S3 E2 Prop Yourself Up For Wealth

In Season 3 episode 2 Arthi & Malika continue with the advent calendar of investments discussing real estate as an investment. They explore some of the most common ways to make money through property investment, the first being buying a physical property. Arthi lists a few of the ways in which you can influence your decision when purchasing a property.

Malika shares a highly useful fact based on renting out space on your property, which can offer a sense of safety & community,  but further assists in paying off your mortgage or home-loan at a faster rate. The positive impact of this is that it reduces significantly how much of interest you pay over term or length of the home-loan, you pay your mortgage off quicker which means you save money.  Another option could be investing in a holiday home to rent out for additional income. A family vacation spot plus income when you are not on the property. 

Arthi introduces another property type which is commercial property which can be upcycled in terms of purpose,  such as storage, recreational centres, co-working spaces to name a few.

Malika details the strategy of flipping houses and introduces us to REITs.

Thus, there is a wealth of ideas to help one prop(erty) one's up for long term wealth creation. 

Listen in to the episode to hear:

• Income generation options to assist with your mortgage
• Renting out space to assist with the monthly expenses
• Property crowdfunding
• Short term rentals
• Business related properties and the pros & cons that can go with this type of property. 
• Flipping properties
• Real estate investment trust
• Farmland

and so much more

Remember: “property value does increase over time”.

We would love to hear your views based on the concepts covered in this episode. 

Do rate, write a review, and share with others.

This episode is proudly sponsored by Old Mutual Wealth.

Chapters

• 0:00 Advertisement: Old Mutual Wealth
• 1:18 Introduction
• 1:55 About Arthi Rabikrisson & Malika Peterson
• 3:01 Welcome Listeners!
• 4:14 Lets Talk Property Investment
• 6:26 Factors That Influence Purchasing Property
• 9:38 Generate Income From An Existing Property
• 14:45 Different Types Of Property To Investment In
• 15:40 Commercial Property Opportunities
• 17:13 Consider Both Sides
• 19:10 Strategy of Flipping Property
• 21:33 REITS
• 22:46 Crowd Funding
• 24:40 Malika's Parting Shot
• 25:37 Arthi's Parting Shot
• 27:33 Thank you Listeners!

Transcript

Malika Petersen: 0:00

Your legacy is about more than just investment returns. It's about the peace of mind that comes with knowing that you've partnered with an investment manager with the right skills and experience to grow your wealth old mutual wealth is a world class investment destination offering you a wide range of investment strategies, and specialist wealth management solutions. Together with your financial planner, we model a strategy around your specific needs, supported by a multi skilled team dedicated to taking your wealth further, whether your goal is to grow your wealth, generate income, or preserve capital, we select the best and most suitable investments based on your investment strategy. And our extensive research and insights. Old mutual wealth is an advisor led wealth management business aimed at providing financial planners and their clients with a full suite of industry leading strategies and services. For more information, please visit our website at www.oldmutual.co.za/wealth

Arthi Rabikrisson: 1:24

Hi, there, I'm Arthi Rabikrisson

Malika Petersen: 1:27

Hello, I'm Malika Peterson.

Arthi Rabikrisson: 1:29

Welcome to

Malika Petersen: 1:31

the swan effect podcast.

Arthi Rabikrisson: 1:33

Money makes the world go round. Yet it's not so easy to understand its complexities, particularly when it comes to investing.

Malika Petersen: 1:42

That's why Arthi and I are using this platform to educate, inspire and help you gain confidence in your relationship with money

Arthi Rabikrisson: 1:51

so that you can better manage your finances and investments.

Malika Petersen: 1:55

We are two women in finance.

Arthi Rabikrisson: 1:57

That's pretty cool, isn't it?

Malika Petersen: 1:59

It certainly is. You've been in stock broking private wealth management, asset management and now an award winning business woman who is coaching and assisting businesses with capital and strategic advice

Arthi Rabikrisson: 2:13

And Malika you have a wealth of experience in wealth excuse the pun in financial planning, investments and relationship management. So you're also at the coalface when it comes to where and how people are investing or getting it right and getting it wrong

Malika Petersen: 2:31

and stuck in the grey areas too. Indeed, I've seen the many phases and moods of financial cycle and how our decisions that those times impact us. So listeners and subscribers if you are looking to get unstuck, feel empowered and make some strides in how you tackle your money. We are here to help you.

