5 Reasons Why Property Developments Are An Infinite Income Machine
Have you started investing in property yet?
There are tons of smart ways to get into the real estate market.
And I’m not sure about you, but most of the millionaires I see own property in some shape or form. The majority even have multiple properties, paying them work-free cheques each and every month.
Can you imagine what that must be like?
You make a few smart moves at one point in your life, and you spend the rest of it watching the money roll in.
There’s a reason why property investing has made so many people so wealthy, and will continue to do so for centuries to come.
Have you pictured what it’d be like living this kind of lifestyle?
The thing is though, if you want it, you simply have to get started…
And what’s the best way to do this?
If you ask me, it’s the rental investors secret profit weapon, and why some of them even refer to them as the infinite income machine.
So, if you’re looking to invest in real estate, I want to show you five reasons why you should start with property developments.
Simply read on to find out more…
5 Reasons To Invest In Property Developments
New developments offer you a number of advantages compared to other forms of property investing.
Here are five of the best reasons to put your money into a new development:
Infinite Income Reason #1: Secure A Property With A Small Deposit
Once you find a new property that’s exactly what you’re looking for, you can secure it with a small deposit.
This can be anything from around R10,000 to 10% of the property price.
Then you don’t have to part with a cent until the developer completes the property.
Plus, as you’re buying a new property, you’re more likely to secure 100% financing.
The time between paying a deposit and the completion date gives you ample time to shop around for the best bonds on the market.
Infinite Income Reason #2: No Transfer Duty
Unlike buying an existing property, property in a new development is exempt from Transfer Duty.
If you’re concentrating on the more affordable end of the market, this won’t be a huge concern as there is no duty to pay on property up to the value of R900,000.
Once the value of a property exceeds R900,000, SARS applies Transfer Duty on a sliding scale…
But if you’re planning on building a portfolio of luxury properties to rent out, Transfer Duty is a big consideration to your costs.
Infinite Income Reason #3: Low Maintenance
A huge appeal of buying a brand new property is the lack of maintenance required.
If you buy existing properties to rent out, you’ll have to spend time and money getting the property up to scratch.
With a new property, it’s in walk-in condition.
Plus, for the first five to ten years, a quick lick of paint between tenancies should be suffice to keep the property looking great.
And it’s not just the décor that you won’t have to worry about.
Your new property may come with new appliances too, which should come with guarantees. This will save you cash too.
Infinite Income Reason #4: Take Advantage of Tax Efficiencies
If you’re planning to buy a number of properties, this benefit is for you.
There is a section of the Income Tax Act purely aimed at buy-to-let investors.
It’s called Section 13sex.
So what’s so great about it?
Well, if you plan to buy a minimum of five new properties, you can take full advantage of it.
It’s a tax incentive involving the rate of depreciation you can claim on the new properties you own.
The government introduced it to encourage developers to build more properties in an attempt to keep up with rising demand.
If you opt for low-cost housing as the main staples of your property portfolio, the rate of depreciation is even higher, meaning a bigger tax incentive for you.
This is how it works…
Let’s say you decide to buy five properties in a new development.
If each property cost R700,000, your total outlay would be R3.5 million.
Each year, you can write off 5% of 55% of the purchase price.
In our example, this equates to R96,250 (R3.5 million x 55% x 5%) annually.
So after 20 years of doing this, you’d see a full tax refund.
If you buy low-cost homes, this rate of depreciation rises from 5% to 10%.
To qualify as a low-cost home, a property can’t exceed R250,000 in value or, in the case of an apartment, R200,000.
Plus, rent payments can’t be more than 1% of the value of the property each month.
If you’re about to buy a minimum of five new properties, speak to your tax consultant about Section 13sex.
Once you reach the minimum requirement of five properties, he’ll be able to ensure you take full advantage of this tax incentive.
Infinite Income Reason #5: You Can Make Money Before You Pay For Your Property
One thing you can’t ignore when buying into a new development is the potential for property prices to increase from the time you pay your deposit to the time you get the keys.
This is a very favourable position to be in.
You can increase your chances of this happening by making a careful choice of property and development too. We’ll look at this more in-depth shortly.
As with all investments, one of the most important aspects to consider is your return on investment (ROI).
In its simplest form, ROI is the net profit divided by the investment amount.
When it comes to property, how you calculate this will depend on how you purchase the property.
Calculating ROI When Buying With Cash
If you’re in the fortunate position of being able to buy property outright without the need for financing, then calculating the ROI is straightforward.
Let’s say you buy a property in a new development, costing R800,000. Other costs contributing to the purchase add up to R20,000.
This makes your total investment into the property R820,000.
You secure a monthly rent of R8,000. Over a year, this amounts to R96,000.
This gives you a ROI of 11.7% (R96,000/R820,000).
Calculating ROI When Using Finance
If you’re using a bond to fund your property purchase, calculating the ROI is a bit more complex.
Let’s assume that you buy the same property as we used in our cash example above.
As you’ll have costs associated to the bond, including a deposit of R20,000, the costs of buying the property reflect this.
Your total investment is R855,000.
As you’re using a bond to cover the majority of the cost of the property, you’ll have finance costs.
If you borrow R60,000 at 9.5% over 20 years, your monthly repayment will be R7,271.
Once your take your rental income of R8,000 a month into consideration, you’re making R8,748 a year.
To work out your ROI, you need to divide your annual cash flow by your expenses at the purchase (excluding the bond amount).
So this is R8,748/R55,000. In other words, 15.9%.
These calculations only look at the ROI without taking into consideration any capital gain from the rise in the price of your property over the years.
Your First Steps To Growing Wealthy Through Property
For most people, property portfolios seem like a crazy, unattainable goal, usually reserved for the wealthy.
But as you can see, I’ve shown you five reasons why this simply isn’t the case, all thanks to property developments.
If you’re looking to get started investing in real estate, they make for the perfect entry point.
You don’t need a huge deposit, there’s no transfer duty, they’re relatively low maintenance, there are awesome tax benefits, not to mention you can even make money before you buy one.
Property investing isn’t complicated, nor impossible for most South Africans, you just need to have the right information.
Thankfully you now have the perfect starting point if you want to build your first property portfolio.
Until then, here’s to profitable property investing.
The Money Lab
PS: What if I told you there was a way you could invest in property developments without using a cent of your own money?
In fact, there are 14 techniques you can use to get other people to fund your property development deals!
Everything is outlined in this FREE guide, you just have to tell us where to send it.