How to become a property mogul on a regular salary: Part 2

by David de Waal on June 12, 2014 44 comments

Deciding on your investment objectives

There are essentially two ways to approach investing in property: buying in the hopes that the price will increase and you will be able to sell for a higher price in the near future (so-called “flipping”), or buying a property for the rental income it generates.


Buying and then quickly selling a property at a higher price is only feasible if you can get the property at a price that is significantly below the market value, or if there is a very hot market and prices are rising continually.  In both cases, the key is being able to resell – so you would have to be sure that there would be sufficient demand from buyers for your property when you resell.

Flipping is more speculation than investment.

The costs associated with buying and selling a property, together with a generous contribution to SARS, mean that the resale price has to be much higher than your purchase price to make the whole transaction worthwhile.

For example, if you buy a property for R1 million for cash, your costs could be about R30 000.  Assuming you sold the next day for R1.5 million, the estate agent commission could be as much as 6%+VAT or around R100 000 (but you could use a low cost estate agent instead to save on this expense).

So your profit before tax would be R1.5 million – R1 million – R30 000 – R100 000 = R370 000.  This profit would probably be taxed as regular income rather than at the lower capital gains tax rate.  At a maximum marginal tax rate of 40%, the profit remaining would be R222 000.

In other words, in this example, if you sold the property at a price that was 50% higher than the price you paid, your actual return after tax would only be 22%.  Of course, if you had bought the property with some bond financing then your actual return on investment would be much higher.

Buying for rental income

Buying for rental income is a much lower risk strategy than flipping.  The goal is to earn an ever-increasing rental income as well as benefit from an increase in the capital value of the property over time.

Often you can finance part of the purchase price with a bond. Whether your investment property is initially cashflow-positive (where the rental income is more than the bond repayments and additional costs such as rates) or cashflow-negative will largely depend on how much of the purchase price you paid in cash and how large the bond was. Clearly, if you made a large cash contribution then the bond would be small, your bond repayments will be low, and your property would more likely be cashflow-positive.

Although it is ideal to be in a cashflow-positive position from the start, this isn’t always possible and you may need to “top up” the rental income to match the bond repayments and other monthly expenses.  Hopefully the top-ups will be exceeded by the increase in the capital value of the property.

The idea is that you should take a long-term view and try to keep the property until the bond is paid off (at which time most of the rent will be pure profit) or even never sell at all.  This means that the property you choose to buy should be in an area where you expect people to still want to live (and rent) in future – this is also important because if you ever do need to sell you want to know that there will be potential buyers around.

Once your investment is cashflow-positive then you can consider investing in another property, and in this way gradually build up your property portfolio and grow your wealth.

David de Waal


Steeple Estate Agents

South Africa’s first low cost estate agency

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  1. Bruce Sandjon says:

    Hi, could like to know how much I can qualify for, if I get R20,000 per month after deduction. I want to apply for a home loan…

    Bruce Sandjon

    1. Hi Bruce
      I would suggest using the affordability calculator on the Ooba website:
      Just remember to try using an interest rate of 11% or 13% and not just 9%!
      David de Waal

  2. David says:

    I am a teacher currently. My intention is to resign and get into estate agent and/or flipping houses. What is your best advice, to join an estate agency part time and learn about this field or simply start buying and flipping houses?

    1. Hi
      If you want to be a property investor then focus on that rather than on becoming an estate agent, which is now quite a drawn-out process (1 year internship). As a teacher you have a regular income which will help when applying for a bond. But do your homework before your first purchase (as a teacher you would appreciate that!).

  3. Mosa says:


    Do you need to be a registered estate agent to house flip?

    Thank You

    1. No, anyone can buy and then re-sell for a profit.

  4. Susan says:

    I want to become a bond originator agent for a small bond originator firm. I get allocated a certain town for R7 000 once of payment. they are offering half a percent (0.005%) for every bond approved. what would you advice me? should l take the deal?

    1. If you are interested in becoming a bond consultant that I would recommend first finding out what other firms could offer you. Bond consultants can work with clients from anywhere so it may be a bit limiting to have to restrict yourself to a certain area. Good luck!

  5. Denzil says:

    I want to use my existing access bond to finance the purchase of a flat in order to rent it out. I know i can deduct the interest paid form my rental income. How will i be able to extinguish between the interest on my current bond and the interest i can claim for tax purposes.

    1. The amount drawndown would have a repayment term equal to the remaining term of the access bond, and the interest rate would be the same as the existing bond interest rate. On this basis you could calculate what your monthly instalment would be if you took out a new first bond, and what the split between interest and capital repayment would be for each instalment. This interest amount per month would be the amount that theoretically could be tax deductible. However, I wouldn’t want to give you incorrect tax advice so I would strongly recommend that you discuss the deductibility of interest in the circumstances that you describe. The Income Tax Act may require that only interest on a loan provably related to the property is deductible.

