Q4 2015 CashPlus newsletter


22 December 2015,
Your Q4 2015 CashPlus Newsletter

In this months newsletter:

Latest CashPlus property market trends and growth forecasts

Some 2016 Chrystal Balling.

How do you become financially free with a CashPlus Property investment portfolio? (2015 update)

Happy new Year!!

CashPlus property market trends and growth forecasts.

According to the 7 December 2015 ABSA house price index, the average nominal price growth for small houses increased by 3 % y/y in October and by 1.8% in November 2015.

The South African economy has battled since the global financial crisis in 2008 and the turn of the property cycle. Unemployment, inequality and poverty are at the highest levels of almost any country in the world.

The only way to create wealth on a sustainable basis is to create an environment that is conducive to investment and economic growth that will in turn lead to job creation and reduced poverty and inequality.

Unfortunately the South African economy growing at around 1%, way below the Governments targeted 4-5%.

Some of the factors impacting our economy are outside our control, like the drop in commodity prices that harms our exports.

My economic growth forecast for 2015 was at around 1.5%, and we unfortunately could only achieve around 1% in 2015.

My economic growth forecast for 2016 unfortunately is not better than 2015 and also around the 1%.

Some 2016 Chrystal Balling.

My 2015 predictions were as follows:

• Inflation will on average remain on the upper end of the 3-6% band.
• Interest rates will remain stable throughout the year with small increases in the second half of 2015 ending the year at 10.25%.
• CashPlus type properties should again show positive nominal growth of between 8 and 10% for 2015

Inflation remained comfortably within the 3-6% band, with the November CPI at 4.8%.
Interest rates had two 25 bps increases in 2015 (24 July and 19 November) and the prime rate is currently at 9.75%. This was slightly lower than my prediction for 2015 interest rates to end the year at 10.25%.
According to the ABSA 7 December 2015 House Price Index, the capital growth rate for small houses is predicted to end the year around 5% for 2014 (FNB 7.2%) which is below my prediction of between 8 and 10%.
Overall, the Cashplus Property investors had a mixed year. Nominal capital growth was around 5%, which is just above the inflation rate. Interest rates are still very low and the inflation rate is seen to be under control. Rental growth and portfolio costs were slightly above the inflation rate during 2015.
CashPlus portfolios have shown a healthy cash surplus over the year due to the low interest rates and above inflation rental growth.
What is in store for 2016?

The ABSA expectation is for average house prices to rise by a nominal 5-6% in 2016 (FNB 6%), with almost no real price growth, based on current inflation projections for next year.

My 2016 predictions are as follows:

• Inflation will on average remain on the upper end of the 3-6% band.
• Interest rates will increase gradually throughout the year in small increments (25 bps) ending the year at 10.75%.
• CashPlus type properties should show positive nominal growth of between 6 and 8% in 2016.

How do you become financially free with a CashPlus Property investment portfolio? (2015 update)
The below article has been included in each end of year cashPlus newsletter since 2010 with subsequent market updates each year. The market updates information in Bold for the benefit of our new subscribers.

There is no standard answer to the above question. Each CashPlus property investor has a different set of circumstances due to his unique “affordability ratio” and monthly cash surplus. Investors all qualify for a different nr of bond approvals (the size of their CashPlus Portfolio) and bond interest rates depending on their individual “affordability ratio” and monthly cash surplus.

To become financially free you need to replace your active income with your passive income and each person has a different active income.

CashPlus Property investment is not a get rich quick scheme but rather a continuous sustainable CashPlus Property investment portfolio building exercise. This approach will build confidence and trust and show the lenders (the CashPlus property investor’s biggest friend) that you have a good property investment strategy and understand the buy-to-let investment market. This will ensure a continuous flow of bond approvals, irrespective of the property cycle.

To replace R 30 000 active income as an example, your CashPlus property investment portfolio only requires 8 buy-to-let investment properties bought the CashPlus way.

