How To Buy Half Price Property Without Ever Going To An Auction Or Needing A Bond

Written by Julie Brownlee on February 16th, 2017

How To Buy Half Price Property Without Ever Going To An Auction Or Needing A Bond

Most investors I know can’t invest in property because of this one frustrating reason.

It’s the excuse I’ve heard the most, and I’m pretty sure it’s the main reason you don’t see more people investing in property!

I’m talking about people thinking that they need millions in the bank to invest in property.

But what if I told you there was a way to invest in some of the BEST properties in the country, even if someone already owns them, without needing the bank account of some fat cat CEO?

No, I’m not talking about some clever OPM strategy…

I’m not talking about picking up a bargain at auction…

Nor am I talking about REITS…

In fact, with what I’m about to show you, you’ll be able to buy property at half price and have the rest paid off by other people!

You wouldn’t even need a bond either.

It all comes down to this simple property investment tool.

And today I want to give it to you…

 

The Tool You Need To Cash In On Half Price Property

 

Cashing in on property isn’t just limited to buying bricks and mortar.

There are other ways to take advantage, for example you can buy shares in property companies and REITs.

But there’s another option for you to consider…

And this way, you only have to cough up 55% of the share price!

The tool I’m talking about is called Property+.

Unlike investing in physical property, investing in these instruments is much more cost effective.

Not only that, you can gain exposure to some of the best property investment companies on the Johannesburg Stock Exchange.

Plus, you don’t have to put down the full value.

Instead, you can take advantage of the leveraged aspect of these instruments.

Property+ is a form of warrant issued by Investec, and they are listed on the JSE, just like shares.

The great thing about these instruments is that as they’re warrants, the risks are far lower than other leveraged instruments, such as futures or CFDs.

You can’t lose more than you put down, so your risk is strictly limited.

 

 

The Magic Behind Property+ And How It Works

 

When you purchase these instruments, you only have to put up 55% of the underlying share price.

You owe the remaining 45%.

But what’s rather ingenious with Property+ is that Investec uses the rental income, in the form of dividends, from the underlying share to settle this outstanding amount.

As you effectively ‘borrow’ the remaining 45%, you’ll also pay interest on this. So this income will also cover this.

Over time, the amount you owe on the share should decrease. This continues until the value of outstanding amount is as little as 1 cent.

This would result in you having to make a final payment of just 1 cent to own the underlying share.

And the good news is, Investec may actually waive this amount.

Yet, if you decide not to exercise your warrant, you don’t have to. You are under no obligation to make this final payment.

In this case, you won’t own the underlying security and the warrant expires.

 

The Ins And Outs Of Warrants

 

Investec issue Property+ as a European call warrant. Warrants are very similar to options.

A warrant gives you the right, but not the obligation, to exercise it by or on the expiry date.

On the date Investec issues the warrant, you can buy it for 55% of the price of the underlying security.

As the expiry date for the warrant nears, the price should move closer to the underlying price.

Once the expiry date arrives, you can decide whether or not to exercise your warrant and own the underlying share.

Until the expiry date, you can sell at any time.

Have a look at the chart below…

Warrants Chart Explanation

Source: Investec

The chart shows you what happens to the outstanding amount on a warrant.

Periodically, usually every six months, the underlying share will pay out any distributions due in the form of dividends.

As you can see from the chart, this reduces the amount left outstanding on the warrant.

In between these distribution dates, the outstanding amount begins to rise again due to the interest you have to pay on the loaned amount.

And, as we looked at earlier, the amount due reduces the closer the warrant gets to its expiry date.

What’s great about Property+ is that each time the underlying share pays out dividends to its shareholders, this goes towards paying for your property investment.

 

How To Bank 145% From Someone Else’s Property Investment

 

Let’s say you decide to buy the Investec Property+ warrant on Growthpoint.

Growthpoint is a diversified property company with a portfolio valued in excess of R100 billion.

The share is trading at R26.00.

As you only have to put down 55% of the value, you pay R14.30. This leaves an outstanding amount of R11.70.

As time passes, Investec will use the rental income (or dividends) it receives from the underlying share in Growthpoint to pay off the remaining balance.

This will continue until the outstanding balance drops to R0.01.

You then can exercise your warrant, pay the R0.01, if required, and you own the underlying share.

For holding the warrant, you’ve made 81.8% on your original investment of R14.30.

Of course, the scenario could be even better.

What if over the period of time you hold the warrant, the underlying share price rises?

Let’s say it rises from R26.00 to R30.00.

That would boost your return to 109.8%!

If the share price grew to R35.00, your return would be 145%!

And you don’t have to worry too much about the share price falling. It would have to fall a mammoth 45% for you to be out of pocket.

 

The Simple Way To Start Investing In Property+ Warrants

 

The first thing to do is speak to your stockbroker to find out which of the Property+ warrants are available to invest in.

You want to buy these warrants as close to their issue date as possible.

If you’ve only purchased shares up until now, you may have to sign an additional agreement with your broker.

This states that you understand the additional risks of investing in this form of financial instrument.

Once you’ve done this, it’s a case of deciding which Property+ warrants you want to buy.

Then you just need to sit back and let time work its magic on this property investment.

 

How To Get Real Estate Rich Without Ever Owning Any Actual Property

 

If property shares form part of your portfolio, you’re really missing a trick ignoring Property+ warrants.

As you only have to put down 55% of the share price, you’ll be in a position to make your money go further and buy more.

You can buy these warrants with the objective of growing your share portfolio over the long-term.

Yes, as with any investing there are risks, but with the quality property companies that these warrants are available on, the odds are on your side.

Property+ allows you to gain exposure to property normally well out of the reach of most investor’s pockets.

Property can offer you a good investment, but if you’re smart about it you can turn ‘good’ into ‘great’ with Property+.

Until then, here’s to profitable property investing. 

Julie Brownlee | The Money Lab

Julie Brownlee
Editorial Contributor
The Money Lab