Welcome back.

Ever since I was young I remember hearing all those who have made money saying the best investment is property. From my first salaries I saved up and bought a piece of land for building my home later on. I never got to build, as I lost it. That was my most important lesson.

There is a fact not many know - just as with all other businesses, property, whether land or a large office block for instance, they fluctuate in value due to the property cycle.

Properties in almost all countries where people are allowed to own land, farms and buildings, the property market tends to move in cycles - about fourteen years from where you are to get back to that same spot on the curve. If you are the one left holding the bag when the curve has turned into a Mt Everest, you are going to experience a very nasty fall as a cliff opens up before your feet.

However, if you invested within the first half of the cycle, you will have had time to pay off all or most of the loan so that you do not care when it peaks and falls, as you will not be vulnerable to the greedy banks. Once you have passed the crash, that is when you really start to see the profits you were told about...but not in the value of your property (not so much) but in the value of your income.


Let us examine why this is so.

At the time you buy, let us say that the loan will cost you about 15% pa. Unless there is high risk, you are more likely to earn from the rentals between 8 to 12% pa. If you negotiated correctly, the bank will have agreed to cover your shortfall for a couple of years (if needed). They can do so because they usually do not finance the 100% of the value. Let us say they financed 80%, so that 15% is on the 80%, not on the money you invested (thus in effect coming to about 12% pa - or, 20% less).

Let us say that your income on a $1 million property is about $10,000 pm (giving you the above 12%). Apart from maintenance and so on, you should be nearly covering your expenses.

At the end of the year, your rent goes up a small percentage, so from then on, you keep on receiving more income, while your debt gets smaller. It means that your property is also appreciating in value. For example, the growing income of the property over five years grows the property value to about $1.4 million (these are rough figures, only for illustrating how the market works).

However, the banks are then charging interest of 9% so your property is worth even more. Or, if the interest is higher, it is worth less.

Whether less or more, it does not matter if you are not looking to sell and your loan is greatly reduced. What you should care more about is your income. As long as your rental income keeps rising, you are safe and earning an income above what you have to pay the banks and yourself.

Okay...I have really simplified how it works so that people who do not usually buy property can understand how it works.

It is and will be our responsibility to identify suitable properties for you, giving you an explanation of the risks according to the income. The riskier it is, the higher the percentage of your returns...but you can only decide on the risk if you know why there is a risk. We will see to it that you do know in advance and will always welcome questions on whatever is not clear to you.

DIVERSIFYING your Investments provides you with a safety net.

There are at least two ways you can diversify

• A. By not investing all your money in one property, but in five (for example)

• B. Not buying a share in properties in only one country. Just imagine you had seen good profits and invested all you have in Venezuela...

We will not be investing in all countries. To start off we will invest in maybe two or three countries, those we consider the safest.

If investing in property is new to you, I have already given you enough for you to think on. I'll make my next post tomorrow and this is when we start getting down to the nitty gritty of how you will invest, what it will cost and what plans we have for helping those of you who do not have spare cash...

See you tomorrow....

(Alexander Zenon Eustace)

^{24th February, 2020}