Put a helipad on the roof

The Summit Investor takes some advice from Dolf de Roos - professor of real estate studies at the University of North Texas - about how to get rich quick with real estate in tricky times

Presenter: Bruce Whitfield
Guest: Dolf de Roos

BRUCE WHITFIELD: My grandfather had a great saying: “Never give advice - wise men don’t need it, and fools won’t take it.” Yet there’s an industry of international advisers that travels the globe dispensing advice. I find the timing of our visitor’s entry to South Africa very interesting - he is billed as an international property expert, he likes to be known though as an international property investor. His name is Dolf de Roos, and he’s a professor of real estate studies at the University of North Texas. He’s been in South Africa talking about building a real estate empire in tough times - does the guy even know what tough times are one wonders? Let’s find out. Do you know what tough time are Dolf?

DOLF DE ROOS: Tough times is a definition that can be taken two ways. The media right now are saying that times are tough in real estate - they are scaring people away from real estate saying: “Times have never been worse, interest rates could rise.” I happen to believe that we’ve had the best time ever - it’s the best time probably in 15 years to invest in real estate. To answer part of your other question - I am not an advice giver. I don’t like giving advice. I don’t like to be known as an adviser. I put my money where my mouth is. I invest in real estate - especially now in these so-called “tough times.” They’re actually wonderful times. I’m happy to share why I do what I do - if people want to follow what I’m doing that’s fine, and if they don’t I’m happy. It’s less competition…

BRUCE WHITFIELD: Tell us why you believe and where you believe the opportunities lie? If you look at the United States some of the doomsayers are saying the US has got another 30% to go before it reaches any kind of real value. UK property values are under pressure - there’s speculation of 5% maybe even 10% declines within the next 12 months in the UK as well…

DOLF DE ROOS: Yes, and it’s a shame it’s such a small percentage decline - I’m hoping it’s going to be more…

BRUCE WHITFIELD: But you’re talking about investing, and you’re talking about investing right now - where would you be investing right now considering the sort of pressure that global property is under?

DOLF DE ROOS: Anywhere where there’s been this great downturn is a great place to invest - there are terrific bargains to be had in the United Kingdom right now, and in America there are great bargains. I believe for reasons I am happy to share that in South Africa there are going to be superb bargains. Most countries have two reasons why property values will inevitably go up again - one is ordinary inflation which is just the eroding of the value of money. We all have that. Oil hit $126.98 a barrel yesterday - a lot of the component costs of real estate have oil inherent in them, either for transportation or materials - so the cost of building is going to go up. Secondly, in this country like most Western nations we have an excess of births over deaths - and immigration over emigration - so the population is going up. That causes demand inflation, but where South Africa stands unique from all the other Western nations is you’ve got what is euphemistically called the “burgeoning mass” of people who are going to get into that band of income where they can afford housing for the first time. Proportionally per capita you’ve got a greater mass of people about to buy their first homes - and those wanting to upgrade - compared with the rest of the world.

BRUCE WHITFIELD: I’m not going to argue with you on a single one of those points - all of them are well made - but if a housing market or any asset class is overshot significantly as it may very well have in South Africa there’s potentially a lot more downside before you see a recovery…

DOLF DE ROOS: Absolutely. I’m not saying buy right now today - I’m saying over the next six to 18 months there are going to be opportunities. As there is this credit squeeze as interest rates go up - which they look as though they inevitably will in this country again - as people get short of cash they’re going to first start putting their houses on the market at 10% below what they paid for them, then 20%. Ultimately they’re going to pay you money to take the debt off their hands - you will be able to do what’s called “short sales” from banks where you will buy properties for less than the banks have owing on them in the form of mortgage bonds. They are great opportunities.

BRUCE WHITFIELD: But identifying the opportunities. You’re in South Africa doing talks and giving interviews - are you also looking at buying property in South Africa? You don’t actually have South African property assets in your international portfolio as yet…

DOLF DE ROOS: Not right now. One can’t be everywhere at once - but I’d love to do something here. In fact doing the talks is an excuse to be here - we did a breakfast talk this morning, we’ve got a whole series set out for the rest of the country - but this afternoon I’m looking at commercial real estate in the CBD of Johannesburg. I know there are bargains here. One of my signature statements - and I’m living proof of it - is that the deal of the decade comes along about once a week. If you’re a mathematician type of person and believe that by definition the deal of the decade comes along every ten years - then when someone hears I found a bargain they all stop looking for 9.9 years when in actual fact there will be another bargain next week.

BRUCE WHITFIELD: You’re looking at commercial property in South Africa not necessarily residential property - or is that on your radar as well?

DOLF DE ROOS: I invest in both. I prefer commercial property. I’ve got a whole series of reasons why I prefer commercial property. The returns are great, the tenants pay all the outgoings such as council taxes, insurance, maintenance. The tenants want a long term lease, and they tend to earn their income there - so they have a vested interest in keeping the place looking good. All these reasons add up to why commercial property in my view is better than residential property. Another way of looking at it is of all the ultra-wealthy people I know who made their money through real estate - I’m talking about R1billion plus - only one I know of has done it through residential property. The rest have done it through commercial real estate. That alone is enough reason for me to get in to commercial real estate.

BRUCE WHITFIELD: This is an advice programme - and I go back to my grandfather’s statement - but let’s get some guidance here and that is you should own the home you live in. You shouldn’t necessarily own a second residential property but a commercial property?

DOLF DE ROOS: In fact I’d say there’s nothing wrong with renting the home you live in. Most people own the home they live in for pride of ownership or some sense of security - but there is nothing wrong with renting your home. In fact the returns on residential real estate can be quite low - especially on the more expensive homes - so why own the home you’re living in when you can rent it? You get it for much less than it would effectively cost to own - then put the cash you’ve saved into a commercial property or an investment property.

BRUCE WHITFIELD: Particular areas of commercial property in South Africa - do you look at industrial property, do you look at factories, are you looking at office space? Office space - there’s a huge shortage in this market…

DOLF DE ROOS: Office space is great. Here’s how I do it - I don’t mind so much the category - I like commercial space that has a vacant component, or an opportunity to improve it. When it’s vacant you can buy it for a song - you can buy it for much less than it’s tenanted value. A house is worth the same amount whether it’s tenanted or empty. With commercial real estate if it’s partially vacant or under-rented I can buy it cheaply - because its value is dependent on the rental income. Then by putting more tenants in and by improving it - by doing simple things I can massively increase its value. I’ll give you an example - commercial office space might rent at say R1,000 per square metre the way it is - with a helipad on the roof that suddenly goes from R1,000 to R1,200 per square metre...

BRUCE WHITFIELD: Half of Johannesburg’s executives will be lining up at your door for their helipad…

DOLF DE ROOS: That’s right. What does it cost to put a helipad in? White paint and a big brush to paint a circle with the letter H. Here’s another on you can do - you can put a cell phone tower on the roof. Sell it to the cell phone companies to get great coverage. I’m also a realist - I know that often a helipad and cell phone tower are incompatible on the same roof.

Article from: www.summit.co.za