At the moment there are numerous people offering courses where you can learn how do buy and make money with property without using your own money. (Also see books section for related books).

Below is some tips based on my own personal experience. These are just basic information. If the information below interests you I suggest you attend one of Gordon Mac Kay's courses for a complete overview and expert advice. Click here for more details . You can easily burn your fingers if you try to do this without knowing what you are doing. So I strongly suggest that you attend a course before jumping into this market.

In order to build a passive income you must buy your properties, let it out and try not to sell them ever again. The only time when you sell a rental property is when the area deteriorates to such an extend that you have to sell your property or of course if you did not plan your cash flow and you cannot afford the shortfalls.

It is also advisable to buy your investment properties in the name of a trust. If you build up a portfolio of rental properties you will not only benefit from the rental income, but your properties will also appreciate in value. If you registered these properties in your own name and you pass away one day, the properties will be sold and your loved ones will have to pay tax on the profit you made on those properties. But, if you register your properties in the name of a trust and you pass away, the trust do not die with you and the properties will not have to be sold.

For long term wealth creation it is vitally important that you structure your property portfolio correctly from the beginning. Moving your properties to your trust later on will cost you a lot of money. I suggest you get a strong team behind you to help you. Getting the right team might even be more cost effective than you think. I teamed up with the best team in South Africa. They assist me with everything from selecting and renting my properties, running my trusts and I even use their auditor. If you would like to derive benefits from the same team, go to www.realestatemillionaire.co.za and enter your details on the web site so that I can send you an official invitation to join them. You can join for free of course.

How to buy your rental properties

There are two ways to buy and let properties. In both cases you use little to none of your own money. That is what banks are for. You buy a property, apply for a bond to pay for the purchase price, fees and other costs and you then let the property.

Before you buy a rental property you must first do your homework. Find out in the area where you want to buy what other properties are rented for. You must keep in mind that you will have to repay your bond and you will have to pay levies (if it sectional title). If you keep that in mind your rental income must cover most of your expenses. It is normal to make a loss on the property in the first 3 to 5 years, so you must have capital to cover that loss. So for the first couple of years all the money you get from those properties will go into the bond and you might not get anything from your investment yet. In some areas like Sunnyside in Pretoria you might be able to buy a property where you will make a profit from the start.

You must buy a property that is in demand for rentals. At the moment 2 bedroom 2 bathroom units in security complexes are in high demand. The problem is that because there are such a high demand this is all the developers build nowadays. So the market get over saturated and the rent become much lower. In Centurion for instance you now pay R750,000 for a 2 bed 2 bath unit but you can only let it for about R4,000.00. Add the levy to that and you see that you make a good shortfall. If you can afford the shortfall, this is still a good investment because the capital growth on these units are very good. Keep in mind that you will increase your rent by 10% per year. In the case mentioned above your shortfall can be up to R6,000 per month if you consider the levies, management fees and bond repayments.

On the other hand you can buy a 2 bed flat in Sunnyside East for R300,000 and get R3,000 per month rent for it. Add the levies and you see that you can break even in your first year or two. You might only have a shortfall of R1,000 or less. Each area is different. The important part is that you must be aware of the shortfalls which you will have to cover from your own pocket. My specialized team created a plan where we use the bank's money to cover these shortfalls. Go register at www.realestatemillionaire.co.za to learn the secret.

So you must do your homework and decide what you can afford.

So by now you will see that you will not make huge amounts of money from rental properties within your first year or two. That is why I add Short Term Investments to my portfolio.

Although the money you receive will pay the expenses (bond+levy) it can still show as an income on your statement. It is this extra "income" you now use to apply for a bond for your second property, and so you continue.

Two ways of profiting from your investment

This is where you have to decide if you love debt or tax.

1. You love debt but hate tax

Example: You let your property, the rental income pays the bond and you make a loss in your first year or two. You do not pay tax because you do not make a profit. After 5 years you make a profit on your rental income and your property appreciated in value by R200,000. So now you will have to start to pay tax on the profit you make from the rental income. So the clever way is to re-finance (take out second bond) that property. To be on the safe side you do not refinance your property for more than 70% of its current value. Your repayment will increase, taking away the profit you make on your rental income and you will put R140,000 in your pocket which you can use as a salary. You cannot pay tax on the R140,000 because it is not your money, it is the bank's money. If you have at least 5 properties in your portfolio you can re-finance each one every five years and make a living out of the bank's money without paying tax on it.

Why R140,000 and not R200,000? Re-financing is extremely dangerous. It is wonderful but if you do not use it properly it can ruin your whole life. So be safe you never re-finance the property for more than 70% of its current value. This is a safety mechanism. So if something happens and you must sell the property urgently, you can still sell it for 30% below its actual value.

As I said, re-financing a wonderful tool, but if you do not know what you do you can burn your fingers. So please attend Coert's course, Click here for more details , so that you can learn from an expert.

2. You hate debt and will rather pay tax

Some people do not like the idea to make more and more debt and to have it for the rest of their lives (as above). So there is another way to do this.

The procedure to buy and let your properties are the same as in the example above. The only difference here is that now you use all the money you gain from your rent to pay off the bond as quickly as possible. If you put back every cent you earn you can pay of the bond within 5 to 8 years (aim for 5). When the bond has been re-paid you now use the rental income as a profit. But remember that you will pay tax on that.

So you will still buy one property, let it, use that income to apply for a bond for your second property and repeat the process for as long as your cash flow can carry the initial loss.

WARNINGS:

1. Buy in a stable area. You want to buy a property where there is a demand for rental properties. You will own this property for the rest of your life. So make sure that you buy in an area that will remain stable for the next 20 years. Areas with large vacant lands next to it is a big risk. We know what informal settlements do to the economy and to the value of your property, so be extremely careful when buying an investment property in the middle of no-where. A large vacant land can also be good news, it can mean another development next to your. Unfortunately we will never know. There must be places for the people to work close to your rental property. Gordons Bay in the Western Cape is a good example of a place where NOT to buy. There is an over supply of rental properties and there are very little industries or offices in the area. Thus rental income is low and capital growth even lower. Certain areas of Centurion in Pretoria falls under the same category for the same reasons.
   
2. Do not buy more properties as that your cash flow can handle. Although you use the bank's money your property will most probably make a loss of R300 to R4000 per month for the first year or two. So you must be able to carry that loss out of your pocket. If you cannot afford that, rather start small in a good area with normal flats, like Sunnyside where you can break even from your first month. This is where a lot of "investors" make the mistake. They buy more properties than their cash flow can handle and in the end they have to sell their properties at a loss just to get rid of it as quick as possible. These "investors" are good news for us, because we can then buy those properties from them at a good price. But be careful that you do not fall into the same trap.
   
3. Make use of a letting agent: Especially in the beginning, do not try to let your property yourself. The fee letting agents are worth paying because most of them know what they are doing. It is also important to select the right letting agent. The screening of the right tenant is the most important aspect of the process. If you allow rubbish into your property you will for always have problems. We had R8,000 worth of damage in one of our Pretoria flats because VIP Properties allowed a bunch of immigrants into our flat. This is 100% the negligence of VIP Properties because you do not let a property to somebody whom you cannot track their creditworthy ness or criminal record. In the case of an Nigerian immigrant there is no ways you can check either of the two. So when you select a letting agent make sure what checks they do before they let your property. They should at least do an ITC, Experian and TPN check. They must also do a check for criminal record, get salary slips and over and above that get 3 month's bank statements to prove the income. If you let a property to somebody who cannot afford it you will not get your money.