 which is structuring a property deal. And we're gonna get to that just in a second. Remember, as it is a Tuesday, you can look forward to Malino bringing you the farming podcast later on this evening. I'm quite excited about the topic that she'll be covering later on this show and seeing her posting on her social media platforms as well as of course, private properties social media platforms. So do look forward to that at 8 p.m. And of course, tomorrow evening, at the same time, you can catch S.T. Carson on the first-time home buyers show, which he's always in conversation with people who have walked that first time home buying journey and have gone on to grow their property portfolios from straight to straight. Before we get started with our conversation this evening, remember, we are running our competition where you stand a chance of walking away with 500 rands of cash every single evening. It has been rolling over for a few days. Sitting at 2,000 rands. And I do hope whoever we're going to be calling out this evening is watching us live and is going to claim that money. I know a lot of you at home, especially on our Facebook page, wants that money and I've been seeing you posting. I think yesterday, somebody was even saying that they are cousins, they're twin with the person who had won yesterday. But this evening, we're gonna see if our lucky winner is watching us live to claim their prize. And if you at home want to stand a chance of walking away with that cash, make sure that you interact with the pinned post on our Facebook page. Well, let's get right into this evening's conversation. I know that the tech gremlins have eaten away at our time. We're looking at structuring a property deal. This is structuring a property deal, one-on-one for beginners. For me, this is one of my all-time favorite topics because if anything, it cuts through just about everything you need to know when it comes to property because you really do need to understand various layers and various facets when you're structuring a property deal. And sometimes even if you've got one financier and that one financier could easily be the financial institution, you still need to understand what the fundamentals are when it comes to a property deal. What do you need to be looking out for? What are some mistakes you need to watch out for? And how can you best even position your value proposition when you're going to be approaching private individuals or company to fund your property ambitions or property deal? And that's exactly what we're going to be looking at this evening. I'm joined by Grant Smear, who's a director at Only Realty Group. Grant, good evening, and thank you so much for joining us this evening. Hi, I'm Yvonne, thanks for having me again. And then for the viewers at home, I want to find out from you, have you ever had to put together a property deal? And what did that process teach you? I'm going to share it on the show, some of what I've learned when it comes to putting together a property deal. And really one of those things that I still carry with me to date, but I want to find out from you at home, have you put together a property deal? What did you learn? What did you discover along the way as you're putting that deal together? Do you share some of those insights with us down here below? Now, Grant, I think at a high level, when we're looking at structuring a deal, and I think this is one of those things that can be very fun for, especially the finance guys, I always say to people, I'm not particularly a finance person when it comes to the fine detail, but I'm very good at understanding some of the fundamentals. And we always talk about understanding, particularly your financial fundamentals. What would you say are some key financial fundamentals when it comes to structuring a property deal, especially for beginners at home? Yeah, so I think the good thing you need to consider when you look at a property deal is really what outcome are you trying to achieve. So if you're looking to flip a property, there are certain things you need to look at. If you're looking to buy and hold the property for the long term or medium term, there's other sort of elements you need to look at. So if you're looking to flip the deal, what is the cost of going into the deal? What's the cost of the manual, the finance that you are making use of? And then what's the cost of going out to the deal? So estate agent fees, capital gains tax, or trading income or income tax against that property deal. Then if you're looking to buy and hold, again, it's the cost of buying the property, renovating, and then the cost of holding, you know, levies. And we've had this conversation before, looking at the cost of levies, looking at the cost of rates in taxes. And then again, and even potentially the cost of ongoing maintenance and your management fees. And, you know, again, the cost of the money to hold that property. So, and ultimately on both instances, we're looking with your buy and hold or looking to flip a property, it really comes down to the return on investment. How much money are you putting in and what return are you getting on that money? I know a lot of people, particularly finance guys, like you say, will get into much more complicated and complex calculations and do all these sorts of things. And ultimately what I have found over the last sort of 17 years, it really comes down to return investment. How much money am I putting in? How much money am I getting out towards that return? And I think one of the things with working with finance guys is, and I've spoken about this on the show quite a bit, is they want to look at the granular details. They want to understand what the cost per square meter is, what the return per square meter is. And more often than not, when you're starting out, you're certainly not looking at any property investment or property deal, you know, at sort of that granular level and even understand sort of every 1,000 rounds or every 100 rounds that's going into a particular property. Of course, the bigger the property, the bigger the numbers, they'll look at the scale of it. But I think at a beginner level, it's so important to not get swept away with I think the excitement of owning a property or the excitement of having a tenant who is making their rent on time and you thinking, well, I'm collecting this rental, but ultimately not understanding, you know, the full on costs that come with that property. Because I think we often make that mistakes. I know one of the mistakes that I certainly made fairly