Arthi Rabikrisson: 2:53

And it all starts with listening to this upcoming episode. Enjoy. Welcome to episode two in season three of the Swan effect podcast everybody. It's now March in South Africa, which means it's actually autumn and the onset of cooler weather to actually temper those heat waves we've been happening recently. Hi Malika hope you've been keeping cool as well.

Malika Petersen: 3:22

Hi Arthi and hello listeners staying cool all the time is what I'm all about. But yes, lately, weather wise, it's been a priority given the erratic weather patterns and it reminds me of investing actually, because things change sometimes in an instant. And having our long term goals in focus always means that we can weather these changes, we got it.

Arthi Rabikrisson: 3:48

I really, really love that lens Malika. And what a way actually such a great way to set up our conversation for today. Because you know, when the weather changes, it also means seasonal changes. And also personally it's for me, it's like the start of cosiness, actually where you know we're starting to layer up, we're looking for comfort, all about whether its food whether its clothing, and to be honest, what better comfort can be created than in your own home. So if you recall everyone, the theme of season three is the advent calendar of investments. So today, we thought it would be opportune to cover property or real estate as an asset for your moneyverse. So that's why recording this episode, prop yourself up for wealth. So if we're looking at our financial portfolio, this is something you really want to consider. And you know actually when Malika and I we're doing some of the work we realise gosh there is actually a lot to the world of property investments and there's different ways in which you can make money. So today Malika and I we're going to uncover along with you those tips, strategies, insights, all of these different things that can help you benefit from different types of property investments,

Malika Petersen: 5:10

Absolutely Arthi and I think what is most exciting about season three of our podcast is that in preparation for each episode, or investment opportunity window that we uncover, we basically learning in real time with our listeners. And I must admit that in preparation for this episode, I was pleasantly surprised to learn that property investment has such a vast landscape, putting numerous avenues to generate wealth. So whether you're a seasoned investor or just dipping your toes in the market, there's so many options available from residential to commercial from short term flips to long term rental, the opportunities are just abundant. And having said that, I do want to just remind all of our listeners, that the non traditional investments that we are discussing, as part of our advent calendar this year should be explored in conjunction with your traditional investments, and in consultation with your financial advisor. But yeah, let's dive in and explore some of the most common ways to make money through property investments.

Arthi Rabikrisson: 6:23

Let's do it. Okay. So first up, let's talk about one of the most traditional ways of property investment. And that is buying a brick and mortar property, and then generating income from that. Now, Malika, most people will have this natural tendency to react by assuming that this needs to be a very big cash flow, right, I mean, rethinking property, it's going to cost a lot, it's a large sum of money to be putting down and yet everyone, there's a few things that we often tend to forget that that can help us actually make that decision easier around purchasing a physical property. So lets share a couple of them, you know, for example, many people may actually have a very positive credit record, that then allows them to mortgage or take a bond out on the property, even if it's a small house or flat. So when you've got a great credit record, it actually helps you to secure that first property of yours. The second one is, you may have access to fringe benefits and allowances, that then make it possible for you to purchase that property. Often with certain companies, if you work for them, they offer some incentives for staff, for example. So that could be one way to help you. A third way is you can actually derive tax benefits, especially if you're a first time buyer, which again, then reduces the amount that you then need to go and purchase the property for or to take loan out for. And then the fourth one that I thought about around this was you actually don't need to go this alone, you could team up with a trusted friend or partner colleague to actually share that property cost. And then everyone kind of reduces the burden collectively, instead of just going it alone. So you know, once you have your property and hand everyone is actually a number of income generation options that can then cover your mortgage. So you can bring in some additional cash flow potentially, not to mention enhance the credit rating of yours, because of how well you're going to be managing the cash flow your monthly debt obligations. So I think the one big thing for me though, Malika is ability to actually leverage that meaning in other ways that we can use it to increase this value in that we've gotten this asset that we've now purchased, because property as we know, values do increase over time, especially in your high demand areas, your urban areas to peri-urban areas, just outside of your cities, and even also just based on people's lifestyles, you know, and their decisions around these such as semigrating to coastal areas, all of these things can actually help you to potentially purchase additional properties. How cool is that.