  6. Hagen Junger says:

    If I buy a home for R550k including costs, spend R150k and resell for R850k, how much tax would I pay? I also have access to a CC in a family member’s name, who doesn’t own property. I don’t own a primary residence but do have an investment property.I’m an agent, so the fees wont be high.
    I have my sights set on one.

    1. Hi Hagen
      The taxable profit is R850k-R550k-R150k = R150k, assuming the R150k you spend is for capital improvements (not maintenance). The profit is then included in your taxable income, either in full (if SARS believes you are trading in property) or only a percentage of the profit (if you are assumed to be a long-term investor i.e. this is considered to be a capital gain). For a capital gain, the percentage included in your taxable income varies depending on whether you own the property as an individual (33.3% inclusion rate) or in the name of a company or trust (66.6% inclusion rate). So there are a lot of factors to consider and I would suggest that you speak to your tax accountant first to discuss your specific circumstances. Good luck!

  7. Thapelo says:

    I am a manager of a school and wants to be an estate agent. Is there a training while i`m working and i also want to flip houses. Is there a mentor i can join while i`m working?

    Thank you

    1. Hi Thapelo
      Becoming an estate agent is now an unnecessarily tedious process. You have to do a 1-year internship, fill in a log book and write an exam. You can find out more at the Estate Agency Affairs Board website ( So you pretty much have to commit to it fulltime. If you want to just be an investor then I would suggest you rather concentrate on that and read up as much as you can about it.

  8. Martin says:

    Hi David.
    I have started building up my portfolio and have 3 houses already. One is cashflow-positive, the other is almost. My question is: Should I consider using a property management consultant or should i continue to to do the rental contracts, payment requestes etc myself. How many properties should one have before you have to consider that route?
    Thanks for your atricle, very insightfull.

    1. Hi Martin
      The choice as to whether or not to get assistance is really a trade-off between time and money. If you do nothing else besides property investing then you wouldn’t need to pay someone to assist you. But obviously if your time is limited then assistance would be required as your portfolio grows. Since you have been hands-on from the beginning you would know exactly how much work is involved in the process, so that will help when you weigh up the cost of potential assistance. Apart from the fact that someone else could do some of the work for you, it is always nice to get an experienced second opinion on things too! Trust your instincts and get someone else involved when you feel the time is right.

  9. Reagan says:

    Hi David,
    I am doing research into flipping houses. Would you say that buying at auctions is a good way to go? (I am aware that transfer duty, outstanding rates and levies would be for my account.)Also, would I need to be registered for VAT to do this?

    1. Hi Reagan
      I’m not an expert at auctions but many successful property investors and speculators do buy at auctions so it is definitely an option to consider. The key would be to do your homework on the property and its circumstances thoroughly beforehand, and not to bid above your pre-determined maximum bid price. I don’t expect you have to be VAT registered, but there may be advantages in certain circumstances so I would advise speaking to an accountant with property experience. Good luck!

  10. Faith says:

    Hi David, thank you for sharing your knowledge. I am looking into investing in low-cost property for rental income and I have noticed that RDP houses are being sold at very affordable prices. What are the impacts of buying RDP houses on the investor? Does the law allow this form of investment.

    1. Hi Faith
      I would be very cautious about buying RDP houses for investment purposes. Many of them were very badly built initially so you could be saddled with very high repair costs. Also, there is typically significant community involvement in the RDP housing market so an outside landlord could face resistance. I don’t think there is any legal restriction on buying an existing RDP home but you would need to be very hands-on to have any chance of making it a success.

      1. Faith says:

        Thank you David.

  11. Daniel says:

    Hi David

    Where is the best place to get a fair evaluation on a area, ie Norwood? lets say I can pick up a 500sq 3 bed 1 bath, for around R1.6m,on a good street. R100k for transfer and lawyers. put R300/R400k into modernizing. my question is, are the listed pricing of other homes in the area a good indication of what market value is or is there a better way of finding the true market value.
    Houses are being sold bw R3m to R4m. let me know your thoughts

    1. Hi Daniel

      The best way of finding the market value is to use both the current listed prices and recent actual selling prices of other homes in the area, and compare them to your property. You can get the listed prices from Property24, Private Property etc. (which also give suburb trends) and you can get the actual selling prices from Lightstone for a nominal amount. All prices are set by comparison to other properties, so try to be as objective about determining a price as possible.


  12. Rohann Schoombie says:

    Hi David
    I need to know what would be the legal requirement(s) involved or how does it work if a person sells a house for e.g. R1.3mil and then buys it back at R1.5mil and has to payback it in 12 months without financial aid. The person selling and then buying it back is a pensioner and is obviously not able to repay this “new bond”?

