All Forum Posts by: Jonathan Wild

Hi Jacques

Welcome to BP.

I am also a newbie in CT. I can't advise on wholesaling but suggest maybe come along to the next SA Property Investing Network (SAPIN) event. I've met some helpful contacts there.

Jon

Hi David

It was good to meet you this week.

I don't have experience of rent-to-rent, but from talking to those who have, I think it can work best for student rentals in Cape Town. Another niche worth exploring would be in areas where there are lots of young businesses attracting young professionals who want to live in digs, e.g. Salt River.

All the best in your endeavours

Jon

Hi Simeon, See you at the next SAPIN event on 27th August.

@Charl Malan Thanks for your comments to Simeon. With your knowledge of the Cape Town property investment market, what do you think of investing in buy and hold flats/SFRs in the Rugby, Brooklyn, Ysterplat areas? Would you classify these as C or D areas? I'm looking for cashflow. My goal is to buy 10 rental units over the next 10 years.
Thanks. Jon

Hi Simeon

My research agrees with both yours and David's. I haven't found anything better than 0.8% and am looking at student and other options. I'm keen to meet up with other investors who are in Cape Town. The SAPIN events are a good place to meet investors but are not very frequent. How about we meet up for coffee and see what comes of it?

Regards

Jon 

Hi Yvette

I'm a beginner, so I don't know much yet. 

From what I have researched so far, I would say foreigners with strong currencies looking for good yields would do well to explore commercial property investments.

It's more difficult to find residential properties that cashflow, especially in Cape Town.

Jon

Lexi and Larry,

I've got some more information. I have the 2018 AFS and pictures.

I don't know how to read the AFS to determine the full costs of running the business. Am I able to send you attachments via BP? If not, could I send to your email?

In A grade areas of Cape Town, house prices are very high and rentals are usually about 0.5% of the value of the property. 

In this case the 46 properties are valued at R92m, the total rental income per month is about R500k, and using the 50% rule for costs, the cashflow is about R250k per month. However, because he has vehicles, office, workshop, staff etc., my feeling is that the costs will be higher than 50%, so maybe I should estimate 60%?

In my second meeting he said he would go down to R80m, but if I have understood the numbers correctly, then it looks like I should not pay more than R25m. 

btw - lenders in South Africa would usually want 10% ROI.

Many thanks for responding, Lexi and Larry

I will be meeting with the seller this weekend and I'll get more details.

Jon

Hi

I live in the most beautiful city in the world.

I'm a newbie, but not quite a complete novice. I'm in my 50s. I have 13 years experience of renting a cottage on our property (which includes leases, tenant vetting, maintenance, evictions etc.). We have also used Airbnb for short-term rentals of the main house. Usually to overseas guests holidaying in Cape Town.

Recently I have been looking to start a buy and hold strategy (BRRRR). My target market is families with young children who require homes with 3 bed, 2 baths, and 2 garages.

I quickly realised that it is very difficult to find cashflow properties in Cape Town. I have started networking with the intention of finding potential deals. I have one very close friend who has a been doing the buy and hold strategy for more than 10 years. He has been invaluable in helping me learn. I have also been devouring BiggerPockets podcasts (I have listened to more than 50 podcasts, read posts, used the buy and hold calculator, and connected with other South Africans on the BP website).

I have been focused on trying to identify potential BRRRR properties in B areas that look like they will become A areas as the city continues to grow. So far my marketing has been limited to driving around and then knocking on people's doors to ask if they want to sell, and also to find out about the neighbours, and what is happening in the neighbourhood.

However, at a recent networking event, I came across an interesting opportunity. An older landlord, with a portfolio of about 50 single-family units, wants to sell his business and retire. He built all the houses himself, maintains them (including the gardens) with a small team of staff, and has 1% vacancy rate. The business has no debt and includes an office building, 3 maintenance vehicles, a workshop, and a few staff.

He does all his own property management and has high standards. He doesn't have anyone in his family to pass the business on to. He has started advertising the sale of the business but he would prefer to sell to someone like me who would continue his high standards. We have met a couple of times and we get on well. At our next meeting he plans to show me the office, workshop, some of the properties, and how he operates the business.  

The portfolio is valued (at current market rates) at about $7million. (I'll use US dollars because most of you PBers will be thinking in US dollars). It generates about $28,000 net profit per month.

I only have about $50,000 cash. However, I've learnt from BPers that the money issue can be solved if the deal is good enough and if I have a good strategy to finance it.

Ideally I would leave my day-job and work full time in learning the business. Alternatively, I keep my day job and learn more slowly. Either way, as part of the deal, I would ask the owner to 'mentor' me for at least 6-12 months. 

In thinking about how to structure the deal I have been thinking about all the stakeholders (tenants, staff, suppliers, owner) and how they would benefit from continuity in the business. 

My wife has her own business and is supportive of the idea.

Assuming that the business is solid (I will of course do the due diligence and get an independent evaluation), then my questions are as follows:

1. Would you buy it? If so, how would you calculate what to offer for it?

2. Would you advise me to work for the owner for a year in order to learn the business?

3. What creative financing strategies can you suggest?

4. If buying the whole business is not realistic, then would you advise buying a portion of it?

5. Do I buy the whole business using bridging finance and then sell off most of the units to pay for it? If the market prices remain as they are then I would end up with a small number of units and no debt. This is risky and I doubt any lender would be interested.

6. How about seller financing where I use the profits each month to buy shares? But doing it this way will take 20 years which will not be acceptable to me or the seller.

Thanks in advance.

Jon

Hi Shingi

I agree with your theory about Cape Town residential prices.

I like your student accomodation idea.

I've started researching syndicating industrial property, but my initial findings suggest that it doesn't cashflow until year 3 or more, and it also appears to be a fairly closed market that may be difficult for a newbie to get into.

I'm also going to find out about low-cost sectional title.

Hi Robert

I'm also in Cape Town and I'm finding the same challenge, probably worse since you posted in 2016. 

Have you had any success in finding cashflow positive deals in any type of property?

Regards

Jon