Malika Petersen: 9:17

Oh no, absolutely. I think you raise so many valuable points Arthi and I hope that it encourages our listeners to consider property and overcome the mindset that it's unaffordable, because I think, you know, without even delving into it or learning more about it, many people believe that it's unaffordable, and that they cannot earn property, right. So I'm gonna add some sweeteners to those that may get our listeners over the line. And then I want to discuss the ways that income can be generated from the property that you already have if you are worried about it being unaffordable to get another one. So you could rent a portion of the home that you live in. Now, this is easiest, obviously, if you have a separate space available to you on your property that you are able to rent, that's the easiest way. The reality is that there are actually many single people that feel safer to live in a property where the main home is inhabited by family. And they're actually really keen to consider this option, because it gives them that sense of, of living on a property with a family. Now, what this does is that it brings in additional income for you and your family. And this can really help you pay your bond more quickly. So here's an interesting fact, if you pay only an additional R500 a month, extra on your repayment of a bond of, say, a million Rand, you can save R221,188 in interest in total. Now, I saved that number in full, because I want people to understand that we've done the calculation, and we can give you the exact number that you're actually going to save in interest over your bond term. Not only that, it's going to knock the years of your loan term. Now, I can absolutely I can guarantee you many of us our biggest expenses, is our bond. And if I told you that you could pay it off three years quicker, you bet will make you very happy. So that's kind of really a very viable option. The second option is short term rentals. And this is facilitated through platforms like Airbnb, or VRBO. Right. They've really become increasingly popular over the last few years. And by renting out your property on a short term basis, you can capitalise on high demand periods such as holidays, or when there's local events in your area. And this really does give you the potential to earn more than you would on a traditional long term rental have a shorter periods of time. So that's a really I mean, you and I were just discussing earlier both of us prefer an apartment or instead of a hotel, when we are visiting our family. So we are on holiday with our families. And so that would be what we would choose to do. Another strategy that you really graining traction is investing in vacation rental property. Now, this does entail purchasing a property in a desirable vacation destination and renting that out to a holiday method. In fact, I've got a really really good friend Arthi who owns a holiday property in a really big vacation area rented out during the peak seasons and the home that she lives in, she rents she actually pays rent. And the reason she does this is because the amount of money that she makes on the holiday property is significantly higher than the amount that she pays on her rental. So the net effect is still positive for her, she also doesn't have to worry about maintenance on the rental. So the holiday property is actually our primary home, but she doesn't live there right, you need to understand that the rent that you get right or the managing of the vacation home, it does require a little bit more hands on involvement. So I would suggest exploring using a property management company in this aspect. Because it is it's a little bit more hands on right? Then the rent that you could potentially get from renting out residential home or apartments that you bought in the second property now alluded to this a little bit earlier, there are very many options to do this. It's important however to understand that it can cover the mortgage or bond. So while you might be nervous about taking a second mortgage or getting an additional bond, more often than not, the rent that you collect from the second property is covered with the bond, right. And even if it doesn't, even if your cash flow is not positive, even if there is a shortfall, you must always remember that your asset continues to grow in value. So these are all covering rental opportunities that are just spoken about using residential property, either your first or even multiple property.