on in my own property investment journey was not factoring in the upfront costs, as you were saying, right? So as much as we talk about your budget for the transfer fees, the attorney fees, if you're going to have any transfer duty budget for that, when we then run our numbers in as far as our return on investment, we no longer factor those costs. It's almost as though we forget, we made all these payments upfront and we're not only looking at the monthly running costs of the property, you're looking at the bond payments, the levies, if it's an intersectional type of community, or if you're paying an HOA and of course the rates and taxes, but you no longer actually factor in even the cost of that facility. Because I think this is also one of those costs that we tend to not factor in when we're looking at a deal that we're running. When we then look at some of the mistakes, because I think that would probably be mistake number one, right? Not looking at the overall costs of going into a deal. And this one I want us to look at exiting and exit strategy. I found, I'm not particularly too great on the exit side of a deal, very great at an entry level and optimizing my returns throughout the journey, but the sale signed, haven't quite mastered that side, but we'll deal with that later on the show. When we look at some of the common mistakes, Grant, that you'd see people making, what would you say they are, especially in the context of people who are buying multilates, because I'm seeing a lot of people wanting to go the multilate strategy or house hacking, as some people call it, because the finding that look, the returns there are great. You know that you've spread your risk quite well. What are some common mistakes that you're seeing people making when they're building their property portfolio by buying multilates in particular? So I mean, the first one is being the eternal optimist. I think a lot of people go into the space just assuming the best and not making provision for the worst. So not making provision for voice, not making provision for maintenance, you know, multilates or these communes are really, you know, hard-wearing properties. You know, you've got a lot more tenants in it than the property was bought for. Tenants do, or the amounts of tenants does take its toll on the property and it's not a large sort of allocation for maintenance during the period as well. And then I think the second one, so it's being the eternal optimist, not catching a hidden cost, I suppose. And the other one then is just look at the cost of money. Multilates are notorious for being difficult to finance. Banks aren't that excited about them, although they really should be. And it's sort of a big trick that the banks have and will continue to miss for whatever reason, maybe it's just not understanding that space. But, you know, they are difficult to finance and traditionally you'll go into the private finance sector to try and get finance for these. But then you look down the, you look at the gift horse in the mouth and you don't want to take financing from an investor who's willing to give you something at 12 or 13% although sometimes these things are returning 20, 25%. So just, you know, you don't want to walk away from a good deal because of the cost of finance. You can always, you know, once the deal's in place and it's working and you can go improve the financials, you can go and get further finance and cheaper finance but don't look at the gift horse in the mouth if it is finance available. Mm-mm. If you have just been asked this evening, I'm in conversation with Grant Smear who's a director at Only Realty Group. We're looking at structuring your property portfolio, structuring your property portfolio one-on-one especially for those who are still relatively new, the property game thing will do a massive version, right? A slightly more advanced version of this because they're different ways to structure a property deal that are very creative and innovative and using a combination of different kinds of finance. So I think more often than not, we're very used to using one kind of finance for a property deal as opposed to, you know, using and playing around with different variations and we'll definitely do an advanced version of this. But this is at a beginner level. If you're looking at structuring a property deal, this is some of what you need to look out for. I want us to go for a quick break and see who the potential winner for this evening's 2,000 rand cash prize is. And when we come back, Grant, I want us to look at how can viewers at home, you know, position themselves when it comes to raising private capital. Because as you were saying, more often than not, when we deal with the multi-lites, banks tend to be very reluctant to fund them. And we're increasingly seeing a lot of, you know, up and coming in young property entrepreneurs and investors wanting to go into that space and seeing a gap in the various communities that they're operating in or want to penetrate and want to raise capital. And sometimes there are some of us who have the capital to kind of play around with and looking at different deals to go into. On the one hand, how do you structure a deal to make it advertising for various private backers who may have some funds to put in your deal? And also then on the other side, how can the private backers, because I'm also not taking it that every private backer has expertise, but how can they also best adequately vet the people approaching them for this capital and for them to also be clear on what their exit strategy and how they're going to make returns on a particular deal. Let's go for that quick break and see who the lucky winner is of the 2,000 rounds that is in the money bag. And this evening's winner for that 2,000 rounds that is in the money bag is Megan Matthews. Megan Matthews, if you are watching you and this evening's lucky winner of the 2,000 rounds for our competition, remember you have to drop us a text before the end of the show to claim that 2,000 rounds cash prize. I know many people at home are counting on this rolling over and rolling over and rolling over. We're going to see if Megan Matthews is indeed watching us and will claim that prize. And I already see some of the numbers that we're getting on our Facebook page. Abeta Albertine Geraldine Carolus, Queen Tarko, as well as Unonim Uta watching us on our Facebook page. Do you keep that love coming up? And of course I also want to find out from you at home as we're looking at structuring a property deal and certainly