Eish, Pretoria! 7 Things I Wish I Knew About My First Rental
TL;DR: Seven lessons for a first investment property: you make your money when you buy, the agent works for the seller, the standard offer protects the sale, vacancy is a cost, your first bond sets the ceiling for your second, a buffer beats a bigger deposit, and whose name goes on the deed matters more than the suburb.
Okay, so here are seven things I wish somebody had told me before my first investment property. Number seven cost me the most.
I've been at this for over twenty years. By count, I've had more failures than successes. My first one was a flat on the outskirts of Amsterdam in 2003, on a 100% mortgage, and I lost over €14,000 on it. So these aren't theory. They're school fees. Here's what I'd hand to anybody about to buy their first rental in South Africa.
1. You make your money when you buy, not when you sell
The price you pay decides almost everything that follows. The rent it needs to cover the bond. The room you have when rates go up. The profit if you ever sell.
Amsterdam taught me this one properly. I bought at the wrong point in the cycle, and no amount of sanding floors in a heatwave fixed the price I paid.
A property bought well forgives a lot of mistakes. A property bought badly forgives none. So the work is at the front. Look at many. Offer on a few. Buy the one where the numbers hold.
2. The agent works for the seller
Agents are useful, and a good one is worth knowing. But the seller pays the commission. The agent's job is to get the seller a sale.
So take the rental estimate, the "it'll go quickly" and the "there's another offer on the table" as marketing until you've checked them yourself.
Want the exact setup I use? The Directors Fortress walks you through registering the company and buying in it, for R99 once off. Start here
3. The standard offer to purchase protects the sale, not you
The offer to purchase you're handed was written to get the deal done. It wasn't written to give you exits.
The conditions you add are what protect you. Subject to finance. Subject to inspection. Time limits. A clear occupation date. I bought a place in Pretoria in 2019 where the occupant wouldn't leave. Yoh. Read every clause like that's going to happen to you, and have a conveyancer read it before you sign, not after.
4. Vacancy is a cost, not a surprise
Every rental stands empty at some point. Between tenants. During repairs. When someone leaves without notice.
Budget for it from day one. If one empty month breaks your numbers, the numbers were never working.
5. Your first bond sets the ceiling for your second
Nobody tells you this one.
The bank looks at what you already owe before it lends again. Your first bond, in your own name, takes up a slice of your affordability. So does the second. Then the slice is full, and the answer is no, however lekker the next deal is.
Most investors in this country stop at one or two properties. Nothing is wrong with them. They ran out of slice. I got the soft no myself around 2015, 2016. I've explained the arithmetic in how much bond can you afford?
6. A buffer is worth more than a bigger deposit
Everybody tells you to put down as much as you can. But cash inside a deposit is locked. The day the geyser bursts, you can't spend a brick.
On my R380k unit in Bloemfontein, the aircon blew. Not a disaster. But that's the point: the small stuff arrives on its own schedule, not yours. Cash in the bank is options. A buffer is what stops one bad month from turning into a forced sale.
7. Whose name goes on the deed matters more than which suburb
This is the one that took me eleven years.
I thought the game was finding the right property. It mostly isn't. I could always find deals. What I couldn't do was hold more of them, because every one sat in my own name on the same payslip, with every risk pointed at everything I owned. One deal at a time. Buy, fix, sell, go again. Sequential instead of parallel.
The name on the deed decides your ceiling, your exposure, and how many properties you can hold before you hit the wall. It's the only one of these seven you fully control before you've even started looking.
The catches
These are lessons, not promises. Doing all seven doesn't mean a deal works out.
A company isn't always the right answer. For a single property you'll never add to, your own name can be simpler.
Buying in a company still means signing surety. You stand behind the loan.
The market decides part of it. You control the price you pay and how you hold it. You don't control interest rates.
Where the company fits
Six of these seven are about the property. The seventh is about you, and it's the cheapest one to get right early.
Registering a company costs a few hundred bucks and an afternoon. Doing it after you own three properties in your own name costs transfers, bank consent and advice. Same decision. Very different bill.
What makes a successful property investor is a full section in The Vault. Container first.
FAQ
What should a first-time property investor know in South Africa?
Buy on the numbers, keep a cash buffer, have a conveyancer read the offer, and decide whose name the property goes in before you sign.
Is it hard to buy property in South Africa?
The process is straightforward. The hard parts are finding a property at the right price and qualifying for finance.
What is the most common mistake first-time investors make?
Overpaying for a property they fell in love with, with no buffer behind it.
Should my first investment property be in a company?
If you intend to buy more than one, it's worth setting up first. If it's a one-off, your own name may be simpler.
How do I know if a property is a good deal?
Check what similar units sell for, the real rent today, and whether you can carry the worst month. See 3 numbers to check before you buy a rental.
Related reading
Ready to set it up properly?
The Directors Fortress gives you the investor-friendly offer to purchase, the blueprint for registering the entity, and a walkthrough of the structure I use. R99 once off, yours to keep.
Education only. This article is general information, not tax, legal or financial advice. Speak to a registered tax practitioner, attorney or financial adviser about your own situation.
Sources
National Credit Regulator: ncr.org.za
Companies Act 71 of 2008: gov.za
About the author
Michael Bowen co-founded ZAHomes. He bought his first property in 2003 on the outskirts of Amsterdam, with a 100% mortgage, at the wrong point in the cycle, and lost over €14,000 on it while sanding the floors himself in a heatwave. Twenty-odd years, 40-odd countries and a lot of property school fees later, he lives in Cape Town and teaches South Africans to buy and hold property inside a company. His view hasn't changed: an investor's greatest assets are the lessons from their failed deals.
