 Welcome to the 50-day property challenge brought to you by the EWF Property Academy and Private Property. Today is day 10 of our journey, so it's time to wrap up the first two weeks with Matt Owl and Jared Ricketts by going over some of the highlights of the week. First up, we had TJ of M5 Property addicts, who spoke with our celebrities about finding their best investment strategy. Let's listen to what TJ had to say. I know now today with the things that I'm doing, this would I kind of like tell the next person that this is where you can start off from. So I've really looked at it from a perspective to say, you potentially know nothing about property, and you potentially have done maybe two or three and you're looking at different strategies. And today by the end of the session, I'm hoping that I would have given you what I call seven steps of getting started in to the investment of property. And having said that, I want to define what an investment is. An investment is something that you're going to do today and you're going to make money. So making money for me, it's from day one. And the reason why I say that is because when I started doing property investments, which is run about, I want to say doing property investments the right way. Because before that, I was doing it, but it wasn't the right way. I was not cash flowing. What do I mean by cash flowing? Money in your pocket. That's what it basically means, right? So you got an asset, you got a property. After all of your expenses, you are receiving profit. Cash flow, the same thing. And we intertwine those two ways as we go along. And everything that I'm going to teach you today, it's everything that I have done. So the beauty about what I do is that I never talk about something else that I've read in a book and it's inspirational for me. I always want to teach from a perspective of I've done this and I haven't done it once, but I've done it a couple of times. And with that, I then bring it into my training programs. And then that way, I can be extremely important when I am teaching you because I've worked the journey. So, I've got a slide that I've put together that I'm just going to go through. But most importantly, I want to start off from a perspective of when you're doing investment, there is a reason why you're doing that. And the reason is that either you're wanting to create some side hustle money, so you're wanting to have some cash flow on the side. And I'm going to ask you how much are you wanting actually to have as an income. So think about that. In the second part of it is that people are generally wanting to create this future nest. And a lot of people think that's why an investment is all about. Now having said that, I'm a student of Robert Kiyosaki, I gravitate to a lot of his teachings. And Robert speaks of two things to say that when you start doing an investment, number one in investment gives you money. So you cannot be contributing to something to make it an investment. In investment is an asset that has to give you money. How much money it is, it's what we're going to be talking about a little bit later. That's the first thing. Then the second thing is that an investment shouldn't be giving you money in the future, but it should give you money today. Because if you're having an investment today, then it should act like an investment today, not like a liability. So with those two things in mind, Gerard, you've been here. So I want to ask you, what is your ideal amount of money that you're saying, hey TJ, if I get 10 grand every month, maybe in the next 50 days I'm good. On your first investment, or maybe let's even push it a little bit harder for six months. What's that money and we'll call it cash flow. For sure. So I think for me, I mean just listen to conversations with my friends who have rentals now. They've been getting 7.5 to 8 to 9. I think that's the climate in some of the essential areas in KKAR. So I'm hoping that in my first investment I could acquire a 7.5 to 8,000 grand just to start with. Just to accumulate some funds and make sure that I'm cash flow positive. Because you know, there are rates and levies and all those things included. And so I'm going to take it very steady and very safe. I think in the beginning just get the one property working for me accumulate some funds. Hopefully if it's an excess fund, we're able to accumulate some funds and then put down a deposit for the next property. The user's equity, that kind of thing. So that's where my brain is at. I could be wrong. No, not at all. That's your start. Right. And that's the beauty of it. It's your start. It's not mine. It's your start. It's your reality. So that's what you need to take in consideration. That's your truth and that's what you want to do. Metel, I think welcome. And I just want to ask you the same question as well. You know, you're starting off in investment in property. So what is your basic one on one cash flow? If you're to say in the next six months is 10 grand, 20 grand. What's that figure looking like for you? Hi, everyone. Sorry, I'm a bit late. I just ran in. So for me, I think a good, I think I'm also rolling with with Jared on this one. I guess between 7.5 and 9, you know, I'm also considering the climate of rain tools in central Pretoria area. So it would also be based on whether I'm getting a two bedroom or a three, but that's pretty much the ballpark I'm going for. Not too high, not expecting too much, especially considering where we're at with our economy and stuff like that. So yes, also want to be cash flow positive. So it would also depend on the price that I'm buying this property for. But I think if I can at least get in a rental of 7.5 towards 9, it would at least cover bond and hopefully a bit of the levees, you know, because like you say, you want when you buy it must be an investment from the get go, not start as a liability and then only later become an investment. Okay, cool. So my journey of property when it started off guys, I almost want to get where you are right now. And that's cool. That's