    1. Hi Rohann
      I’m not clear on why someone would want to sell a house for R1.3m and then buy it back for R1.5m?

      1. Rohann Schoombie says:

        My question also? I suspect a scam, but I am not an expert in property matters or law.

        1. I would suggest staying clear. It doesn’t make much sense.

  13. Johan says:

    Hi David

    My wife and I started buying 2 bedroom flats with loans last year (2016) in Centurion and we are in the fortunate position of now (2017) owning 4 units that are being rented out. I wish to have a personal conversation with a person who has built up a substantial portfolio of properties. Could you perhaps put me in touch with such a person?


    1. Hi Johan

      I would suggest that you look in SA’s Real Estate Investor Magazine ( to find a suitable person. Usually each month they profile a successful property investor and you could identify someone who operates in your area of focus.


  14. Andile says:

    Hi David

    I wanted to find out from you, I have been saving money as I am employed and with the money I’ve been saving I want to build 1 room rent outs my plan is to buy a yard and build 10 rooms in townships close to manufacturing firms, I’ve done research and people are always looking for accomodation in the areas I am targeting. I want to register a comapany and do these residential properties. What would your advice be on this idea David?

    1. Hi Andile

      The most important thing is to do your financial forecasts accurately. You need to know exactly how much it will cost you to buy the land and build, taking all the permissions you may need into account. Then make sure there is enough demand at a rental that will make it work financially for you on an ongoing basis. You must make sure that people would be interested in the type of development you have in mind e.g. maybe if there are 10 rooms together then people won’t be as interested, or maybe they will want to pay less than if it is only 1 room in a yard. So do your homework diligently. And you also need to realise that you will be responsible for any problems that your tenants have (or they cause!). A development like this could be tricky to sell because it is quite specialised so you must expect to hold it long term.


  15. Lindie says:

    Hi Dave,
    I am an unemployed,diy fanatic and and handson woman,with estate agent experience but without the 1yr certificate.
    I Need to know if one can be able to flip properties without capital and how?
    How can i be in the industry i enjoy without having the starting capital.

    1. Hi Lindie

      Unfortunately without capital or a job it is impossible to be a property investor. I would suggest that you look for a job in the property industry (either as an intern estate agent or with a property development company) and take it from there. Good luck!


  16. Mathobisa says:

    Hi Dave
    I want to became a property investor and I am doing my research and reading books on the subject. The are people offering training(Rich Dad Education) on how to flip or buy houses with strategies on reducing tax and using methods which eventually you dont use your own money or the banks. Is it legal or they are scaming people?


    1. Hi Mathobisa

      In theory it is possible to buy and sell houses without putting any of your own money down, but realistically if you are not Warren Buffett then it isn’t possible in SA. The property market is terrible at the moment in SA so my advice would be to keep reading and researching – especially for the SA market – until it improves and then you can have another look. There are lots of costs involved in buying and selling so unless you get a spectacularly good deal you are unlikely to make money quickly (at least currently).


  17. Sandi says:

    Thank you for calm and realistic advice, my first time here

  18. Mmangwako says:

    Hi David I m looking to buy flats and,renovate for rental purposes and acquire land to build townhouses where can I get these all these for start.


    1. Hi Mmangwako

      I would suggest that you look for properties on SA’s big property portals – Property24, PrivateProperty or Gumtree.


  19. Bian says:

    Hi David,
    I have 2300 Sqm yard, which is bondend. Am thinking of demolishing the house and build 4 Cluster houses for selling or letting and have one for myself. Is this feasible?

    1. Hi Brian

      You would have to do your homework thoroughly to see if it is feasible. Check the zoning, the building costs, the prices you could get for selling etc.



  20. Hazel Tuta says:

    hi I am interested on starting the business on house flipping, since I don’t have a cash and I want to go through getting a finance, do you finance people who are new in the business and what how must I do to qualify.

    1. Hi
      Thanks for your question. Unfortunately we do not offer financing to people who want to do house flipping.

  21. Nancy says:

    Hi David,

    I want to get into the property business where I’ll be buying stands, building houses, then selling them for profit. I have two questions:

    1. Is it possible to buy the stand and make plans, then sell the house off plan and use the buyer’s bond to build? If yes, then how to do i get to use the prospective customer’s bond to build?

    2. What are the chances of making profit with the building model.

    P. S. I plan to apply for stand and building bond to do this.

    1. Hi Nancy

      1. I would suggest contacting your bank about your plans to get a definitive answer. I would imagine that using the buyer’s bond as financing would not be possible though.

      2. Doing thorough market research is the best way to assess your chances of making a profit (and even then, there is no guarantee!). Maybe you should consider doing a course like this to increase your knowledge: Do not proceed with your proposed business or invest your money until you know all the risks, tax consequences etc.
      Good luck.

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