Play with the right numbers

So you're going to start investing in property.

Should it be commercial or residential?

I guess the best way to answer that is to point out that residential properties tend to be less expensive than commercial and since we're just starting out on this journey, let's stick to playing with money that we can afford to lose.

Now, nobody wants to lose their money, but all investments (hey! all things we do in life) carry some risk and we don't want a bad one to bankrupt us do we?

I've had two really bad ones. The first was a commercial property that was worth about R4,3m. We picked it up at a sheriff's auction for R1,8m. Fantastic! Until the previous owner (who had defaulted on his bond repayments) located me and threatened to shoot me. Being a coward at heart, I told him I would walk away from the deal, then guess what, the bank sued me for performance under the contract so there was no way out. I was stuck with that one for about two years, until I managed to sell it to a guy who was not as easily intimidated as me. That could have taken me out financially if I did not happen to have the resources to survive (just!).  

The other one was a residential property. We picked it up (again at a sherrif's auction) for about R250 000. It was two semi-detached dwellings with a potential rental income of about R6 000 per month. We talked to the then occupants and they signed leases for R6 000. Everything looked great (including return on investment). After a few months, they found a clever attorney. He persuaded them to stop paying rent. After a couple of months we proceeded to obtain an eviction order (cost about R8 000). The sheriff duly went along and evicted them and we put new locks on the external doors. Next day they were back in there! We couldn't get the sheriff back (he only does the job once) so we laid a charge of breaking and entering and of malicious damage to property. This dragged on for months and the file got thicker and thicker. During all of this, we were trying to get a rates clearance certificate out of Jo'burg Municipality. They claimed that there was about R500 000 outstanding. We proved to the court that it was only about R48 000 which on the court's instruction, we paid. They still wouldn't give us the clearance so we couldn't take transfer. After three court appearances, all of which we won, we threatened the Mayor and his underlings with a charge of contempt of court. Finally, their attorney told us they would give us all of our money back if we dropped the case. Bye bye bargain!

Property investment is great, but the bigger the returns the greater the risks, so play with amounts that you can lose without going bankrupt.

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