a good place to be in. Some of you have started some of you haven't started. But the bottom line is that if you're thinking about it already to start on you have started maybe one or two. It's a good space because you already know that that's what you want to do. That's number one. Number two is that for the paper sees of this class today, for me, an investment means to give you money today. That was some amazing insights into property strategies. And I'm sure that we all learned a great deal from TJ's vast experience. Next up, we had Sophie of next year SAP and team who taught us all about the due diligence process, what it is and why we need to do a DD when we purchase our first property. Let's listen in. What is a due diligence? For all intents and purposes, a due diligence is doing your homework before actually acquiring the property. What are you in for? Ask yourself. Do I actually want to get into the steel? Do I actually want to purchase a property that doesn't have the correct zoning? Do I want to purchase a property that currently has a tenant in place? I'm not able to ask that tenant to vacate in line with that lease agreement. So those are the types of discussions and observations and things that you would need to think about during your due diligence process. And I think in closing, it's also important to remember the difference between a due diligence and often how many people mistake a financial feasibility study as being the same process and a financial feasibility is basically the sums. Does it make business sense for you to actually acquire that property? So in short, once you've gathered the information, how does that feed into your cash flow requirements and or your cost of purchasing your property? And then finally, as part of that financial due diligence or financial feasibility study, does the investment return actually make sense for you to proceed with the acquisition of your first property? So let's get to the type of information that one would consider together when purchasing a property. So first and foremost, what is the intention of you purchasing that property? Would it be for residential purposes? Would it be an investment property which you plan on leasing out to a tenant? Because all of the considerations will ultimately impact your final decision on whether you wish to proceed with the acquisition or not. At the onset, irrespective of the reason for your acquisition, there are certain costs which are mandatory and you won't get yourself out of before purchasing that property. So understand what costs would be involved in purchasing that property. For example, if you're applying for a bond, what are the bond registration costs to acquire that property? If it's a residential property and not subject to that, there would be transfer duty applicable. And what funds do you need to come up with to ensure that you are able to meet that cash outflow at the onset of acquiring that property? There could also be other conversion costs. For example, the property may not be in a state for you to lease out because it needs repairs, it may need improvements. And understanding all of those types of costs and time delays may factor your financial due diligence to understand whether you wish to proceed with the acquisition of the property or not. The revenues, so does the actual property have a lease agreement in place? And or what is the market data show you that is a potential rental return in that specific area for the size of the property, the number of bedrooms, et cetera. I think that's safe to say that no matter how beautiful the property is that you're purchasing, if the market data suggests that you're only able to achieve, for example, 5000 rand rental a month in that specific area, it's going to be very difficult for you to find a tenant willing to pay double that rental in that specific area. Staff, interview staff or people in en around that are working on the property, they generally have a wealth of information on the area, the challenges in the area and specifically to that property. What keeps the current landlord or owner up at night? Are there roof leaks? Are there security risks? Because if they are, for example, security risks, you may need to factor in additional security, electric fencing, private security, et cetera. Gathering this information obviously allows you to document all the costs that may actually impact your future or your decision to purchase the property or not. Expenses, so expenses can range from normal council expenses. You would ask for the municipal account, this would indicate the current utilities that the tenants and or the owner of the property is paying from electricity, refuse rates and taxes, et cetera. That municipal account is also an indicative reflection of what the municipal valuation of that specific property is. I think also other sources of information is obtaining a copy of the title deed for that specific property and why I suggest getting the title deed, we've often found that when one purchases a property, there are some restrictive conditions embedded in the title deed for the owner of that property. It could be, for example, there are height restrictions, the zoning of the specific property, the actual gross lettable area and how much are you actually able to develop on that specific land. And then finally ensuring that the owner has a full disclosure on the patent and latent defects on that specific property before you purchase. Some critical information that we need to know when purchasing our first property. Let's take a breather and hear from our partner Private Property before we listen to Miguel talk about bond finance. Welcome back to the first day property challenge week 2 wrap up. So finally this week we learned all about financing your first property purchase using a bond from the bank. Let's listen to Miguel from Epsa Bank as he explains how the bank makes a decision on whether to grant you a loan or not. Nigel asked me to come on and really talk to you guys about buying your first property and