Arthi Rabikrisson: 14:20

Oh, Malika I mean, these are great sweetners, really great sweetners and reminders. I think many of us about how times have shifted the different ways we can generate income. I mean, I love the story you've just shared with us about your friend and what she's doing. I don't think many people would have thought about that pre COVID, a decade ago. So the markets have definitely opened up from that perspective. Here is also the one thing I think everyone that property, we've been focusing up till now about residential property. But actually there's other options to Malika is and this is also surprising for us when we were looking at so I'm going to share a few Ideas for everybody around this. For example, first one, you could choose to buy a property near an educational institution, right. So in other words, something that could be used as student accommodation, or even purchase, sometimes you have these designated apartment blocks that are earmarked for student relation specifically. So those could be something else to consider. It's almost seen as something different even though it is yes, residential, but it's seen as something as a different kind of property class to look at. Secondly, we could look at commercial property, right, there's a lot around it, and a lot of opportunity, everyone to take some of these vacant commercial properties and repurpose them for other activities, such as co working spaces, warehousing, even lifestyle activity centres. Oh my goodness, I've just seen like a proliferation of these coming up. Everywhere, people are looking for these kinds of centres, where they can get together for recreational and fun activities, and less not even mentioned, I mean, this I forget to mention kids play areas, I've seen some really beautiful ones come up as a result of repurposing commercial areas. A third one could be, you know, an up and coming option. And this is also sprouting. Everywhere. Everyone is storage rentals, storage rentals. I watch a lot of your history channel like Storage Wars and things of them like when people buy the storage lockers, but it's starting to take off locally now as well. So you know, this can be done by buying a plot, having some storage containers to rent out. And also you could also invest in storage companies that do this, too. There's actually a couple of different ways you could look at this one. A fourth one I wanted to mention is farmland, everyone, right? Farmland, there's such great potential yield to be gained on you just the type of farm you could have. Yeah, it could be crops, it could be livestock, it could be timber, even forestry. All of these are industries that are providing basic needs. For all of us, in our country, even beyond borders. Of course, there's a lot of things that need to be considered as well. It's not that easy with any of these options. There's always pros is always cons, okay, some of these may mean some initial headaches, right? Like your high turnover of tenants in student accommodation. And as Malika mentioned, as well, there's going to be some maintenance that's going to come with that. Okay, you may need extra additional money to fit out your commercial property in order to consider any of the options that I've mentioned to you. And of course, and farming. I mean, well, firstly, we have to acknowledge you need the skills, even know how to be that you're gonna get farmland yields. But of course, there's other things as well, like pests and climate change. And obviously, government assisting you with aid. So there's a lot of things to consider, even with something like that. But everyone, it's not all doom and gloom. There are positives, okay, for example, I mean, demand is always going to be high for food, there's long leases that you can put in place with tenants that can offer you far more stable income than otherwise. And you know, with space becoming more scarce now, you know, storage is needed, right? So it's growing. That's why we're getting so much coming around. You know, everyone, I think we just wanted to position some of these examples for you just again, to showcase that the dynamics around property owning property, investment and property income, have significantly changed over time. And also just to give you some initial ideas to help you grow your knowledge around different property types, some of the pros and also some of the cons that come with that.

Malika Petersen: 18:49

No absolutely it and I think this is where I'm excited, because I think the more we sharing, it's really becoming a comprehensive list of ideas that we sharing and listeners I don't think any of you realise how many properties really are out there I know Arthi and I certainly didn't, right. So let's go even one step further and talk about some of the other options that exist when considering property on investment.

Arthi Rabikrisson: 19:18

It's like, wait, there's more

Malika Petersen: 19:19

Theres more advent calendars, just like every little advent calendars and the each right, that we popping open. Let's talk about this one, which excites me quite a bit. It's the strategy of property flipping. People often ask me, if you could do anything, what would it be? I think this will be my thing. This involves the purchasing of a property which isn't often in need of renovation or repair. And the key thing is that you have to get that property at a discounted price. And once you obtain the property at a discounted price, you improve its condition and then you sell it for profit. So while flipping can be lucrative, it does require very careful plan, which is the other part the excites me. It requires careful planning, careful budgeting and market analysis, just to ensure that you don't end up with a property that you not able to sell for profit. So it's key and very important that you consider the area that you buy in, that you build in the cost of repairs and renovation into your calculations before establishing if a property will be profitable at the end of it right, your discount has to take those things into account, start small, this is key message, start small buy in a low cost area that is popular, maybe amongst first time homeowners, and use the profit that you make from that first property, and then move on to either bigger projects, or alternatively multiple small projects. And so you will grow on and on, you know, however, this option takes a lot of time, which is why I say its my dream job when I'm financially free. And I don't have to work any longer, it takes a lot of time. So often, it's more suitable for those who want to make this a full time opportunity you do need to be hands on you do need to be involved. The second option we want to talk about is REITs. or real estate investment trusts. These are another way of investing in properties, especially to those who don't necessarily want to buy another property. So these are essentially companies that own operate, or finance income generating real estate, across a range of property sectors. So what investing in REITs allows you to do it allows you to diversify your portfolio without having the hassle of direct ownership, management, maintenance, etc, of these properties. It also provides you quite attractive dividend yields. And what that means is, the more dividends you're getting, the higher your income inflow is, you're then able to explore other investment opportunities with those dividends as well. So there are various ways for individuals in institution to invest in REITs that are listed on the Johannesburg Stock Exchange and the various ways you have direct ownership of red cheese, or you can invest in property unit trust funds. Alternatively, you could buy shares in an index tracker property index track. So there's quite a couple of ways that you can do that. Finally, and this one excites me very much because I hadn't even considered it before we started exploring this topic. But there's a strategy of real estate crowdfunding. And this involves pooling funds with other investors to collectively invest into property. Now, there are real estate crowdfunding platforms, which offer opportunities to invest in different kinds of projects from residential developments to commercial properties. And that really does allow individuals to participate in real estate, right with lower capital requirements. But isn't only via these you and a family members could get together and create a similar similar scenario to be able to buy property.

