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Property - The best savings account you'll ever have

by , 04 March 2015

A friend of mine just bought some property - cheap.

In fact, he bought this property from the bank as a distressed sale for 70% less than the developer is selling similar properties to other buyers in the market.

That's right, he paid R90,000 for a piece of prime real estate from the bank. Similar vacant stands like the one he just bought are selling for R300,000 in the same development!

At this price, I can hardly imagine a circumstance where this property will be worth less than my friend bought it for. If he sells now, at the current market price of similar properties in the area, he can bank a R210,000 gain (excluding estate agent fees and taxes of course)!

And that's exactly why I believe property, bought at a bargain price like this can be so much better than a bank savings account. Let me explain…

Why property is a safer place for your money than the bank!

When I told my brother in law about this property deal he said: “No thanks, that’s too risky for me. I rather keep my money safe in the bank than speculate on property”. Turns out, he has a similar amount of money to the value of this property in the bank.

But what he doesn’t understand is, even in the best possible outcome, he’ll still lose money on his savings in the bank.

You see, right now, bank savings accounts pay you next to nothing in interest. And when you factor in inflation, you’re actually losing money in the bank...

For example, FNB’s Flexi Fixed Deposit yields 4.75% a year on R90,000, while the average inflation rate in South Africa over the past couple of years is around 6%!

So while R90,000 in a fixed deposit account will grow to R94,275 in a year’s time, if you factor in the destructive power of inflation on that money it would only be worth R88,618 after a year. So after inflation you’ve lost R1,382 in spending power after a year!

Now that doesn’t sound so safe to me anymore…

For a portion of my savings, I’d rather hold property like the type my friend bought – and even pay the property taxes – than have it sitting in the bank, losing value every day!

I simply believe that quality property, you buy at a discount to the current market price, will be in demand within the next five years. And by buying at a massive discount, there’s no downside, with big profit potential!

If you have all your savings in the bank, now is the time to start looking for property.

Buying property at the right price is the best investment to make right now!

You see, like my brother in law, most people I speak to are afraid to ‘speculate’ on property. They say it’s ‘too risky’.

I disagree.

If you manage to find undervalued properties right now, at discounts similar to the 70% discount my friend got, it’s not speculating. In fact, there’s almost no risk to it.

He bought a R300,000 vacant stand for R90,000.

Now he’s building on it, and he’s building a R1.6 million house for R1 million.

If he doesn’t stay in it he can rent it out at a fair price or he can sell it and make half a million rand in profit!

That’s why I see property as an alternative savings account.

You can put your money into it with much more upside than a typical bank savings account – but the property will always be there whether you want ‘interest income’ or to ‘withdraw’ your money. The fact is, with property this cheap it’s nearly impossible to lose money!

You may have never thought of property investments as an ‘alternative savings account’. But with land prices depressed – and with financial institutions asking so little interest on loans – it's time to change your thinking about what's really ‘safe’ for your money.

There’s still lots of properties selling as bank repos and at distressed auctions, and it’s great opportunities for you to buy low and get a safe place to put your money.

Property actually has some ‘built in’ safety protections you simply can't get with your money at your bank. It can't go out of business, for example and the government can't print more of it. As inflation goes up the cost of building goes up as well and property prices (especially that of cheap property) go up with that.

You’re free to disagree with this idea.

But me? I'm looking for some great deals on property at auctions. And I feel my money is extremely safe this way! 

Here’s to unleashing real value!

Francois Joubert

Editor, Red Hot Penny Shares

Property - The best savings account you'll ever have
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