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Recession means these investments are screaming "Buy!"

by , 15 July 2020
Recession means these investments are screaming
SA's in a recession. The first quarter of 2020 saw a 2% decline in GDP. The SA Reserve Bank expects the second quarter to show a whopping 32.6% decline in GDP.

This is a full blown recession, and to try and cushion the blow we're now seeing the lowest interest rates in SA's history.

The prime interest rate is at a mere 7.25% compared to 10% at the end of 2019. That means a repayment on a R1 million home loan shrunk from R9,650 per month to R7,903 per month.

And thanks to the combination of low interest rates, and a shrinking economy there's a great opportunity for astute investors.

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Discover: 103% gains on the table for savvy investors, thanks to this 15 June announcement. Here’s why…
 
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The residential property sector is providing great opportunities right now
 
No matter what the economy does there are always people moving from one city to another. Needing to sell the houses they were in, and buy new ones. Furthermore – because of the recession and people needing to downscale there are a lot of properties in need of being sold…
 
But because of the Covid 19 lockdown there was a 70% drop in bond applications in SA during April 2020. May 2020 saw a 36% drop in bond applications compared to 2019.
 
That means there are a LOT of properties on the market looking for buyers.
 
And in June 2020 the trend reversed with bond applications shooting up 36% past the 2019 levels.
 
Simply put – there are many motivated sellers out there because of the recession. At the same time interest rates are at all time lows. So buyers are in a great position to negotiate a lower sales price, and get a great interest rate on their bond.
  
The kind of great property deals out there at the moment
 
Right now I’m looking at a property in Centurion, the seller originally listed it at R510,000. They’ve accepted an offer of R463,000 on it. Levies and rates are equal to R900 per month.
 
I’ve secured tenants for R5,000 per month.
 
At the start of 2020 you’d have paid R4,921 per month on the property’s bond.
So you’d sit with a negative cashflow of R821 per month.
 
At the lower buying price, and current interest rates the same property costs you R3,660 per month. So after levies and rates you’ll pocket R440 in POSITIVE cashflow.
 
And if you use the entire rental amount to pay off the property you’ll pay it off in 15 years – instead of 20.
  
Before you buy a property – make sure you don’t make these mistakes
  
Mistake #1 – Overpaying for the property
 
As I showed you above – the asking price for a property isn’t the price you should accept. Especially now, you should negotiate for a lower price.
 
A 10% discount to the listing price is a good target to go for. But even a 5% difference in buying price makes a massive difference.
 
And remember – while interest rates are low now, they will eventually go up again. So, if you buy a property that isn’t cashflow positive at the current interest rate – you will lose money hand over fist.
 
Mistake #2 – Accepting the first interest rate the bank offers you
 
The bank will definitely not offer you the most attractive interest rate from the start. They will want to maximise profits.
 
So don’t simply accept that rate. Whether you are working through a bond originator or the bank directly – push for a lower interest rate once they approve your loan.
 
Even if you can get a 0.25% decrease – on a R1 million loan and an equal repayment that means you will repay the loan a year earlier and save more than R110,000 in interest over that time!
 
Mistake #3 – Buying without knowing what the rental demand looks like
 
Even in busy cities there are areas that attract higher and lower rental demand.
 
I never buy a property without knowing what rental demand looks like.
 
I typically place a to-rent add for a property I plan on buying – just to see if the demand at the rental level I am looking for is sufficient.
 
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550 people ALREADY have my number in their address book - and since I started SMS’ing them (Since the COVID-19 Lockdown), they've made R8,848 profit. 
 
Now it's YOUR turn to see
how much you could make
 
 
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Tough times mean great opportunities
 
It’s often that we get so stuck in the main stream narrative of the world falling apart that we miss great investment opportunities.
 
Right now is one such time. Yes, there’s a lot of negative out there. Property prices are taking a knock and there’s a lot of property on the market as owners sell to stay afloat.
 
But that’s good news if you can get a loan to buy some more for your own portfolio!
       
Here’s to unleashing real value,
Francois Joubert,
Editor, Red Hot Penny Shares  
 
PS. Equally there are great opportunities in the stockmarket right now, if you want to know what to buy that's good value, go here.


Recession means these investments are screaming "Buy!"
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