Your Property Portfolio – how to prepare to start …

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Okay, you here, im guessing you interested in property.  Word on the streets keeps saying property investment is always a good investment.  Them streets also say you can never go wrong with investing in property.  Hmmm.  Never say never… but im not here to try convince you or argue any points, i will leave that to the rich dad poor dad chronicles.

But yes, you here.  How do you start to build your property portfolio?  Where do you even begin?  When do you want to begin?  Do you have a timeframe?  How do you even begin preparing for when you are ready to purchase or source property.  What groundwork should you put in place in order to get you and/or your company ready to start building your property portfolio by purchasing and/or sourcing property?  This is what i would like to try assist you with deciding on what to do next.  Look, from my side, take it as [Tips & Tricks].  Read through this, does it kinda make sense?  Decide on your own steps, then ACTION!  Lol Bob’s your uncle.

But before we dive into the steps, there is some background information and/or decisions you will need to think about. Below are the links to these information packs.

  1. Buying to live in (residential) vs buying to rent out (investment)
  2. Property buying capacity
  3. Property Strategy
  4. 20 year Home Loan vs 30 year Home Loan

Alrighty then, now that you have read and consumed the information packs in the links above, let’s dive right into the steps to building your portfolio.  i am going to make plenty of assumptions but remember you have the power / choice to take or leave out any [Tips & Tricks] that seem not to align with what you would like … lol, i will try not to be offended.

Step 1 – Open / Register a company with CIPC/DTI

i have made the assumption that you would like to use / buy using a company.  Open / Register your company with the DTI/CIPC.  Choose a name for your company.  im not a fan of choosing a company name which is associated with you as an individual, like company name having your name or surname etc but that’s me!  Also be sure to add a suffix in order to further individualise your company name.  It will cost you about R500. 00 to register you company with Redpeach Technologies at sales@redpeach.co.za.  Give them a shout.

Step 2 – Open a bank account for your company

Open a bank account for your business.  i think here you will have to decide whether with internet banking or without.  This does affect your bank charges.  You will need to be able to get monthly statements for your bookkeeping / accounting processing.  For a dormant company, i would initially recommend an account without internet banking.  You can always get your monthly statements from the ATM.  However once it starts receiving and making payments, internet banking is obviously the way to go.

Step 3 – Register company with SARS

i think the newly registered companies already come with a tax number. You can choose to either also start submitting your tax returns or wait until your company starts operating.  Just remember that if you decide to only start submitting once operating, you still have to submit returns for since the company inception.  A dormant company must also submit returns. Any Home Loan applications do require the latest TAX returns / submissions from SARS.  Here, i would recommend submitting TAX returns even for the dormant company, and rather be charged as you submit annually by your accountant than to get a big bill for 5 outstanding annual submissions.

Step 4 – Submit returns annually at DTI/CIPC and SARS

It’s good to be up to date with any documents and submissions.  What i have learnt is that it’s better to be up to date and have the necessary compliance documents in place in case you suddenly require them due to any moves you making.  Instead of now running around submitting and requesting compliance documents at last minutes.  Maybe just have them available.  i have a folder i call ‘Yearly Important’ which contains documents that are required yearly aka compliance documents.  So those will be e.g. Tax returns at SARS, CIPC annual returns, Bank account confirmation letter, certified ID copies.  Some of the documents should be dated less than 3 month.  But look, put up a system that works for you.  Make sure you know what documents, submissions your company needs to submit and period, ie yearly etc. Please note that Annual Returns at SARS are different to Annual Returns at CIPC and both should be done yearly.

Step 5 – Bookkeeping / Accounting

Your business should have a bookkeeping / accounting processes.  In the beginning, you could do your own bookkeeping – tracking income and expenses, keeping receipts etc. However for business SARS returns, i recommend you get an accountant on board.  i do my own bookkeeping.  i use Quickbooks and input all my income and expenses.  Look, it’s a good accounting package.  It can generate reports, show you how your business is doing, monthly, quarterly or yearly, and generate invoices and receive payments.  The whole nine yards …  When i sourced for an accountant, my requirement was they should be Quickbooks compliant.  i just send them reports from my Quickbooks and she generates AFS (Annual Financial Statements) for me, yearly.  Oh, yes she bills me for those statements.  Is it in your budget?  It better be!!

Step 6 – Deposit FFA savings into your Business Account

A FFA (Financial Freedom Amount) is your savings from your budget that you would like to use in order to get you to achieve your financial freedom, maybe for example by starting a business. This is money that you are investing into your business in the hope that the business in turn generates income for you, which in turn helps you and puts you on the path to financial freedom.  i got this budget [Tips & Tricks] from a free seminar i once attended, eish i forget the presenter / author. He mentioned that in his personal budget, he has an amount (percentage) that he invests into his business in order to operate it.  He called it FFA (financial freedom amount). The percentage can vary depending on each individual.  Look, you can have different savings accounts, an emergency fund account, stock market account, FFA account.  Options are endless.  My recommendation is to save your FFA into your property business account.  Slowly build an income profile for the business and pay general expenses for the business from the business account.  This money will be itemed Owner’s Equity in the business for accounting purposes.  In turn when you start requiring loans the business already has an operating profile.  Just remember that in the beginning, even if you applying for a loan using your company, your personal profile is used for affordability assessment and surety.

Step 7 – Get AFS, annually

Make sure to make / get annual financial statements (AFS) for your business.  For me, there is basically 2 reasons why. 1, if you going to need loans etc, the banks will require at least AFS’s for the past 2 years.  Now imagine having to run around organising AFSs just because they are now required and having to look for receipts and all documents.  No, im definitely not a fan of that.  Be prepared.  Be always compliant.  Be organised. My second reason is that an AFS is a window into your business.  It shows you how your business is performing.  You need to be totally invested in how your business is doing.  Also the other advantage is you slowly get to know what documents / receipts are needed and best practices and this helps align your bookkeeping / accounting practices towards best practices, and all this under the guidance of your accountant.  AFS’s are a business requirement – get them done, annually. A side note, with AFS here i mean Annual Financial Statement and not the normal Audited Financial Statement.

In conclusion i would say it’s important to get a process going for either your dormant company or operating company.  Having a set process / plan makes sure you are prepared and have the required documentation for when you are ready to make moves with your company.  i think there is a saying that goes ‘failure to plan is planning to fail’.  Plan your journey, make sure you are prepared.  i would also like to point out and hope you also notice that an accountant is very important to your business.  Also a bookkeeping / accounting process is critical.  Make sure you have a good relationship with your accountant.  In the general operation of your business, your accountant will be required to sign multiple documents.  Also they would give and provide [Tips & Tricks] and best practices for you to align towards.  That said, the journey of a 1000 miles begins with one step … let’s make that 7 steps neh?  Why the hell not!

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