Arthi Rabikrisson: 23:35

Yes, absolutely. I think my mind is blown. These opportunities and strategies that we have available to us, you know, it's apparent to me Malika that we potentially have just looked at one sliver. And there's so much to consider in terms of generating wealth, in terms of gaining from additional rentals to some of these innovative strategies around short term rentals and crowdfunding. It's pretty exciting. Okay, everyone, and I think each approach, as we've said, it has its own benefits, it has its risks. So it is essential, I cannot underscore this enough, essential that you thoroughly research and understand this market before diving in. So whether you're looking for passive income, you know, where you can kind of sit back and let things just happen or you're looking for capital appreciation. There's a property investment out there, everyone that's going to be right for you. Okay, so take heed and take note and do some of the work. I'm sure you're going to be pleasantly surprised at what's possible for you.

Malika Petersen: 24:39

This topic is really really got me excited it. I'm thinking about how quickly I can get rid of my kids so that I can use the rooms but on a serious note, it does also remind me that there's an opportunity for my children here, I mean, those of you who have older kids like I Do they earn an income, right? And we should actually be encouraging them to buy a property while they're still living at home, and then rent it out so that they can start to create an additional income and additional assets for themselves. And I think that for me is not only one of the best gifts that I could give them, but that's my parting shot with today as well. Yeah I think me too. You know, there have been a

Arthi Rabikrisson: 25:22

Lovely, lovely. Oh, love that. Oh, but yeah, I'm sure the kids are not going to appreciate being kicked out But I love that's a great kind of ethos to leave our kids with. Definitely. So I think on my side, from a parting shot perspective, I think this episode has helped me understand is that times have changed. Oh, my goodness, when it comes to investing in property, it certainly opened my eyes to new possibilities. And I actually am of the opinion that we need to embrace change in order to get even bigger levels of growth of innovation and ultimately, wealth for our future generations. So thanks to this advent calendar month on real estate, she's starting to explore some of these options. Not quite kicking out my little one yet, he is still too small. by encouraging our kids as well, to consider the various But certainly are the really, really great opportunities to look at and I hope listeners that this is encouraging you to that you can get involved and get invested. It's not as difficult as you might think it to be. investment and property options that are available to them while they are living at home. I'm educating them about this as well. Absolutely and yes, I mean, I love how it all ties into education as an investment to which we spoke about in the last episode, which is amazing.

Malika Petersen: 26:53

Its a classic game of Monopoly twisted on its head

Arthi Rabikrisson: 26:58

it is isn't it? Oh, you're right. I wonder if we should actually talk to Hasbro about incorporating this into a new type of Monopoly game Malika. What do you think?

Malika Petersen: 27:09

We absolutely share it right. Imagine that but we would need to patent it first so that we get a percentage of that. So be

Arthi Rabikrisson: 27:15

We have to besmart about this. Absolutely. Anything we've learned about this is we have to capitalise on our moneyverse Hasbro we coming from you. It's been so great chatting, Malika take care until our next episode.

Malika Petersen: 27:29

Until then. Ciao Arthi

Arthi Rabikrisson: 27:31

Ciao

Malika Petersen: 27:35

Sharing is caring

Arthi Rabikrisson: 27:37

and knowledge is power.

Malika Petersen: 27:38

Time for you to be daring

Arthi Rabikrisson: 27:40

and let your money confidence bloom like a sunflower.

Malika Petersen: 27:46

Thanks for joining us. We hope you found these ideas and guidance useful

Arthi Rabikrisson: 27:51

do subscribe, share and write a review or send us comments. We would love to hear from you.

Malika Petersen: 27:57

Catch you on the next episode

Arthi Rabikrisson: 27:59

of the Swan effect podcast.

Malika Petersen: 28:01

Bye for now.

Arthi Rabikrisson: 28:02

Ciao.