to the total floor size of all the sections in the scheme. It is

calculated in a very simple mathematical formula as follows:

Your Participation Quota = (Floor area of your section / Total floor area of all sections) x 100

If there were 50 units in the scheme, each one measuring 100m² and you owned one unit then

Your Participation Quota = (Floor area of your section / Total floor area of all sections) x 100

Your Participation Quota = (100m² / (50 x 100m²)) x 100

Your Participation Quota = 2%

• Managing Agent

The managing agent (which is different from a letting agent) is employed by the Trustees to help administer the

daily tasks of running the scheme. The managing agent normally collects all levies, performs the book keeping

function and oversees the maintenance of the common property.

Graham van Zyl


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14. Property Terms

Let’s get a little more technical about some of the terms associated with property. It is always good to

understand some of the fundamental terminology used when speaking to people. Obviously these terms listed

here are not all the terms that are associated with investment property, but it will give you a good head start.

• Property value = the market value of the property

The market value of the property is not necessarily the purchase price. There are formally trained property

valuators who will peg the market value for property. The banking institutions also employ valuators to

determine the market value of a property.

There are also replacement values for property. This is the value normally used by insurance companies in

order to issue an assurance policy for the replacement value of the property. The replacement value is not the

market value of the property, but rather the costs that would need to be incurred to replace the property if

something happened such as a major fire.

For the purposes of this book, we will always refer to the market value of the property.

• Purchase price = the amount paid for a property

The purchase price paid for a property is not necessarily the market value of the property. Let’s take a closer

look at this statement. If somebody urgently needs to sell a property, the seller might not ask a potential

purchaser to pay true market related value for the property. The seller will most likely sell the property to the

first cash offer at a greatly reduced amount. Therefore the purchase price in this instance does not necessarily

reflect market value.

• Bond Amount = the amount of money the bank will lend you for the purchase of the property

Banks are willing to lend you money in order to purchase property. The naming convention of this type of loan

is called a mortgage bond. These are normally 20 year or longer loans granted by the financial institution.

Each bank has its own set of lending criteria.

• Transfer duty = this is basically a form of sales tax payable on second hand property.

The transfer duty is calculated for each property sale as per a schedule adjusted by the minister of finance.

The scale as determined in 2011 is as follows:

This example of the calculation is taken from the Transfer Duty Handbook (www.sars.gov.za):

From 1 March 2011

Natural persons on the first R500 000 of value 0%

on the value from R500 000 to R1 000 000 5%

on the value exceeding R1 000 000 8%

Graham van Zyl


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Purchase price = R875 000

Duty @ 0% on the first R500 000 = R nil

Duty @ 5% on R375 000 (R875 000 minus R500 000) = R18 750

Duty @ 8% on the amount greater than R1 000 000 = R nil_____

Total transfer duty payable = R18 750

Transfer duty is only applicable for properties that do not attract VAT.

There are normally at least three attorneys involved in the sale of a property. They are:

1. Transferring Attorney or the so called conveyencer.

It is the function of the conveyencer to ensure that the property is transferred and registered in the name of the

purchaser.

2. Bond Registration Attorney

This is the attorney that will register the bond on behalf of the bank. In some cases, the conveyencer and the

bond registration attorney could be the same firm.

Each one of these attorneys will charge you a fee for their services. The fee charged is normally between 1 -2

% of the value of the sale or the bond being registered. There is also a recommended scale detailing what

these attorneys should be charging.

All the above amounts such as the transfer duty, conveyencer and bond registration fees are payable in cash.

In some instances, for first time buyers, some banks include some / all of these fees in their products, but the

bottom line is that it will need to be paid before registration takes place.

3. Bond Cancellation Attorney

There is a third attorney involved which is the bond cancellation attorney. The bond cancellation attorney

works on behalf of the bank which holds the current bond for the seller. There should not be a charge to you

as the purchaser, as the charges for cancelling the existing bond are for the seller’s account.

• Rental = the monthly rental payable by the tenant occupying the property.

Tenants pay rental normally on a monthly basis. This income from the property you can use to help cover the

expenses of maintaining the premises and the payment of the mortgage bond.

14.1.1 Servitude

A servitude is a “limited real right” registered in the title deed of a property, for the benefit of another person

other than the legal owner. A servitude will normally restrict the use of a property to its full potential.

An example of a servitude imposed on land use is the right of way on a service road that grants access to

several properties. The owners of the properties will not be allowed to build or obstruct the road as doing so

will limit the use of the road for the neighbours. This type of servitude is normally common on farm land. The

properties are sold with this servitude in place, therefore you are purchasing the road, but you are limited in the

way you are allowed to use it.

If there are Eskom power lines crossing the property, it is also very likely that a servitude was registered in

favour of Eskom in order for them to service the power lines.

Graham van Zyl


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• Usufruct

A usufruct is a personal servitude which grants a person who is not the owner of the property, the right to

occupy the property and enjoy the “fruits” of the property. This right will endure until the person’s death or if

the person gives up the usufruct right. For our discussions the important issue is that the usufruct holder is

entitled to the rental income from a property. The usufruct holder can also choose to occupy the property,

which could complicate the sale.

14.1.2 Permanent Fixtures

A permanent fixture includes everything that was intended to be a permanent fixture or movable items needed

in a permanent service to the property such as plants, trees (everything attached to the land that has a root

system), swimming pool, bore hole, keys to the house, gate remotes, gate access codes (as this is needed to

access the premises), even matching bar stools if it was specifically designed for the bar.

It is however always best to specifically stipulate all items included in the sale agreement if there is any doubt if

these items will be removed from the premises.

14.1.3 Occupation and Registration

• Registration

This is the date that the property is registered in the deeds registration office in the name of the purchaser. On

this date, the purchaser will effectively claim ownership of the property.

• Occupation

Occupation is the date on which you the purchaser will take legal responsibility for all property. This includes

the risk and profit associated with the property. The conditions and the date of occupation should be stipulated

in the sales agreement.

When occupation is taken, you the purchaser, effectively takes control of the entire property. If there is a

tenant paying rent to the existing owner, when you take occupation, you will be entitled to that rental income. If

there are expenses associated with the property like rates and taxes, levies, maintenance and upkeep, when

you take occupation you will also be liable for these.

In addition to this, the seller will normally claim what is commonly referred to as “occupational rental”. The

more formal term is occupational interest. This is basically money paid to the seller for the beneficial use of the

property prior it being transferred to the purchaser.

It was previously accepted that occupation rent payable should be roughly about 1% of the purchase price.

Therefore if you purchased the property for R500 000, you would have been liable to pay occupational rental of

R5000 per month. As with any contract, these conditions can be changed and agreed upon prior to signature

of the agreement.

If the rental amount paid by the existing tenant is only R3500 per month, why should you the purchaser agree

to R5000 occupational rental? If you have done your background checks before you submitted an offer to

purchase on the property, you would have known that the rental is only R3500 for the unit. Why not stipulate

this rental amount of R3500 as the occupation rental for the property.

Graham van Zyl


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• How does occupation work?

Occupation is normally stipulated in the sales contract as “On Registration”. This is normally done by investors

as to ensure that you don’t take on expenses before you have title rights to the property. There are a couple of

scenario’s that need to be highlighted in order for you to make the best decision for your investment.

• Do you know the exact date when this unit will transfer?

In most cases, transfer and registration takes approximately 3 – 6 months from the date of sale if everything

goes smoothly. In my experience these dates have always fluctuated and you cannot bargain on a specific

date. Knowing this though can help you adjust and manage your expectations.

• Can your rental agent work on an unconfirmed future date?

The rental agent that is appointed to ensure that the life blood of this investment property is paid in every

month, cannot place a tenant on an unconfirmed future date. Tenants are people too - they are families with

children, they need to move jobs, put their children in different schools, move furniture and all the good things

associated with moving house.

Tenants cannot book moving vans on unconfirmed future dates; they need to know the exact date when they

will be moving. Your rental agent will also not be able to place a tenant if there isn’t a date stipulated for

moving into to the premises.

Let’s take a closer look at the different scenario’s in a graphical context. These illustrations are designed to

help you understand a timeline situation. As stipulated earlier, the exact date of registration is not known.

• Scenario 1: The unit is occupied by the existing owner

The property is occupied by the existing owner, therefore there isn’t a tenant in the unit, nor is a formal rental

contract in place. The sales contract stipulates that the purchaser will take occupation on registration date.

The sales contract will normally state that “whomever has occupation and enjoys possession of the property

while the property is registered in the other party’s name, shall be liable to pay the occupation rental to the

other party” meaning that if the seller stays in the property after registration, the seller is liable to pay the

occupation rental to you the new owner.

It is recommended that the owner moves out of the unit before registration date. The reason is simple; you

don’t have a track record for this owner as a tenant. Think about it for a second, if you take occupation of this

property before registration, you have just paid the future tenant the purchase price of say R650 000 to stay in

his own home. His incentive to pay monthly rental is not as good as a qualified tenant – one that is willing to

rent.

Figure 14-1 Occupation Timeline: Seller moves out after registration

• Scenario 2: The owner moves out before registration

This is the better option. If the seller moves out of his property before registration, it has cleared the way for

you as the investor. The unit is now empty, you don’t have any expenses to pay as yet and your rental agent

Possible Occupation Timeline

Jan Feb Mar May Apr June Dec Aug Jul Nov Sep Oct

Registration

Date

Purchase

Date

Seller’s future

moving date

Graham van Zyl


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can now actively market the unit. It is your choice whether you want to take occupation or not, the best is to

refer to the contract and verify the conditions that you agreed upon.

I normally agree with the seller that as soon as a tenant is placed, occupational rental will be paid to the seller.

Remember that on registration of the property, you are now the official new owner of the property. You will

need to settle the expenses associated with the property. If you already have a paying tenant in your unit, you

already have an income stream for this property.

Figure 14-2 Occupation Timeline: Seller moves out before registration

• Scenario 3: There is an existing tenant in the unit

Can you take occupation before registration if there is a tenant in the unit? Yes you can. The only difference

between this scenario and that of the seller occupying the property is that there is a tenant in the unit. In the

timeline example, you will notice the dotted line as the tenant’s lease contract. The lease contract is from the

beginning of February and ends the last day of September.

There is one very important aspect to take into consideration and that is the old Roman Dutch law still

applicable to sales agreements with existing leases, it is called “Huur gaat voor koop” or ‘Lease goes before

sale’. This simply states that where leased premises are sold before the lease has expired, the tenant may in

terms of the “huur gaat voor koop” rule, remain in occupancy of the premises until the lease expires. Therefore

lease agreements cannot simply be cancelled because you bought the property.

This also means that you just purchased the tenant with the property. This is a very important consideration.

In your due diligence investigations you will find out if there is an existing lease agreement and get a copy of

the existing lease agreement. You will also do more background work to find out if this is a good paying

tenant. If it is a bad paying tenant, you will also be buying this problem. It is not a big problem and there are

many ways around it. We will deal in more detail with the due diligence investigation in Chapter 9, but let’s

look at the implications of a tenant occupying the premises.

Firstly the tenant can stay in the unit after you take occupation. Why would you take occupation before

registration? If the rental for the property is R5000 and the occupational rental agreed to in the sales contract

is say R2500, then you stand to gain from this arrangement. The current tenant will pay you R5000 while you

only need to pay the seller R2500, which means that you have R2500 extra in your pocket every month.



Registration

Date

Purchase

Date

Seller’s moving

date

Graham van Zyl


[email protected]





Figure 14-3 Occupation Timeline: Existing tenant occupying the unit

• When is the rental payable to you the purchaser?

As soon as you take occupation of the property, the rental should be paid to you as the purchaser. Once again

there are a couple of scenario’s you need to take into consideration

• Scenario 3a: The tenant is currently paying rental directly to the existing landlord, the seller.

This is by far the trickiest of all situations. The tenant might have been a very loyal paying individual. All his

payment references are set up to pay the existing owner (the seller) directly. You would need to inform the

tenant that you are the new owner and that rental is now payable to you directly.

If the tenant continues to pay the old owner (the seller), you will most likely have a hard time getting that rental

payment from the seller. The best way to avoid this situation is by making sure the tenant understands the full

impact of him not paying rental to you.

• Scenario 3b: The property is administered by a registered rental agency

This is the better scenario. A professional rental agent is under obligation to ensure that you as the new owner

of the property receive the rental due to you. It is quite simple, get a letter from your conveyencer stating that

the property is now submitted for registration and issue this to the rental agent. The agent will be obliged to

pay you the rental proceeds.

There are obviously other variations of occupation and registration but these examples cover the basics. The

idea here is to understand the concept and to know how it will affect your investment.

15. Motivated sellers

Every day there are more properties listed for sale. Some people buy bigger houses like I did when my

children came along and I had a bigger family. To list just one or two reasons why people sell their properties

will not do justice to the various reasons why people need or want to sell their properties. I did think it

necessary to list some of the forced reasons why people sell properties.

• Judgments

It is possible to access all the latest judgments country wide for property owners that have defaulted on their

bond payments. It is even possible to contact these owners before these properties go to auction. Simply go

through these properties one by one, determine if you are interested in purchasing the property and submit an

offer. It is as simple as that.

A judgment relating to credit is a ruling by a court of law stating that a person failed to pay debt that should

have been paid within the agreed period of time. When a judgment is issued, the court of law has in fact

ordered the default payer to make payment for the outstanding amount of money owed.



Registration

Date

Purchase

Date

Tenant Lease Period

Occupation

Date

Graham van Zyl


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A judgment in favour of the plaintive can also give the plaintive access to attach the defaulting payers’ goods in

order to settle the debt. Therefore, if the person defaulted on paying his bond, the bank has the option of

repossessing the property. This is normally done by selling the property by means of an auction. This is

where you can actually step in and make an offer on the property before it goes to auction. This is perfectly

legal and actually done all the time.

The same process followed for making an offer on target property is applicable here. There is no difference. It

is simply a case of making the offer to the seller in the same format as you have done all along.

• Divorce

As an example of a property sold at a bargain price, I purchased a property at a lesser amount than what the

seller purchased it for two years prior. How did this happen? By asking the right questions, I found out that the

seller is actually right smack in the middle of an ugly divorce and he was not in the mood for his soon to be ex

wife to profit any more than what she already was from the liquidation of their joint estate.

16. Background

If you asked a group of people what investing means to them, many will tell you that investing is as easy as

leaving their cash in an interest bearing account at the bank. Savvy investing however, is actually ensuring

that your resources can at the very least sustain itself against inflation. Money loses value every year but I

have yet to see that things get less expensive as time goes on. Therefore the first target I recommend that you

aim for is to at least keep up with inflation and the loss of monitory value over time. Further to this, if you can

find a method that actually makes you more money than what the loss of value of money and inflation is, you

have just started to print your own money.

When people ask me “What do you do for a living?” I often tell them “I have a printing press that prints money.”

At this point, I usually get a very shocked response of “ Are you really printing money?” and I would normally

reply “Yes, of course I print my own money, depending on the day I sometimes print R200 notes, but mostly I

like the R100 notes, they work the best for me”.

I would carry on with the conversation as if I had said nothing wrong. Only later would they realise that I am

not counterfeiting money as that is illegal, but that I create opportunities to generate more money, which I call

“printing money”. As I did not previously have this new money, why not call it “printing money”, for this is

exactly what it boils down to.

The average man in the street has been taught that investing is only for the rich. Some people believe that you

first need to be rich before you can invest, that you need money in order to make more money. I have seen

that it is certainly easier for wealthy people to create more wealth, but I don’t think it’s because they are rich or

wealthy to start off with, I think it is because they already think differently about money.

Understanding investing and the various methods of investing, differs from person to person - some people

may be very comfortable with taking high risks, while others might not be willing to take any risk whatsoever. I

personally prefer as little risk as possible. I look for investments where the potential to lose money is very

limited. Sadly though, I have lost money in some of my investments, so even a very cautious approach shows

you that you need to be prepared for bad news from time to time. To me it simply means that there isn’t an

investment that is totally without risk.

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The important point to remember is that you can structure your risk in such a manner as to limit the impact of

any possible failures. How do you achieve this? I recommend that you speak to a capable advisor but

basically the idea is to make use of a combination of legal entities.

There are pro’s and con’s to whatever structure you choose. One of your goals should be to understand the

limitations of the system. What is it that you should not be doing? This will assist you in reducing the chances

of getting yourself into a situation that you cannot get out of.

For many years I have actively searched for investments and practical investment techniques. What I found

was that there is no singular answer. It was always a combination of several sources of information, such as

the obvious internet research, speaking to people, paying for consultations, going on seminars, reading books,

listening to audio and so on and so forth.

This was also a learning curve for me. I had to learn, similar to a university course, what property investing

was and how to practically make use of it in order to profit from it. I do not believe that one book, or one

seminar, will give you all the information you need to know about property investment, but I do believe that this

specific book will be your most practical guide to becoming a proficient property investor.

With this book, you are provided you with the tools you need that are very often so difficult to come by. The

most frequently asked question in property investing is “but how do you do that?” That is exactly what you are

shown in this book. In this book you have gone through them one by one. Please remember that these are

only tools, and like any other tool, it is only as good as how you apply and utilise it.

17. How money is made

True investors actually create money out of thin air. This is truer than you would like it to be. The most

successful investors in this world literally create money from their ideas.

The true investor is able to realise value where there previously was no value. How do you create value where

there was none? Take an idea and peg a price on it. If people are willing to pay for it, then you have just

created money where there previously was none.

Another way of looking at this concept is to ask “Would you have invested in Microsoft or Anglo American as a

company when it started way back all those years ago, if you knew what you know about those companies

today?”

17.1 Money is an Idea

How often have you heard somebody say “I need to make some money” or “I am going to make a fortune” with

this idea. People say that they are going to ‘make’ money but they don’t believe their own words. In the book,

Rich Dad Poor Dad, Robert Kiyosaki teaches us in Lesson 5 that “The Rich Invent Money”. This statement is

so true.

How many interviews have you seen on television or read in an article, where the people being interviewed

stated something along the lines of “You know, it all started with me just calling my friend one evening. I said

to my friend, I have an idea…… and it all just took off from there”. There are thousands of stories that start just

like this, stories that turned out to be fantastic ideas that made a lot of money for the people that dared to

dream.

Graham van Zyl


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You too can create your own wealth! Remember that these stories you get to hear about, mostly focus on

people’s successes. The truth is that these people fail often before they succeed. They chose however to

focus only on the positive. It is also then rather obvious that the people who have failed have indeed learned

from their mistakes, picked themselves up and went on to succeed.

17.1.1 Diamonds are an idea

Although there might be a scarcity of this stone, for me, there isn’t a tangible value in a diamond. There are a

couple of industrial applications but for the bigger part diamonds are simply an emotional purchase in my

opinion. I did not buy the diamond that my wife now wears on her finger because I felt there was an

investment in the stone itself. I bought that diamond because I knew what it would do for her emotionally if I

gave her the ring and asked her to marry me. Therefore the stone to me was not worth as much as the

emotional investment.

Many a woman might say that the size of the diamond in the ring is not as important as the fact that she is

engaged to be married., but have you guys ever noticed how most woman inform their friends that they are

engaged? See if you recognise the following scenario. The women would arrange a get together as girls often

do a simple social gathering without any agenda if you like. The lucky bride to be normally does not say too

much, but slowly and deliberately she puts forward her left hand palm facing down in order for the newly

acquired ring to be the focus point. All the women instinctively come forward, they gasp, giggle, jump up and

down and then you can hear “it’s so beautiful, you must be so proud”. All this excitement and every woman

knew without the bride to be saying a word about what that diamond ring meant.

This is one of the best and longest lasting marketing campaigns I have ever seen. Money created out of thin

air and it is a universal language. It was perfected with a simple slogan “diamonds are forever” and it played

directly on the emotional significance of that statement.

A good friend of mine, Frank, owns a jewellery pawn shop in London. Frank has told me quite a few stories of

people coming into the shop to exchange their diamond and gold jewellery for cash. He has listened to the

various sad stories his customers tell him such as “My husband bought this diamond ring three years ago for a

small fortune, it breaks my heart and I am so sad to get rid of it but I have no choice, I need the cash”. Frank is

a very good and a fair business man. He takes the ring, weighs the gold, classifies the diamonds and gives

them a quotation for the exchange as per his lookup chart. His customers do not always understand that what

he can trade their jewellery for is normally much less than what they paid for it.

Who made the money then? The money was invented the minute the husband to be wanted to show the love

of his life how much he loves her. Value was created by the various companies in the supply chain, the

salesman and society to a large degree. It’s not always about the actual worth, but more importantly what it is

worth to a potential customer. Therefore money was created out of thin air simply by adding perceived value.

This is but one example; there are many other examples similar to this one.

18. The pie is big enough

There is a misconception that the world only has a defined amount of money, that there is a limited supply of

money. When I say to you can print your own money, it means that you are not taking money away from your

neighbour, you are creating more than what was there before.

Not all money is being used by people all the time. There are huge amounts of money available to people that

can prove they can give a better return on investment than the banks can give. This money is called venture

Graham van Zyl


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capital and there are literally hundreds of millions of Rand available to people who have sustainable investment

ideas. This money was not taken away from somebody else, it has always been there.

When you make more money, the money pie grows bigger. You don’t actually have a bigger slice, and your

neighbour doesn’t have a smaller slice, you have increased the size of the money pie.

19. Bad Ideas

I have never had a bad idea. Granted, I have had ideas however that didn’t turn out as I thought they might

and in the process it cost me (and in some cases my business partners) some money. I don’t know of

anybody that deliberately goes out to lose money or to fail. Most ideas are good when you have them. That is

why you get excited about the idea as you only see the positive side of it. During this “dream” phase, you

hardly ever think that the idea could fail.

One such company I started with a good friend of mine, Marius, turned out not to be as good an idea as we

thought it would be. Marius and I talked about the pros and cons of the concept and we agreed that the

business plan was not what we thought it would be. We simply closed that business down and arranged for

the existing customers to be serviced by another company. The customers were satisfied with the solution,

Marius and I were happy and we immediately decided to look for new business ventures to explore together.

You see, as businessmen, we were unemotional about the decision as it was the correct decision for our

clients, for me, for Marius and for the business. Ultimately it was the clients that benefited the most as they

tied into another service provider who was actually more focussed on that specific business model than what

we were.

I am sure that there will be more business ventures I start that will not exactly be “my cup of tea” in the end but

I can assure you that I will continue to start and refine new businesses. This is what an entrepreneur does; he

creates something where there was nothing before.

20. Your money is losing value

The value of money decreases over time. This is not just something that happens to South Africa but to every

country in the worlds. Each year our currency becomes less valuable. Here is an example, if you have

R100 000 at an inflation rate calculated at 6%. At this calculated rate, the value of money will effectively be

halved approximately every ten years. If the inflation rate is higher, money loses its value even more quickly.

What this means is to you as an investor, is that if you simply leave your money in an interest bearing bank

account, your money is loosing value all the time. The interest earned on your money in the bank account is

normally less than the amount by which money loses value each year. Leaving the money in the bank account

is still better than doing nothing with it, but the sad fact is you are still loosing money. You have only slowed

down the rate at which your money decreases in value.

How do you ensure that your money grows at a rate greater than what the bank can give you?

You have to use it, or if you like “invest it”, in a mechanism that will give you greater return than what the bank

gives you. Keep in mind that the interest paid by the bank might not even beat inflation.

Have you ever wondered why the banks or the insurance industry are willing to give you a return on your

investment? What is it that these companies do with your money to ensure that they can give you more while

they still make even more money by using the money you just gave them to work with?

Graham van Zyl


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If you can answer that question, you are truly on your way to becoming a very successful investor. Big

corporations ask this very question daily to their best investment strategists. These highly paid individuals are

constantly pressured to invent new ways to make money. And how do they do it? They simply apply the

concept of leverage - by making use of the money you have so graciously given to them, they find investment

opportunities that will make them more money than they are spending.

Graham van Zyl


[email protected]





21. Keep Your Credit Record Healthy

It normally surprises people when they are told that they are listed on ITC, even if you have a good credit

record. It is mostly because the wording “ITC listing” is associated with a bad credit record.

Each and every person that has ever applied for credit is listed as a consumer with the various credit bureaus.

Even if you have not applied for credit, your details will still be on record reflecting that you do not have any

credit as yet. The credit bureaus exist to track your spending and credit habits. The banking institutions also

keep a separate record of your spending habits internally with their own filing systems.

Your credit history will look something like this:

Table 21-1 Personal Details

Surname Pompies

Name Piet

Title Mr

ID Number 700101 0000 123

Date of Birth 1970 / 01 / 01

Marital Status Married

Spouse Name Sannie

No of Dependants 2

Telephone No Home 011 555 5555

Telephone No Work 011 987 6543

Telephone No Cellular 082 345 6789

Email address [email protected]

Table 21-2 Address Information

Date Years Address Tenant / Owner

2006-09-12 1 POBOX 112 Centurion, 2009

2005-07-02 1 79 Akasia rd, Garsfontein, Centurion Owner

2004-03-22 1 34 Graniet ave, Durbanville, Cape Town Owner

Table 21-3 Employment Details

Date Years Employer Occupation

2002-11-27 5 Foundation for Better Living Director

1998-08-01 4 National Printing Associates Manager

1996-02-01 2 SA Trade Company Clerk

Graham van Zyl


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Table 21-4 Credit Account Status

Date

Opened

Credit

Company

Name Account Type

Opening

Balance Current

Balance Monthly

Installment Account History

02/04 Nedbank ABF Installment R94 472.00 R0.00 R0.00 ==CCCCCCC=========C0000=

12/04 Nedbank

AMEX Card Credit R15 000.00 R0.00 R0.00 ====================00

10/04 FNB Credit

Card Credit R15 000.00 R5.00 R5.00 210000000000000000000002

02/06 WESBANK Installment R218 282.00 R102 795.00 R3 458.00 ===00000000000000000000=

10/06 ABSA - Credit

Card Credit R15 460.00 R8 079.00 R731.00 =110101010000100000P0000

08/01 Vodacom SP Open R0.00 R1 179.00 R1 179.00 ===================000==

Table 21-5 Monthly Payment Behaviour

Company 08

NOV 08

OCT 08

SEP 08

AUG 08

JUL 08

JUN 08

MAY 08

APR 08

MAR 08

FEB 08

JAN 07

DEC 07

NOV 07

OCT 07

SEP 07

AUG 07

JUL 07

JUN

Nedbank ABF = = C C C C C C C = = = = = C 0 0 0

Nedbank AMEX Card = = = = = = = = = = = = = = = = 0 0

FNB Credit Card 2 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

WESBANK = = = 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

ABSA Credit Card 1 0 1 1 1 0 0 1 1 1 0 0 0 P 0 0 0 0

Vodacom SP = = = = = = = = = = = = = = = 0 0 0

Table 21-6 Account Payment Indicator Definitions

Definition Indicator

Closed C

Paid Up P

Bad Debt Written Off W

Not in Arrears 0

No of Months in Arrears 1 – 9

No Data Found =

Graham van Zyl


[email protected]





Table 21-7 Enquiry History

Date Type Enquirer Contact

2009/02/06 NORMAL FIRSTRAND STI ANDREW JOHAN JOUBERT 012 673 3000

2008/10/31 NORMAL FNB CLEARWATERMAL FNB (011) 6752026

2008/05/19 NORMAL STD BANK (6305) SBSA (011) 4714800

2008/05/05 NORMAL STD BNK HOME LOAN STANDARD BANK HLD 011 999 9999

2008/04/29 NORMAL PEP HL ACC CTR NEDBANK LIMITED 0860555111

2008/04/08 NORMAL STD BNK HOME LOAN STANDARD BANK HLD 011 999 9999

2007/12/22 NORMAL FNB H/L-NBP NAZ FNB HOMELOANS 011-3532000

As can be seen, there is a track record of who inquired about your credit status.

In addition to this basic information, the following information is also available:

• Judgements

Judgments are granted by court order against an individual or company.

• Judgments can remain on your credit record for a period 5 years.

• Notices

A notice is legal action that has been taken against you after you have failed to pay an outstanding account.

Notices include administration orders, provisional sequestrations, sequestrations and rehabilitation orders.

• Administration orders can reflect on your credit record for a period of 10 years

• Rehabilitation orders can reflect on your credit record for a period of 5 years

• Sequestrations can reflect on your credit record for a period of 10 years

• Default

Defaults are listings from credit grantors when non-payment of accounts occur, such as if you do not pay your

doctors bill.

• Defaults can reflect on your credit record for one year.

• Bad debt written off can reflect on your credit record for 2 years.

As you can see from the examples here, anybody granting you credit will be able to evaluate your spending

habits. Another interesting fact is that your credit details are captured every time you apply for credit, so next

time you casually give your application details to a credit provider, make sure that your details are captured

correctly.

• Pay your accounts on time

The best thing you can do to keep your credit score healthy is to pay your accounts on time every month. You

only need to pay the minimum amount to keep the credit grantors happy. If you do fall behind on payments,

pay up as soon as possible. As you can see from the example in Table Table 21-5 Monthly Payment

Behaviour, the credit grantors keep track of your payment history. This will affect your future credit

applications.

Graham van Zyl


[email protected]





22. Acknowledgements

I asked several people at various or different stages of their investment career, to help me evaluate the

contents of this book before it was published. Some of these investors are very new to the world of property

investment and some are seasoned investors with well established portfolios. I would like to thank them here

for their assistance and input. I asked these wonderful people to write a quick couple of words, explaining

what this book meant to them and how it affected their property investment methods and careers. These are

their words. Thank you for the brilliant feedback, the valuable input and comments you gave about the book.

• Werner Froneman - Mojave International

During the past ten years, I’ve travelled to more countries than I can remember. I’ve lived, worked and met

people from all walks of life, from prime ministers of Europe, China and South Africa, to advisers to the

president, CEO’s and directors, designers and developers, artists, professors and teachers, even bus drivers.

I’ve been involved and excelled in various business ventures, including US Retail Management, Marketing &

Promotions (contracts in Gauteng for Hooch, Norton Internet Security, ABSA, Shield and Cell-C), Personal &

Medical Care in the UK, Professional Photography in U.K and S.A, Fine Art Auctioneering and Investment in

America and Europe, Personal Consulting Services, sales development and training on luxury cruise liners,

and many more. This was an education that money would not have been able to buy.

After much research, my chosen “investment vehicle” in South Africa was to be property investment. I had a

hunger to know as much as I could about it, in order to reduce my chances of failure. I attended a few

recommended seminars by very successful investors, who got me so excited about easily making my millions,

it was almost to good to be true. But they’ve obviously succeeded at it, therefore so could I.

The problem was, even though I’ve been given a great overview, just exactly HOW was I supposed to do it?

The detailed steps to optimise my investment and avoid the pitfalls obviously eluded me.

After spending nearly R20 000 on their investment seminars, I realized that I still had to figure it out myself by

making mistakes, learn from it and hopefully not bankrupt myself in the process. I couldn’t afford to “get it

wrong” and therefore I seriously wanted and needed a guide through what seemed like a wilderness of

methods, procedures and possible pitfalls.

Then I came across this book “You don’t have to wait for the FFOORR SSAALLEE sign. Though at that stage, it

was still in its infancy, it was exactly what I needed; packed with practical, real world scenarios, based on years

of experience, knowledge and understanding. The author created a simple, interesting and easy to read guide,

to truly help people like me…someone who was disappointed in the empty promises of others!

This great book has given me the absolute confidence to fearlessly invest in property. It provides you with the

contracts you use, the easy step-by-step analyses to evaluate any property, thus enabling you to see the “real

world” projected numbers before you commit to anything, and also how to sidestep possible pitfalls which ends

up saving you thousands. If I’m unsure of anything, I simply contact the www.ccaassaalliinnee.co.za team. There is

always an experienced person available to advise me.

This has forever changed the way I will invest and I thank Graham and www.ccaassaalliinnee.co.za for revealing,

what everyone else was too selfish to do.

• Francois de Jager

Graham van Zyl


[email protected]





Ek het baie geniet om die boek te lees. Ek het baie van die kliniese manier gehou waarop jy jou analises

benader wat die emosie deel van eiendomsbeleggings heeltemal verwyder. Ek hou ook baie van die praktiese

advies wat jy gee en sal verseker baie van hierdie advies in my eiendomsbeleggings voorentoe kan gebruik.

Verseker `n goeie boek wat ek vir enige iemand wat in eiendomsbelggings belangstel sal aanbeveel om te

lees. Soos jy in die boek se ‘conclusion’ noem is dit nie veronderstel om `n totaal omvattende boek van

eiendomsbeleggings te wees nie. In jou boek fokus jy op `n spesifieke tipe eiendomsbelegging benadering

waar jy nie noem of koop om te verkoop, buy to let, koop met nothing down, koop vir kontantvloei positief vanaf

dag een af jou voorkeure is nie, wat jy wel doen is om hele reeks toerusting en hulpbronne uit te wys wat `n

mens baie prakties in enige van die bogenoemde tipe strategiee voordelig kan gebruik.

• Tertius Joubert

Being new to property investment, I found “You don’t have to wait for the FFOORR SSAALLEE sign” a breath of

fresh air. I used the previous year to perform my property investment planning with this year being the

execution phase, i.e. putting my plan into action. During the planning phase I read a number of books on

property investment and although I learned a lot from them they certainly did not live up to my expectations.

They go into some detail of property investment but stops short of telling one exactly how to plan, how to

execute, what to look out for, i.e. it they all lack real substance. One was always left with a feeling that there

should be more, there must be more.

Then I discovered Graham's little gem and thoroughly enjoyed it. It is short, concise, to the point, with a no-

nonsense approach to property investment which you will not find anywhere else. True to its name, it really is

"The 7 step missing guide for property investors". Here you will find real world practical information on how to

set up, fine tune and execute your property investment plan with tips and tricks of the trade abound. This is

highly recommended reading and should be the first book everyone reads on property investment.

• Pamela Wright

This is a remarkable book about property investment. Is takes very little time to read its powerful recipe for

getting big results from assessing the property prior to buying.

• Riaan van Deventer - Prothesis Management

After a business degree & 7 years experience in franchising & IT, I turned to training upcoming business

persons in business & people skills. For more than 10 years I have enjoyed helping others on their way to a

better life.

Mentoring in spiritual matters, personal health & fitness, family life, people skills, personal finances, leadership,

business management, property investing, financing as well as risk management, has become a way of life.

I am married to my queen and partner Ally; herself in Senior Management and a Chief Electrical Engineer.

When you hear or read about the lives others are living, you often desire to have some of those aspects in your

own life, but you seldom think about the road that needed to be travelled to reach that place. In fact most

times you desire the results, but you are not willing to undergo the journey. The truth is that there are still

some people, who have travelled difficult roads and learned things the hard way, who desire that your journey

should have less bumps. Graham is one of those people and this book will warn you of bumps in the road or

even show you some of the better roads to travel on your journey to successful property investing.

Graham van Zyl


[email protected]





Even though I have travelled the road of property investing myself, I have still learned so much from this book

and found better roads, for me and those I mentor, to travel on our future roads to property investing &

business development.

This book and some action from your side will help your road to be much less bumpy than what mine was.

Your success depends on your ability to learn, relearn & unlearn and then pass on what you have learned.

Ally and I believe that success is determined by the impact you have on the lives of those around you and we

desire to surround ourselves with like minded people. Thanks for this book Graham. It is a blessing to know

you.

Our passion for life, excellence of service and love for people helps us to live life on purpose.

23. Conclusion

As I stated in the beginning of this book, this book is not intended to be the definitive book on property

investment. I don’t think that anyone can print a definitive book on property investment as the market and

investment strategies change on a continual basis. This book is intended to be a guideline of the simple steps

to be followed in order to evaluate a property for investment purposes. If you have found this book useful in

that regard and if it helped you clarify your thoughts regarding property investment, then I have achieved my

goal.

I wish you all the best in your endeavours and I look forward meeting you.

Happy Investing!

Graham

This publication is intended to provide general information about property investment. The information contained in this publication and

the annexures are not intended as legal advice for any specific situation. Professional advice is recommended for specific transactions.

While the author and contributors have made every effort to ensure that the information contained in this publication and/or annexures

are factually correct, no responsibility can be accepted for any omissions or errors. The author, contributors and publisher accept no

responsibility or liability for any results, loss, injury, or damage allegedly arising from any information or suggestion contained in this

publication and/or annexures.

Graham van Zyl


[email protected]





Graham van Zyl

Graham is an Investment Consultant, a Certified Real Estate Agent and Financial Advisor. He has consulted

many investors who had already attended several training seminars, who have read several books and

investors that are part of formal investment clubs.

Graham sees himself as a consultant that helps his clients make sound financial decisions taking into

consideration their long term goals while still being very mindful of their immediate needs and circumstances

as part of their ongoing financial plan.

Graham spent more than 10 years in the engineering field working for a multi-national company completing

several projects in excess of R100 Million. Some of the work produced was so unique that copyright was

registered.

In 2000, Graham wrote a song dedicated to his late brother, Daniel, who tragically passed away in a motor

vehicle accident. The song was performed and recorded by Mark Beling, the lead singer for the band

Mean Mr Mustard and released with their “Only when it rains” album.

In 2005 he moved into the real estate industry full time. One of the unique projects he launched here was to

design, implement and manage a unique national residential rental pool for a large investment consortium. In

addition to this, he trained and coached many investors on the technical and financial aspects of property

investing.

Graham wrote and published this book called “You don’t have to wait for the FOR SALE sign” The 7 Step

‘Missing Guide’ for Property Investors” mainly to answer and assist the numerous investors that have asked

these same questions.

Graham is a Registered Financial Planner.

You can contact Graham at [email protected]

You are welcome to send your comments or post them on our blog www.ccaassaalliinnee.co.za

Graham van Zyl


[email protected]





Wynand du Toit

Wynand du Toit is an active property investor and practising financial planner. He specialises in business

assurance and continuity planning, estate planning, personal risk and investment planning.

Wynand has a passion for property investment as part of a balanced portfolio and has spent countless hours

with successful property investors to analyse and understand their needs. He realised the value of using the

correct asset protection structures early his investment career and has seen the consequences of poor

planning. He has also written many property and insurance planning articles for both the print and email

media.

Wynand is a Certified Financial Planning Practitioner ™ and incorporates the six step financial planning

process into his interactions with his clients as prescribed by the Financial Planning Institute. He works closely

with a large base of clients consisting of a variety of business owners, property investors, professionals and

corporate and has built up a solid network of professionals who assists his clientele.

These professions provide the best possible advice and range from practicing professionals pertaining to all

forms of income tax, estate duty, company and trust structuring, estate and will planning and even salary

structuring and corporate benefits.

Graham van Zyl


[email protected]





Lesley-Caren Johnson

This book was proofread and edited by Lesley-Caren Johnson author of the highly successful

The Ultimate South African Business Companion – Forms, Checklists & Templates For Everyday Use,

published by Frontrunner Publications. This book is a must-have for the entrepreneur and small business

owner.

This comment was received by one business owner who has recently started his own business:

“I have just purchased a copy of the Ultimate South African Business Guide. I am new to the business world

after working for 18 years in local authorities. This publication is a wonderful product and could complement a

lot of what I do in my business.”

The The Ultimate South African Business Companion currently retails at just R250 each (including VAT) and

all the forms, templates and checklists provided in the book are available on the CD-Rom accompanying the

book. This means that you can save the forms you want to use to your computer and then edit or change them

to suit your own unique business needs. The book is available through all major bookshops as well as at

www.kalahari.net. Alternatively you can contact the author via email at [email protected] or

www.WORDsparks.co.za.

WORDsparks was started by Lesley-Caren Johnson in 2005. Lesley-Caren has been involved in franchising

and business expansion for almost twelve years. While consulting she discovered that her strength is writing

and she would focus on this as a core element of her business going forward.

Wordsparks is a company specialising in the development and documentation of business and franchise-

specific activities such as Operations & Procedures Manuals and Disclosure Documents. Along with the

Franchise Agreement and Franchisee Selection & Recruitment Packs, these documents are vital elements in

the structure of any franchise organisation.

Further to this, the company also prepares other business documentation such as business plans, training

manuals, employee handbooks and, as explained above, Lesley-Caren writes business books aimed at the

small business entrepreneur.

Lesley-Caren feels that her speciality and strength is her extensive experience in creating and writing

Operations and Procedures Manuals and reviewing & developing operations systems. She is experienced in all

areas of stock management, small business administration and financial controls including the development

and implementation of systems. Further to this, she provides assistance to clients to determine the financial

management reporting needs of the operation as well as reviewing current point of sale & management control

systems and assists with the upgrade and/or implementation thereof.

Lesley has written manuals for a wide range of Industries spanning the hospitality, retail, beauty, signage,

motor, farming, educational, consulting and food industries. Past clients include GSM DIRECT/Vodacom, MTN

(South Africa, Uganda & Rwanda), Placécol Beauty Centres, Cell C, Jack’s Paint & Hardware & InspectaCar

(through Wesbank) as well as for corporate organisations such as Speedy Deloitte & Touche Franchise

Consulting, ABSA Group Operations and The Magic Company. Over the last few years Lesley has also got

involved in writing training content both for training programmes that require SETA accreditation as well as for

those where training and coaching is focused on the entrepreneur or small business owner.

Graham van Zyl


[email protected]





INDEX

“FOR SALE” sign, 53

3rd party property inspection, 59

administration, 51

administration orders, 86

affordability, 46, 64

area investigation, 32

asset protection, 11

body corporate, 58, 60, 72

bond amount, 73

bond cancellation attorney, 74

bond finance, 63

bond origination, 63

bond originator, 63

bond payment, 51

bond registration attorney, 74

buy to sell OR buy to let, 35

capital gains tax, 11

capital growth, 37

cash flow, 44

close corporations, 10

common property, 71

companies, 10

conveyencer. See transfering attorney

deeds office, 37

Defaults, 86

disposable income, 64

due diligence, 57, 58

estate duty, 11, 13

estate freezing, 14

exclusive use rights, 72

financial calculations, 45

full title property, 70

google earth, 16

gross yield, 48

guardians fund, 14

initial property parameters, 50

insurance, 60

interest rate, 64

judgment, 78

legal action, 86

levies, rates and taxes, 60

levy, 72

loan, 36, 50, 51, 56, 60, 63, 64, 65

m², 34

maintenance, 60

managing agent, 72

mortgage loan, 11

motivated sellers, 78

Municipal Valuation, 40

National Credit Act, 64

net return, 48

net yield, 48

occupation, 75, 76

offer to purchase, 53, See sales agreement

participation quota, 72

permanent fixtures, 75

printing press, 79

private capacity, 11

professional tenants, 66

property management, 66

property valuation, 30

property value, 73

purchase price, 73

registration, 75

Rehabilitation orders, 86

rental, 36, 74

rental agreements, 59

rental income, 51

rental management, 51

Rental per m², 36

Return on Investment (ROI), 48

risk cover, 11

sales agreement, 54

section, 71

sectional title unit, 71

sequestrations, 86

servitude, 74

shortfall, 51

tenant administration, 67, 68

tenant profile, 67

the parties, 55

the value of property, 31

transfer duty, 73

transferring attorney, 74

trustees, 72

trusts, 10

unit, 71

usufruct, 75

vacancy, 60

vacancy losses, 51

witness, 54

yield, 47

Graham van Zyl


[email protected]





Figure 3-1 The 7 Step Investment Process.............................................................................................................................. 6

Figure 6-1 Map view of target area...................................................................................................................................... 16

Figure 6-2 Google Earth view .............................................................................................................................................. 17

Figure 6-3 Sunninghill Suburb Trends Area Map ................................................................................................................ 20

Figure 6-4 Sunninghill Suburb Trends: Tenure of Owners .................................................................................................. 21

Figure 6-5 Sunninghill Suburb Trends: Age of Residents .................................................................................................... 21

Figure 6-6 Sunninghill Suburb Trends: Market Stock.......................................................................................................... 22

Figure 6-7 Sunninghill Suburb Trends: Growth and Activity............................................................................................... 23

Figure 6-8 Sunninghill Suburb Trends: Lending by Institution............................................................................................ 24

Figure 6-9 Sunninghill Suburb Trends: Bond Information................................................................................................... 24

Figure 6-10 Sunninghill Suburb Trends: National, Provincial and Municipal Ranking...................................................... 26

Figure 6-11 Sunninghill Suburb Trends: Transfer Information ........................................................................................... 28

Figure 7-1 LightStone Valuation Report: Property Details.................................................................................................. 40

Figure 7-2 LightStone Valuation Report: Municipal Valuation ........................................................................................... 41

Figure 7-3 LightStone Valuation Report: Valuation Details................................................................................................ 41

Figure 7-4 LightStone Valuation Report: Aerial Photograph .............................................................................................. 42

Figure 7-5 LightStone Valuation Report: Comparable Sales............................................................................................... 42

Figure 7-6 LightStone Valuation Report: Bond Details ....................................................................................................... 43

Figure 7-7 LightStone Valuation Report: Amenities ............................................................................................................ 43

Figure 14-1 Occupation Timeline: Seller moves out after registration................................................................................ 76

Figure 14-2 Occupation Timeline: Seller moves out before registration ............................................................................. 77

Figure 14-3 Occupation Timeline: Existing tenant occupying the unit ................................................................................ 78

Table 5-1 Business Entity Comparison................................................................................................................................. 12

Table 5-2 Estate Duty Example ............................................................................................................................................ 13

Table: 7-1 Townhouse complex deeds office registrations ................................................................................................... 33

Table: 7-2 Townhouse Complex average sale values since 2007......................................................................................... 35

Table: 7-3 Townhouse Complex unit 8 sales ........................................................................................................................ 37

Table: 7-4 Townhouse complex 8 sales percentages ............................................................................................................ 37

Table: 7-5 Sunninghill average sectional title sales for the last 5 years .............................................................................. 38

Table: 7-6 Initial property evaluation inputs........................................................................................................................ 50

Table: 7-7 Initial property evaluation results....................................................................................................................... 52

Table: 9-1 Due diligence property evaluation results .......................................................................................................... 62

Table 21-1 Personal Details ................................................................................................................................................. 84

Table 21-2 Address Information ........................................................................................................................................... 84

Table 21-3 Employment Details............................................................................................................................................ 84

Table 21-4 Credit Account Status ......................................................................................................................................... 85

Table 21-5 Monthly Payment Behaviour .............................................................................................................................. 85

Table 21-6 Account Payment Indicator Definitions.............................................................................................................. 85

Table 21-7 Enquiry History .................................................................................................................................................. 86