Buying your properties the CashPlus way (25 to 30% BMV) and financing them AT PURCHASE VALUE will render your portfolio CASH POSSITIVE from day one. This approach also reduces the risk for lenders as they only have to finance 70 to 75% of the properties market value and you can negotiate for more bonds and better terms (interest rates).

Please note that it is possible to finance 100% of the properties market value in strong property growth cycles, leaving you with an instant cash bonus.

The current property market dynamics still make it difficult to obtain 100% bonds approved on the market value of CashPlus type properties. It is currently possible to get bonds approved on the Below Market Value (BMV) purchase price of your CashPlus property but banks view the purchase price as the market value of the property, even if the property is bought below market value!!!.
The 2016 CashPlus strategy currently is too gradually add more CashPlus properties to your portfolio at between (25 – 35%) below market value. A new CashPlus type property (even at 15% BMV) should leave your property cash positive from day one at the current low interest rates. CashPlus property investors can look forward to between 6 and 8% nominal capital growth in 2016 with above inflation rental growth within a low interest rate environment.
Manage your property portfolio properly and channel surplus cash into your highest interest rate bond accounts and only use the surplus cash to buy more CashPlus properties.

As soon as you have accumulated your cash positive CashPlus Property Portfolio, the principles to become financially free are universal and simple and only depend on the 3 main property related economic indicators, inflation, interest rates and capital growth.

Each year the portfolio income and cost will inflate around the inflation rate. Please note that the cost (R&T, Levies and rental agent commission) are only around 25 to 30% of your rental income, which means you will have continuous growth on your income after cost. Interest rates will have the biggest impact on your cash flow. There is a relationship though between interest rates and capital growth rates, as interest rates rise, due to higher inflation, the capital growth rate will rise as well. (The secret to any long term property investment) Please note the biggest wealth creator is the capital growth rate. Please ensure you ALWAYS invest in high growth areas.

Within a few years your CashPlus Property Portfolio would have grown in value (Market value less outstanding bonds) and in surplus (income less costs).

There are two ways of extracting the value from your CashPlus Property Portfolio to become financially free.

The first way is to accelerate your bond repayments in low growth low interest rate property cycles (the current property cycle) with your portfolios surplus. After a few years, the bonds will be repaid, and the available surplus income should be sufficient to replace your day job income and you will be FINANCIALLY FREE. Please note that this strategy will attract income tax.

The second way is to extract value via the refinancing of your CashPlus Property Portfolio in high growth property cycles. After a few years your CashPlus Property portfolio’s loan to value ratio will be low enough to allow you to refinance your portfolio with the additional surplus income of your portfolio, while still remaining with a cash positive portfolio.

Your initial R 4.8 million (8 CashPlus properties with a market value of R 600 000 each) CashPlus Property Portfolio (Loan to value of ca 75% or R 3.6 million bonds) could theoretically be worth R 9.6 million within 7 years if history repeats itself. (Property prices doubling within each 7 year property cycle). This will leave you with R 6 Million of extractable value after 7 years. Please note this is based on you NOT HAVING TO SUBSIDIZE your CashPlus Property Portfolio OR TO ACCELERATE BOND REPAYMENTS WITH YOUR PORTFOLIOS CASH SURPLUS.

Then you can always at any time sell your entire CashPlus Property Portfolio or only a portion and extract the difference between the market value and the outstanding bond value if any. This strategy will attract capital gains tax and is not recommended without waiting for at least one property cycle to pass.

The CashPlus Course fees for 2016 will remain at R 999 until further notice.

You can order the CashPlus Property Investment Course by logging in with your registered username and going to Buy Course on the website.

Remember to send me your CashPlus success stories and or course comments.

Happy New Year!!!!!!!!!!!!!!!
I want to thank each and everyone who contributed to the success of the CashPlus Property Investment trust during 2015.
Have a blessed festive season and a Happy New Year!!!
Best wishes to all.

CashPlus greetings till next time!!!!

Mitch Brandt
CEO CashPlus Property Investments
Always buy below market value!!