COUNT

July marks Na­tional Sav­ings Month and we interview a reader who made small ev­ery­day sav­ings to cre­ate enough cap­i­tal to start a prop­erty port­fo­lio, writes Maya Fisher-French

CityPress - - Business -

At the be­gin­ning of this year, Honey Hin­doga wrote to City Press to say that, by fol­low­ing our weekly money tips, he had man­aged to save R100 000, which he was us­ing to buy his first in­vest­ment prop­erty. His plan was to pro­vide de­cent, low-cost ac­com­mo­da­tion for ru­ral and migrant South Africans look­ing for af­ford­able sin­gle back­yard rooms to rent close to their work in Jo­han­nes­burg. “This mar­ket has no in­ten­tion of own­ing prop­erty in Jo­han­nes­burg as they have fam­i­lies back home,” wrote Hin­doga.

Six months later, Hin­doga has be­gun to im­ple­ment his plan and is al­ready gen­er­at­ing more than R19 000 a month. Once his debts are paid off, this money will be free cash to pro­vide him with an in­come, al­though he has fur­ther plans to ex­pand his rooms-to-rent busi­ness, which he es­ti­mates will be earn­ing a net profit of more than R23 000 per month by 2020. How he did it: Hin­doga had al­ready turned his ex­ist­ing home into a cash­gen­er­at­ing as­set by rent­ing out four rooms to ten­ants. He used this rental in­come to­wards sav­ing for his in­vest­ment prop­erty.

“The prop­erty is in a black town­ship and not far from an in­for­mal set­tle­ment but very close to two main shop­ping malls in the East Rand, which makes it very at­trac­tive to peo­ple who are look­ing for ac­com­mo­da­tion to rent,” says Hin­doga.

Of the R100 000 he had saved, he used R40 000 as a de­posit on the R400 000 prop­erty, kept R25 000 for bond reg­is­tra­tion and trans­fer costs and put the rest to­wards start­ing his build­ing ex­ten­sion project.

His mort­gage re­pay­ment on the three-bed­room in­vest­ment home is R4 200, but Hin­doga did some door-to-door re­search and found that he could eas­ily cover this mort­gage by rent­ing out the ex­ist­ing rooms in the house.

His big idea was to use the large space at the back of the house to build 10 sin­gle rooms with built-in toi­lets, show­ers and dish sinks to make them se­cure and unique.

More door-to-door re­search, which in­volved talk­ing to other land­lords in the area, es­tab­lished that he could rent these rooms out for be­tween R900 to R1 300 per month. Hin­doga based his af­ford­abil­ity cal­cu­la­tion on a rental in­come of R1 200 per room and on this ba­sis took out a R230 000 per­sonal loan to com­plete the build­ings.

“Per­sonal loans are very ex­pen­sive but I had no choice as banks seem re­luc­tant to fi­nance build­ing loans and they are such a has­sle. This is what I find very chal­leng­ing when in­vest­ing in town­ship prop­erty.”

Hin­doga was im­me­di­ately able to rent out the main house, which cov­ered the mort­gage bond on the in­vest­ment prop­erty. In May six rooms were com­pleted and im­me­di­ately oc­cu­pied. Due to the huge de­mand, he was able to charge a higher rental than his orig­i­nal cal­cu­la­tions, re­ceiv­ing R1 350 per month for five rooms and R1 450 for the larger room. His rental es­ca­la­tion is R50 per year.

“My ten­ants pay their own elec­tric­ity. All rooms have pre­paid elec­tri­cal me­ters, builtin basin, toi­let, bath fa­cil­i­ties and kitchen sink. My friend calls them apart­ments be­cause they are fully equipped,” says Hin­doga who was amazed at the huge de­mand for sin­gle rooms in the area. “Peo­ple still call me to this day, look­ing for ac­com­mo­da­tion.”

All the in­come from these rooms goes to pay off the mort­gage and per­sonal loan. He also still re­ceives rental from the rooms in his res­i­den­tial home. That, to­gether with the R3 000 that he is able to save from his salary each month, will al­low him to pay off the per­sonal loan in the next two years. Once that is paid off, Hin­doga will be gen­er­at­ing a net profit of R18 000 per month off both prop­er­ties. How­ever, he sees this as an op­por­tu­nity to ex­pand fur­ther.

Al­though Hin­doga is gen­er­at­ing enough cash at the mo­ment to ap­ply for an­other loan and start con­struc­tion on the next five rooms im­me­di­ately, he is wor­ried about overex­tend­ing him­self. By wait­ing un­til he has paid off the loan on the first six rooms, he will be able to build with cash and no debt.

“I will build the five rooms by the end of 2019 so that by the end of 2020 I’ll buy a third house to ex­pand my rooms-to­let busi­ness,” says Hin­doga, who es­ti­mates that by 2020 he will be earn­ing a to­tal of R23 500 net profit af­ter the mort­gage pay­ments. “I’m aware that this won’t be easy to achieve and it will re­quire fi­nan­cial dis­ci­pline and in­tel­li­gence.” Ad­vice from Hin­doga to other bud­ding prop­erty en­trepreneurs: “As I read in City Press, it is very im­por­tant to buy prop­erty in a good area near shops, restau­rants, schools, shop­ping malls, in­dus­trial ar­eas.” Hin­doga did a great deal of re­search be­fore he in­vested, he un­der­stood his mar­ket and what he could real­is­ti­cally ex­pect to re­ceive. By pro­vid­ing cost-ef­fec­tive, de­cent ac­com­mo­da­tion he is build­ing him­self a pas­sive in­come while con­tribut­ing to al­le­vi­at­ing the hous­ing short­age. It is this type of en­tre­pre­neur­ial ac­tiv­ity that South Africa needs.

Hin­doga’s money tips

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