what's involved and kind of go from A to C. So kind of go from, this is kind of a bit of a one on one in property finance and I've got a couple slides that kind of guide the thinking and sometimes a picture is worth a thousand words. So really, this was actually three part series that we did for Nigel's mentees. And we're just going to cover like the first part today, you know, and we can see where the conversation goes. But we're going to look at obtaining finance as a salary individuals. You know, you with yourself you probably send the self employed side so so we'll kind of break out into that as well, but looking at affordability credit bureau property valuation. And then, then how to get a home loan if you are looking at investing. Okay, and we can definitely have have that conversation if, you know, if that's interesting but that's right then would probably get through the basics if that's okay. So, maybe, maybe a comment around affordability. So, okay, so affordability. So about 2007 2008, the National Credit Act came into being, and really, what that what that does effectively in very simple terms is it puts the onus on the bank to ensure that the person applying for the loan. Can sustainably afford the loan payments. So, it's no longer so the bank not so it's not just up to the person providing the own details. The bank also has to verify that the person is actually receiving that income, et cetera. And if they don't, the bank can be accused of reckless lending, where there's fines involved, they have to let the person off in terms of their loan obligations, et cetera. So, the entire onus is on the bank to ensure that the applicant can afford the loan. There's some very specific structures in the NCA in the National Credit Act in terms of what that looks like what the banks must look for. But it's become a lot more stringent than it used to be. I'm telling you, telling you who got a home loan 10 years, you know, sure. Now what's it, 13, 14 years ago, pre 2008. Why is it so difficult to get a home loan? Well, you know, the bank needs to needs to conform with with this. When we look at affordability, the types of income that we look at or salary income, commission, self employed rental income. In the case if you're running your company through a PTOI, you know, in terms of what that what the PTOI's income looks like. So all the normal kind of requirements in terms of what looks like what looks like income. Off that, so there is a calculation that happens and basically we take off your, you know, if you're buying your first home. If you're paying rent to obviously ignore that because you won't be paying that rent going forward. But we take off any car payments, store payments, credit card payments. Verticom, MTN, Wi-Fi, you know, all those normal payments that you know, groceries, school fees, all those payments that you would need to carry on paying, you know, along with your home loan payment. The only payments that we don't take into account are like savings. So if you've got a, if you're putting, you know, 2000 ram aside every month towards a savings account. I mean that you can stop in any time, you know, no one's going to force you to keep that payment going. So we ignore those, those are discretionary, that kind of famous discretionary. But otherwise we really want to ensure we really want to have a good view as to what your disposable income is. And then that disposable income is what we apply towards the home loan payments. So how much can you afford? What does that look like? So as a very, it's a number one, as a rule of thumb, we look at repayment to income. So if you take your average monthly income, we will take 30% of that gross income, so pre-tax. So if you're earning 30,000 a month pre-tax, then 30% of that is roughly, it's about, I'm not quite 10, it's about 9,000. And that 9,000 is effectively what you can afford for a home loan payment. Okay, that's a rule of thumb. But like I said on the right hand side, essentially it's income less expenses, that tells you what's available from a lending perspective. So if you go on to a lot of the bank sites and originators, mortgage originators, they all have calculators and you can go and play there and kind of get a sense for what you can afford. Cool. Okay, credit bureau. So the bank looks at, the bank really looks at three things. One is affordability. One is your credit, the third second is your credit score. And the last one is the houses, the properties valuation, which we'll come to just now. So in terms of credit score, there are two large credit bureaus that we look at, trans-union and experience. One we don't look at, which is the TPN credit bureau. I'll tell you about that in a second. And really what trans-union and experience and a couple others that, what they do is, you have to pool your payment behaviour from the likes of vote.com, edgers, anywhere where you have a contracted loan and you have to pay someone off. Even nowadays, this is where TPN comes in. TPN is a credit bureau for people paying their rents as well as parents paying school fees. So wherever you have a contract commitment to that payment behaviour gets uploaded to one of these credit bureaus. And what they do with that is that based on that, they pull a score together. It's called the Delphi score. A very different score. They just say this person pays their debts well or this person is overdated. They're not paying well, but they're a little bit more overdated than they should be. But it really does come down to payment behaviour. The banks will pool information from the likes of trans-union experience. And then the banks will create their own credit profiles. They're very clever guys with propeller heads in the back. And they really do pool the external information together. Of course we have clients who are paying us for personal loans and credit cards, et cetera. We match that and we create our own credit scores. And based on this, when you come for a loan, this is the second thing we look at very quickly. Is what is your credit score? What's