Why Property Outshines the Rest
Property’s phenomenal leveraging power
When I tell people that property is not just as good as other investments, not just a little better, and not even just a lot better, but tens or even hundreds of times better than other investments, most people do not believe it.” Realty Reality
Check So let me show you why property is so much better. Imagine you have a lump sum of money to invest. The amount doesn’t matter, as the same principles apply whether you have R5,000, R10,000, R100,000 or R1 million.
Let’s assume you have R100,000. Let’s also assume that you are considering investing either in the stock market or in property. (For the sake of simplicity, let’s ignore all brokerage fees and commissions).
I simply want to pose four questions, first for shares, then for property…
1. How many rands worth of shares can you buy with R100,000 cash? For most people when you have R100,000 cash, you can buy exactly R100,000 worth of shares. 1. How many rands worth of property can you buy with R100,000 cash? You could buy a R100,000 property. But you could also buy a R200,000 property, by taking out a mortgage for 50 percent of the property’s purchase price. You could also buy a R1 million property by taking out a 90% mortgage. If you had bought wisely, the rent would more than cover your expenses. 2. The moment you buy your R100,000 worth of shares using your R100,000 cash, how much is your shares worth? At any point in time, a share is worth that price at which willing buyers and willing sellers agree to transact a parcel of shares. In other words, at any one time, there is one, and only one, market price for those shares. The moment you buy R100,000 worth of shares using your R100,000 cash, they are worth exactly R100,000. 2. The moment you buy your R1 million property using your R100,000 cash and a mortgage of R900,000, how much is your property worth? Just as people can pay too much for a used car, they can also pay too much for a property. On the other hand, is it not possible that the property for which you just paid R1million using your R100,000 cash and a mortgage of R900,000 could actually be worth R1.5 million? It is much easier to buy a bargain than a lemon for the simple reason that the bank will not lend you money for a lemon, as their valuation will reflect the property’s true value and not the contract price. 3. 3. When you buy your R100,000 worth of shares for a purchase price of R100,000, what can you personally do to increase the value of your shares? How about writing a letter to the directors of the company wishing them well? Or going out and buying as many as you can afford of the products or services this company provides? I think you will agree that your options are limited. 3. When you buy your R1.5 million property for a contract price of R1million using your R100,000 cash and a mortgage of R900,000, what can you personally do to increase the value of your property? You could paint the property. If you do not believe that it is possible to buy a property for R200,000, have it painted, and then sell it for R250,000, you are missing out on spectacular opportunities. You may increase the value of your property by replacing the rusted gutters and down pipes on the front, by putting in a new heating/cooling system, by changing the curtains or drapes, by modernising the bathroom, by putting in a new kitchen, by painting the roof, by erecting or replacing a fence, by installing an alarm system, by fitting new door knobs throughout, by changing the window shades, by adding a swimming pool, by removing an old shed, by cleaning the carpets, or by paving the driveway. There are 101 things you can do to massively increase the value of your property without spending much money. 4. 4. You bought R100,000 worth of shares with R100,000 cash. They have since doubled in value to R200,000. What must you do to enjoy some of the increased value? For most investors,...
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