looking at it from a beginner's perspective, some of the fundamentals that you need to be aware of, some of the mistakes you want to make sure that you watch out for. And how you can approach private investors and best positioning yourself for those private investors. And I found out from you at home, if you've ever structured a deal, how did you go about doing it? And what were some of the lessons that you learned even as you try to raise capital for your property venture? We've got on our Facebook page, one of our top fan gang members, Howard McIntyne, saying, please do structure your deal from negotiating, the purchase, ensuring you're buying slightly below market to negotiating your interest rates for as long as you get the lowest and most importantly, do apply the registration for a higher bond. And I absolutely love that one, right? Granton, you'll talk a little bit about that, especially for those who are looking at sort of single units, registering a higher bond and in as much as we access the money, you know that let's say you register 1.5 and the bank also agrees that you can register 1.5, but you know that you've only asked for a million rands from the bank. And so you've got that half a million rands buffer should you need it in the future. We'll talk a little bit about that. We've got Matesh Shannang is saying, I watch with admiration those who get into deals with big property developers would be interested in knowing how that works. And Granton can speak a little bit about it. I mean, we've spoken to Grant about it when we looked at buying into a new development, firstly as an individual basis, but also as an investor, how oftentimes you are able to make quite a good return when you get in very early with a developer and the various ways that people are doing so. I think, Grant, let's start with Matesh one because I think this is an easy low hanging fruit. Getting into a deal with developers very early on. So more often than not, it's even before they break ground, how can people get a sense of which developer they can even approach to be able to get into that kind of relationship with them. Yes, I mean, this is one of those contentious spaces where buying early into development, you get big returns, particularly phase one. The developers early on are not trying to prove to the banks or their finances that they can sell the development. So they're very keen to get offers to purchase signers as quickly as possible and get guarantees in place. So you can, if you're going to go into developments and my first suggestion is look at developers with a proven track record. I mean, it's vitally important, either proven track record or management team with a proven track record. It's almost when you're investing into the development, you're actually investing into the development company when you're getting in early because there's no actual assets underpinning your purchase. So look at the development team, understand their background, do search on social media and the instance and amazing thing, you can find a lot of detail about people these days, particularly where they've done things with shortcuts. So I would check out the development company and there are some big guys at the moment that are charging a premium, not gonna name any ones that I shouldn't, but they are guys maybe you shouldn't look at, but be careful when you go into developments, there are issues around buying too large developments where there's a tenant focus. My suggestion is look at ones where there's a much higher percentage of owners, owner occupiers, and those are generally better looked after and gain better capital value in the medium term. And just again, look at the existing demand around those areas, particularly areas that are booming at the moment, you don't necessarily want to buy into larger development because your competition is going to be meant for the next sort of five to seven years. And when we look at Howard's point around registering that higher bond, I think this is one of those strategies that a lot of newbies and even people who've been doing this a little bit tend to not know upfront, the ability to register that higher bond just take us through how somebody at home would use that strategy and the benefit of using that strategy, especially when it comes to unlocking some capital few years down the line. Yeah, so essentially I mean it's a cost saving method and sort of just simplifies the process for you to access capital that you've created within your property. So using your numbers, you register 1.5 billion round bond against a million, a purchase of property, you only need a million round bond from the bank and you'll be paying your repayments on that million basis. But if you then want to access at a later stage, the 500,000 range, you can do that quite easily without getting that second set of attorneys involved and the transferring attorneys and you approach the bank to access that. They'll generally send out a value to just ensure that their money is protected, but you won't have to reach the additional bond element or a secondary bond against their property which sometimes the banks don't like doing. So it's a much easier way just to access finance of the property, particularly we've bought the property under value. It's a really good strategy to create future finance opportunity. And again, probably the cheapest form of finance you'll get is bond finance. I think if anything, it's probably such a great time especially right now where the cost of that credit facility is so low. If you know that even when interest rates go up which we know that they're going to go up, you're able to find a really great property and really push down that purchase price as low as possible. And the value, you're still going to get away with being able to register that higher bond just based on the value of that property. It's probably a really great way to secure your ability to access that capital at a later stage. Now, granted, one of the big things is then for visa home who are looking to not only go the bank route or perhaps not even go the bank route at all. So if you're looking at target your private financiers particularly those, cause I'm seeing this quite a bit those who've got the capital, they're looking at financing a deal and would sometimes say, let's say in the next two or three years these are the kinds of returns that I'm looking to have. How can you then at home sort of best position that deal for people who have the funds to be able to finance that deal especially when you're not going