Developing profitable properties is a journey, and like all journeys, it begins with a first important step. For many entrepreneurs looking at building their first, or their next, development in the township that first step frequently entails financing the project. The good news is that we have been catering to this with uMaStandi for ten years and so we are seasoned in helping entrepreneurs take their idea from a plan to a profitable reality.
All profitable businesses start with an investment – of time, money and commitment – and property development is no different. For entrepreneurs embarking on this path and who may be interested in the support offered by uMaStandi, there are some key foundational things to know.
While uMaStandi can finance up to 80% of the investment needed, entrepreneurs are required to fund a portion of their project with their own equity. Additionally, uMaStandi currently provide loan facilities up to R15 million at the top end. Also, it is important to know that we provide financing for long-term rental developments, rather than Airbnb’s
or guesthouses.
In helping customers develop profitable properties and build their wealth, our aim is also to promote good and affordable long-term accommodation, as we remain committed to helping revitalise and rejuvenate townships areas so that they can grow healthy communities.
Another step towards developing profitable properties is ensuring that your property is a good investment. Ideally, the overall value of the asset you develop should exceed the money you need to spend to purchase or develop it and it should appreciate with time.
Additionally, being fully compliant with municipal regulations is essential. This means having approved building plans and an occupancy certificate, whether you finance your development via uMaStandi or not. If you don’t have approved building plans, it is going to be exceedingly difficult to secure refinancing for the property should you need it. Circumventing the city and failing to obtain approval of your building plans would impede your ability to sell the property if you wished to down the line. That means you will be stuck with dead equity, which is undesirable.
To develop profitable property in the townships, you must understand what people want, know how much they are willing to pay, and then build for the market for which you are catering.
For example, while shared living spaces – like a shared bathroom and kitchen – may have been a popular design in years past, it isn’t anymore. The trend now is towards self-contained bachelor units, which are increasingly in demand. Developers should therefore build a unit that can accommodate some room for entertainment, such as a couch and a TV, along with a bed and its own toilet, shower and small kitchenette.
Having on-site parking on the property is not just attractive – it can be a dealbreaker if unavailable. Beyond that, having Wi-Fi and Internet connectivity has become a standard amenity. If you can afford to implement some renewable energy options, such as solar, on the property that is an advantage. One market that can be quite lucrative, even though it is a niche, is student accommodation. As a landlord in this market, you need to treat your investment as a hotel, in which your tenants have most things covered or catered for by you as the landlord, so this will increase your operational costs significantly.
It is important to factor in a reserve fund or budgeted savings to ensure you are able to still keep up with the bond instalments and other financial obligations the property has, due to the shorter cashflow period of 8-10 months, rather than the usual 12-month collection period.
There are two key factors that we see making the difference between failed ventures and building a profitable, successful one. The first is to work with a trusted team, who can support you, advise you and assist you on your journey. This is particularly important for first time property entrepreneurs, who often make common mistakes that could otherwise be avoided.
Finally, the biggest catalyst to ensuring that your venture is profitable and successful, is investing in yourself and continuously strengthening your knowledge of property development. To that end, TUHF and uMaStandi offer a short course with the University of Cape Town called the TUHF Programme for Property Entrepreneurship (TPPE). While it is free to our clients, it is also available to anyone interested, for a fee. The programme also gives you access to a seasoned mentor for six-months who has several decades of experience in property development and can help you avoid the pitfalls and propel yourself to a more successful outcome.