DOC

Muckleneuk Guest House

By Jack Carroll,2014-05-17 01:07
14 views 0
SWOT Analysis. Strengths. - The business is a running concern. - Proven opportunities for business in property market. - Investors will get income and

Cash Flow Investments (Pty) Ltd

Investor’s Guide

1

    Investor’s Guide

Executive Objectives

    Cash Flow Investments (Pty) Ltd will focus on below market value property investments, but with above average growth potential. Providing investors with sustained income and capital growth. The company is committed to deliver extraordinary property returns through active asset management.

    Cash Flow Investments (Pty) Ltd will target investment opportunities that will contribute to long term growth of the company and deliver high returns to the investor.

Business Overview

    The vision of the directors is to maintain and grow a profitable company that will reward investors with a high yielding capital growth without the uncertainties of regular investment programs and other fledgling companies available to investors. The company is investing in bricks and mortar that are one of the safest investments a man can make.

    The directors of Cash Flow Investments (Pty) Ltd have bought properties that yield some of the highest returns in South Africa and will continue to do so with new investment funds.

    The properties are bought in areas that are well below market value and that have lagged the average property growth in SA. These areas have been neglected in the past, but are in the process of regeneration. The government backs this regeneration process via the Urban Development Zones set out by the municipalities. The UDZ gives developers a tax incentive to redevelop apartment blocks in these zones. In Johannesburg there are currently 150 projects worth R2.5bn in the process of redevelopment. The number of projects will increase after Minister Trevor Manual announced in his latest budget that the UDZ incentive would be extended to 2014.

    Investor funds will be utilized to expand the company portfolio. As the company grows, bigger investment with better returns can be utilized e.g. office block conversions to residential flats.

    Cash Flow Investments (Pty) Ltd offers the armchair investor peace of mind with great long term growth and regular income payments.

Investment Return

    Cash Flow Investments (Pty) Ltd have 8 properties in the company portfolio at a current market value of R1 220 000.00. The rental yield is currently 17.7%. The rental

     2

    income covers all expenses. The levy, agent fee and mortgages are paid by the rental income.

    Investors will receive a return in the form of interest payments. The interest payment will be generated from rental income. The payments will not be a fixed percentage or amount. The rental income will be variable depending on the level of gearing in the company. This return will increase as rental income from properties increase yearly. This investment is a good hedge against inflation with estimated annual rental escalation of 8% per year and building cost inflation of over 11% per year.

    Investors will receive shares and a shareholder loan account e.g. a R10 000.00 investment will consist of R10.00 in shares and R9990.00 in shareholder loans to the company. Each individual under the age of 65 in South Africa may receive tax free interest payments of up to R19 000.00 per year and R27 500.00 per year for individual over 65. Interest payments from Cash Flow Investments (Pty) Ltd will be tax free up to these limits. Interest payments will be generated from net rental income and will be paid one month in arrears from date of declaration.

    The investment will have capital growth as the properties increase in value. An average capital growth rate of 15% per year is not impossible and is conservative for these properties. According to ABSA House Price Index, if beginning 2000 =100 then end 2007 = 353. That is an increase of 253%, which is an increase of 20% per year cumulative over the last 7 years! We will use the long term average (last 20 years) of 15% per year for our estimates, although our properties are bought below market value and will outperform the 15% long term average.

    Cash Flow Investments (Pty) Ltd currently has mortgages of R220 000.00. This will give leverage to the growth rate and increase the percentage return on capital invested. The gearing in February 2008 was 18% Loan to Value. In other words your investment might be R8200.00, but you will have capital growth on R10 000.00, the full value of the underlying asset.

    The investor will not only benefit from capital growth in the properties, but also from rental income that will be paid to investors. Rental income currently exceeds monthly fixed expenses. Part of the net rental may be held in a pool for extraordinary expenses in the future, but the rest will be paid out to investors.

    Properties will initially be bought for cash. This gives the company great bargaining power. As the rental income grows, the company will approach the banks for more mortgages. This will give the company more gearing on the capital growth of the investment. The funds will be used to buy more properties or funds will be paid out to investors.

Investment Property

    Cash Flow Investments (Pty) Ltd was able to find investment property that yield high returns. The yields are high enough to cover the mortgage, letting agent fees and levies.

     3

Currently there is a great demand for property to let in the Johannesburg CBD, which

    can be bought at great discounts to the average property defined by high street banks. 22 and R2200/mand The properties in the portfolio were bought for between R900/m

    have yields of between 15-25% per year. There are more opportunities like these

    waiting for Cash Flow Investments (Pty) Ltd.

Johannesburg CBD properties have under performed properties in other CBD’s. Five

    years ago the average flat in Berea, Johannesburg was priced at R55 000.00 and that

    of Sunnyside, Pretoria R45000.00 according to Trafalgar Properties. In 2007 the

    average price of a flat in Berea was R133 000.00 and that of Sunnyside R287 000.00.

    Johannesburg is going through a renewal program to uplift the CBD. Pretoria has 2gone through this process, which lifted the average prices to R5000.00/m and still rising! Now is the time for Johannesburg to play catch-up and Cash Flow Investments

    (Pty) Ltd is positioned to benefit tremendously.

Cash Flow Investments (Pty) Ltd properties are investing in buildings that have not

    been refurbished. Buildings in Johannesburg CBD that have been refurbished are sold 22for between R10 000/m and R15 000/m e.g. Ponty Building. This will have a

    positive effect on other buildings in the area. Most of the flats in Cash Flow

    Investments (Pty) Ltd are close to new developments like Ponty, Gautrain and Rapid 2Bus Link route. So by purchasing property at +/-R2000/m, you cannot lose!

Current Properties in Portfolio

Date of Purchase Size Rand per Current Value Annualised

    Purchase Name of Building Price* Sq m Sq meter Feb '08 Appreciation Feb-07 Park Court R 70,000.00 77 R 909.09 R 120,000.00 71% Feb-07 Park Court R 70,000.00 83 R 843.37 R 120,000.00 71% Aug-07 Pasadena R 150,000.00 69 R 2,173.91 R 170,000.00 27% Aug-07 White Plains R 135,000.00 65 R 2,076.92 R 150,000.00 22% Aug-07 Parkleigh R 110,000.00 85 R 1,294.12 R 150,000.00 73% Sep-07 Pullinger R 220,000.00 118 R 1,864.41 R 270,000.00 55% Sep-07 Queen Ann R 50,000.00 43 R 1,162.79 R 100,000.00 240% Oct-07 Marimar R 120,000.00 72 R 1,666.67 R 140,000.00 50%

    *This price excludes cost of purchasing the properties.

Investment Structure

The legal entity of the company is a (Pty) Ltd. Only 50 shareholders are allowed.

    There are 1000 shares available of which 100 have been issued. The company will

    issue new shares to additional investors.

Management will acquire only 20% of all new shares issued by company for

    managing the entire business. They will not receive salaries. They will only benefit

    from their 20% shareholding of new shares and current holding in company.

     4

    The shareholding from new investments will be split 80/20 between investor and management. The properties sourced will be bought at a discount of 20-40% like the properties bought so far by the company in the last 6 months. The investor will regain his 20% immediately via the discount in the property purchased.

Investor Exit Strategy

    Investors must be able to invest for medium to long term (5-10 years) to benefit from the cumulative growth effect of the investment. The director’s philosophy is to hold forever, but due to individual unforeseen circumstances there will be an exit strategy in the short term.

    Investors, who would like to exit within the first 12 month, will have to pay an admin fee of 5% of current value. Current shareholders will have first option to buy the shares from exiting shareholders. Property can be sold at the director’s discretion, as

    last resort, to assist the exiting shareholder. The exiting shareholders can nominate a new buyer, but the directors of Cash Flow Investments (Pty) Ltd will make the final decision.

    The value of shares will be calculated on latest available book value of properties in portfolio. At the end of each financial year the properties will be valued to determine the new share price.

Company Management

The Entrepreneurs

    Colin and Lizette Brazendale are proven property entrepreneurs. They have been investing in property since 1999. Today they have a personal property portfolio of more than R20 million.

    Colin & Lizette Brazendale started an accommodation business in London (UK) called South African Backpackers Accommodation Ltd. The company was

    established in January 2000, but started part time as a partnership in Jan 1999. The company was closed in June 2004 when they returned to South Africa.

    The business had an annual turn over of ?350 000.00. It was in the business of providing accommodation to backpackers in London. The company would lease houses and in return let the rooms to Backpackers on a short-term-let bases. The accommodation provided consist of 17 houses (which accommodated between 5-8 people per house), 20 flats and a 55 bed hostel in the centre of London (next to Centre Point at Tottenham Court Rd Underground Station). The business was run by Colin Brazendale full time.

    Colin and Lizette Brazendale returned to South Africa in 2004 to start a family. Since returning from the UK they have bought various properties in South Africa.

     5

One of the properties they bought was a property in Muckleneuk, Pretoria. They

    bought the property for R800 000.00 and turned it into a 4 star guest house valued in

    2005 at R3.8 million. The turnover of the guest house currently averages R75000.00

    per month.

Management

Colin Brazendale will be full time involved in the day to day running of the company.

    This includes:

    1. Source property to purchase that meet the investment criteria of Cash Flow

    Investments (Pty) Ltd.

    2. Negotiate with buyer agents on price for the property.

    3. Work with transfer attorney to make sure transaction runs smoothly and that

    all documentation is correct.

    4. See to it that property can be let as soon as transfer is complete.

    5. Negotiate with letting agent for highest possible rental income from property.

    6. Day to day management of property.

    7. Make sure that the administration of company is up to date and that auditors

    have all the information to do the monthly bookkeeping to report back to

    investors.

    8. Communicate with investors on progress of company and new investments.

The auditor of the company is Theunissen Abrie Incorporated. They will draw up the

    income statement every month and circulate it to investors.

The property letting agent is Trafalgar Management Services. Their office’s are

    located close to the flats. They currently let 3000 properties and have a waiting list of

    tenants. They will be responsible for vetting and managing tenants, collecting rent and

    electricity.

SWOT Analysis

Strengths

    - The business is a running concern.

    - Proven opportunities for business in property market.

    - Investors will get income and capital appreciation in company.

    - The company is cash flow positive.

    - The company is geared to give investors larger growth percentage on

    investment than current growth rate.

    - Very easy for investor to enter the property market via the company.

    Everything is already done for the investor including application for mortgage,

    property hunting and selection, management of properties, ect.

    - The property growth in the Johannesburg CBD is from a very low base and

    still needs to increase significantly to catch-up with property prices in other

    CBD’s.

    - The company will have more purchasing power with more investors.

     6

    - Management has 9 years of experience in business and property market.

Weaknesses

    - Unknown capital growth rate. Past performance not a given.

    - Approval of mortgages takes longer due to new National Credit Act.

Opportunities

    - Current market conditions are favourable to cash investors.

    - The property market is currently a buyers market. More sellers than buyers.

    - Rental income growth will be stronger in down cycle of property market.

    - