The Power of Property

Property is the backbone of many people's wealth. It offers a unique balance between capital growth and cash flow generation. What we do need to realise is that it is not synonymous with growth and simply buying a property is not going to make you wealthy. Like everything, the more you learn about it and practice your game, the better you get at it.

If you are tired of working hard to make someone else rich, then property investment is a way in which you can get out of that rut. Start studying it now and never be scared to get into it. Just know that the more you know, the less likely you are to make a mistake. But mistakes are often what we learn the most from.

If the property was purchased and held for the purpose of resale at a profit, then the proceeds will be deemed as income and thereby incur income tax. If the property was bought not to sell for profit, but rather in order to produce a rental income, to live in or in the case of a piece of land, to build on and rent out, then the proceeds will be deemed capital in nature and thereby incur capital gains tax.

A lot of people use CC's to buy property, probably because it is cheaper to run. If you are making an investment of a few hundred thousand rand, you have no business using a second rate investment vehicle. Investment clubs often seem to use a CC and I have no idea why. Perhaps the person running the whole thing wants to commit the other members to some second rate transactions. A company is a far better investment vehicle for this purpose.

To use Gary Player's quote, "the harder I practise, the luckier I get" if applied to property investment would read 'the more knowledge I have, the luckier I get.'

If you do not know what you are doing, or at least have a reasonable idea, someone is going to take you for a ride.

For some reason property attracts a lot of people looking for a fast buck –†watch out, they are simply looking for your money.

They will guide you like a good Samaritan and slice you into a thousand pieces before you know what has hit you.

Be aware of the right ways of buying property for investment purposes so that you can avoid the pitfalls many fall into after being promised the earth.

The big question in SA at the moment is whether we are witnessing a boom or bubble phase. Realistically it is unlikely that anyone knows.

Whether you are buying property or any investment for that matter, simply catching a boom cycle means a dangerous and unpredictable future. Rather buy things that are a good deal and eliminate the cycles.

Property is currently a very popular investment. People are making massive capital gains on their investments, but as sure as you pay tax and die, property returns will come back in line with normality. Ask someone who lived through the last UK property crash of the late eighties. Five years ago people could not even give their properties away in South Africa, so be careful: property and profit are not a given.

Rather, do your homework properly. If you invest even a tenth as much effort as you do making someone else rich, you will find your new found passion turning into profit.

I would like to share a bit of interesting info with you. I have had the privilege of looking at hundreds of people's financial portfolios. I get to see who makes money, who doesn't and why. Most of those people are in a very similar situation to you. I can tell you that the most successful people have been involved in property investment of one kind or another. They have made a lot of money from it and are in a position never to work again.

I can also tell you that of these people, only twenty three intentionally purchased the property in the correct holding vehicle.

Some got it right by luck, but most people are sitting with some seriously valuable assets in the wrong investment vehicle. It is costing them in tax and it is going to be very expensive when they sell or die.

Get it right before you buy, once a deal is done it is too late.

Another really interesting thing is that the richest people (in net asset value) were not normally those with the fattest salary cheque; it was more often the people that had saved as much as possible from their salary cheque into investments, of which property has been the flavour of the last few years.

A fat salary cheque puts you into a comfort zone; be careful of becoming too lethargic as salary cheques can end at very short notice.

I break it down into a simple formula like this:

Big salary = less pressure for the future. Small salary = pressure for the future.

Pressure shortens your reaction time, so therefore big salary earners beware.

Buying property with someone else's money is a forced saving, because you have to pay x amount into your mortgage bond every month. If there is no option, you make it happen.