to be using any ex-aspect of the bank's financing? Yeah, so I mean, the first thing and the easiest access is the bank of mom and dad. Those are the people who should trust you the most who should give you the most access to financing but ultimately no matter who it is whether it's your parents or friends or family or sort of colleagues, there's two elements to any investor and what they want is they want returns on their money and part two is security or de-risking their money. So they'll understand what the risk is and what the security and depending that asset is. So whenever you're going to put a proposal together with us or really things you need to address is what returns you can provide them on their funding considering the deal in place and then how do you de-risk that investments or how do they know they're not going to lose their money. Now the easy thing in property is that any finance is underpinned by a property which is sort of a big advantage here and why generally even financing from bank is provided at a much lower rate than for example credit cards or loans because there is an asset back, so that's useful but what you need to do is then figure out which some of you mentioned earlier how do you get that investor's money back to them. So if you're looking to do a flip deal it's a much easier sort of conversation to have and we're looking to get into the property another property within a year but if it's a longer term holding strategy you're going to have to be quite clear on how you pay that money back whether it's a refinancing process and over a period of time or whether you may be going to pay them back on a repayment basis during that period or for over a longer term. But generally speaking you're going to approach investors who are looking to do two to three years very rarely I think you're going to get somebody that's willing to park the money with your tenures and then you'd need to have an extra strategy and be very clear on how you can get the money back to them. And I think Grant when you look at it is a strategy I want us to look a little bit on some of the people I know are looking at potentially financing people's deals I mean I get approached with this quite a lot some people say that I've been approached and I've got a bit of money lying around how can I best assess whether this is a good deal or not and almost a question around I think beyond the good deal is how can I also make sure that I'm able to exit and for a financier so your private financier you may have some money a bit and you have the friends of the family reaching out to back their property deal how do you also sort of best make sure that you're able to firstly understand have a very clear exit strategy because I think one of the key things that a lot of people seem to struggle with both from the person raising that capital but sometimes also for newbies who are looking at finance and people's projects is having a very clear exit strategy so there isn't a clear path of okay I'm getting in with half a million I want to be in for a period of time what would exiting look like for me and if I exited different stages of this deal what are some of the returns that I'm looking at to find that that tends to be lacking especially for sort of newbie players within the property space so how can then on the I'll say the investor side where you're the financier how can you almost have a clear view of your exit strategy because I think see through such an important thing that I think not a lot of us are able to have a good sense of Yes I mean again it's about understanding the strategy that the investors going into so while they're buying the property what's the purpose what's the term hold that they're going to hold it also comes down to then the agreement so my recommendation is they always need to be at least two extra strategies out of any deal and that's for the investor that's for the sort of private investor but that's also for the property investor buying the deal if you're going to buy a property for a flip and the deal doesn't work you need to be able to either raise it out put it into multi-lens you know, do something develop it there's got to be some other extra strategy and on the same vein the private investor needs to have more than one extra strategy whether that means sale of the property to come out of the deal other financing that comes from somebody else that can replace your finance you know refinancing with the banks there's got to be multiple options for that exit in the timelines part two is you need to work on best-case scenario and worst-case scenario so assume that going into for example the flip deal you're going to get your money back with your returns in six months but also maybe make the assumption that within a five-year period you might start getting a monthly return and cater for that you shouldn't really be investing private money with a property investor that you're going to need in 18 months time you know that money needs to be sitting somewhere that's parked and you need to understand that if you park it into a property a bricks and mortar is notoriously illiquid particularly if Mark turns against you which you have no control over so it's important that you do have multiple exits and multiple scenarios sort of catered for and that's not only in the conversations that you're having but also in the agreement that you put in place between yourselves and I think this is one if we talk about big mistakes that people make when they invest in property and in particular private finances is not having a very clear agreement in place and also not having the legal means to to go and enforce those agreements when they're done so my suggestion is certainly getting an attorney involved to make sure that you're interested and protected and that's both parties and not just the private investor and you know Grant I think one of the really big things and I want to echo to viewers at home especially right now as we're seeing a lot of people increasingly getting excited about investing in property and being able to see different opportunities in their respective communities and filling different gaps is that you still want the services of a professional always get an attorney involved the moment money's are going to be transferred it's not enough to say you know Zaman Dunwai you see her live every single evening and so even when you're dealing with somebody who is you know will say relatively known or you know them from somebody you know adequately doing your due diligence and of course getting