been your payment behaviour? Now if you've missed one or two payments, that's not the end of the world. It's just that your credit score drops a bit. You're categorised as a slightly high risk. And the bank may require that you put in a bit of a deposit. And your interest rate might go up because of it. So it's not that banks say no unless they consider the behaviour as such. That it's not someone that they want to take the risk on. So this credit bureau, it's what it's considered to be something that's out there. And we don't quite know what's my score. And what can I do about it? So each one of these, legally, you can go to TransUnion and you can pull a report on yourself. Once a year, for free, they will have to give you a report. Them, Xperian, TPN, et cetera. And you know, it's gone to their website. So you find the right page, you might have to register. And in doing so, it's such, you'll be amazed at how much information is collected about you. And it's really something, it's a really interesting exercise to do. And it really does create that awareness that you really got to look off to your credit score. If there's one thing maybe walk away with today is just protect your credit score. It's extremely, it's extremely valuable. There is a nice app that you can use. And I actually, I've got this app, it's called ClearScore. I'm on Android, I downloaded it off the Play Store. But I think, you know, Apple, I Store will have the same. And this is, this I go to once a month. It updates. And this or effectively, I'm not sure which, which period it connects to, but it keeps track of my score. And the reason I do this, and other than just generally keeping track is to make sure actually that I haven't been, I haven't known it's done in my identity. And it's using my identity to go, to get credit out there. So I do keep track of this as a property investor. My credit score is very important to me. I can't invest. I can't finance without a good credit score. So I do keep track of it. But it's a great role. So just to check for identity to be honest. And it's a free app anyone can pull. Now here for example, 681 out of 700. Now this is there. This is ClearScore scores, credit score. Apsa, Stannerbank, FNB, Netbank, they will have their friend numbers. So for example, Apsa has a ranking out of 10, 1, 2, 3, 4, 5, 7, 9, 10. Not the 681 out of 700. But it's, you know, but it will broadly come to the same thing. 681 I think is a very good score. So this will be like a one in our space, which is the best score you can get. And it drops down quite quickly at about 626. You're probably sitting at 6 or 7, maybe 8. So it really is a nice way of just keeping track of your credit score. And as I said, you know, even a density theft. Then the property valuation. So now we have checked that you can afford it. You can afford the loan that you're requesting. That you have the affordability. You can afford it. That you have demonstrated that over multiple institutions. You can keep up with your commitments to pay your loans. You know, whether it's your gym, your school fees, or your Stannerbank personal loan. That all comes together. So tick, tick. The last thing is in property valuation. So if you're going for an application for a home loan, they will give you, they'll come, the banks will usually come back to you pretty quick within two or three days with a grant in principle. And the reason why they're saying principle because it's subject to a property valuation. They may either send someone out to have a look at the property or they might do a, what they call a desktop valuation where they look at properties in their area. They put a deed office report, et cetera. And what they really want to know is that if you want to buy this one million round home, is the property actually worth one million. Cause at the end of the day, if things don't work out and you aren't able to make your payments, in the worst case scenario, that property is there to settle your loan with the bank. So very critical for the bank to secure their loan. But also even for yourself that should things not work out. So should there be a problem for every reason, you want to be able to say, okay, let me sell my property, let me, and hopefully the price that you get should be able to settle your loan. What the bank will often do with the property value is what they call loan to value. They might say, but we're only willing to give you 90%, which means you've got to put down a 10% deposit. They won't always necessarily give you 100% loan, which I think as a self-employed individuals, yourselves, Jared and Tabelaeng, we probably will find yourself in that situation where the bank will be happy to give you up to 90%. Now, there's a good and a bad there. So you've got to come up with a 10% deposit. If you're buying a million round home, you're going to now come up with 100,000 round. That's actually challenging itself. But 90% LTV reduces the price. So at 100% we might have paid prime plus half. Now you might pay prime because you're at 90%. Even maybe prime minus 0.1. So there's definitely a benefit in terms of price when it comes to putting a deposit down. So it's not all bad. It's tough saving a free deposit, but you definitely get the benefits and price. And of course that price is what you're going to pay over 20 years. So definitely do think about it like that. Some great learnings that we've had this week and we thank our guests for their valuable insights. That is so critical when you want to purchase your first problem. For more information about this and our 50-day challenge, go to our website www.edpfpropertyacademy.com And follow this incredible journey of the 50-day property challenge that we are embarking on with our celebrity guests, Matt Owl and Jared Ricketts. Every day you can listen in on what we learned that day, follow their journey, and hopefully you too can start your own property portfolio. This is Nigela Edrianza signing off for the EDPF Property Academy and the 50-day property challenge. See you again on Monday.