an attorney involved in a property deal becomes such an important part because ultimately it's money that are getting involved you're not just buying a pair of jeans so you want to make sure that those basics are covered now I was saying to viewers at home that I will share a little bit about some of my own mistakes I think that I made very early on in my property general comes to structuring a deal and it's something that you know granted actually highlighted and that's being too optimistic I think more often than not when we look at the numbers you know you kind of have the high end of what the returns could potentially be and I think earlier on in my own journey I used to run the numbers more on the optimistic side and you know wasn't factoring vacancy rates and kind of assumed that I would get sort of the maximum for the respective properties as opposed to being slightly more prudent on the you know on the income that I was expecting or projecting for the property and buffering in maintenance I think I learned very early on having made this mistake early on that rather overestimate what you'll potentially spend on maintenance and budget that in and obviously the aim is not to reach that target than to underestimate your maintenance budget and then increasingly exceeded like those for me were the two things that I typically didn't look at and some of the earlier properties initially would need work and so also underestimating the costs of doing refurbishments which is partly why I've become really great at running numbers when it comes to refurbishments I think the last time we were even talking with Gondra saying how I'm a stickler for you know tiles I know what tiles cost I know how much cement costs because I buy tiles and cement you know that regularly and there's just certain items that one would need in a property that I buy fairly regularly and have a good understanding of what that cost is so rather overestimate those as much as possible and you know factor them into a deal and factor them into running your numbers then be prudent in them if anything if you want to be prudent be prudent on the income side I think you're more likely to be more successful if you do it that way I see more of the love that we're getting on our Facebook page Serifi and Washeng saying Megan had an extra time to make a claim for Lofelo who they're saying I really need it of course referring to that 2000 rand cash prize that is up four grams and we see that Megan Matthews unfortunately has not claimed the money she's got a few more you know minutes to potentially claim it I want to wrap up with you they'll grab this evening when we're looking at the newbie property investor right now what final tip would you give to them when it comes to structuring their property deal that they always need to pay in mind even as we'll cover intermediate and more advanced levels of structuring a deal in future episodes but certainly one of those common threads that are crucial regardless of which level you're in I mean structuring such a broad subject so we only had half an hour and we can speak ours about this so I think the most important thing for me is when you're getting to this property space we're talking big numbers even the smallest property in South Africa you're talking 400, 500,000 rand very few people can afford to lose that sort of money so I maybe just want to highlight the importance of professionals in the process I think professionals at every level there are very good bond originators there there are very good people that are invested in finance they're very good attorneys that do structuring and we talk about property deals that do instalments and agreements and standard agreements and private finance agreements and company loan agreements all those sorts of things so I think it's vitally important that at every stage you don't look at the cost of these people because they're actually ultimately protecting and saving you from losing a lot of money in the property space we're not talking again 1,000 or 2,000 rand we're talking a lot of money so the big thing for me in newbies that I see is that they try and do things via Google or Facebook Warriors take suggestions of Facebook groups and that sort of thing versus addressing and speaking to professionals that they are paying for their advice that have got a proven track record and the expertise in this space Thank you and I think that's actually just such a great news to leave it in, Gron that you want to work with professionals because ultimately what you're going to spend when it comes to property is probably going to be the most expensive thing that you'll ever spend on as Gron to say even the lower end property in South Africa is 400 even up to half a million the majority of South Africans don't even make that per annum so you really do want to make sure that from the get go you're working with professionals and you're not cutting corners because there's a way that cutting corners especially in the beginning part catches up with you in ways that ends up costing you quite a lot of money later on so rather be clear from the get go is particularly when you're structuring a deal I think don't skimp on the professional services very easy for us to think we can find a friend who can do it but you really do want to work with people who do this for a living and this is what they ultimately do to be able to help you structure your deal Gron, it's always such a pleasure to have a conversation with you on the show thank you so much for joining us thank you very much and that is Gron Sneo as a director at only Realty Group wrapping up the Tuesday edition of the private property part with myself, Ozaman, Dong-Wang, Kuma Lo unfortunately I can see Megan Matthews has not claimed that 2000 rand cash prizes in the money bag and so we are going to have a roll over tomorrow part of me is interested to see how far we're going to have this roll over for I think it would be quite interesting if you get to 10,000 rand I know many of you at home watching with baited breath how far we are going to go but we'll see who tomorrow evening's winner is and we'll continue engaging with that post on our Facebook page it's the pinned post where we're looking at having 20,000 comments on that post and that is how we wrap it up this evening on the private property part with myself, Ozaman, Dong-Wang, Kuma Lo I'll be back on your screens tomorrow evening at 7 p.m. You can look forward to bringing you the form in podcast at 8 p.m. Until then, hoping you're staying home and staying safe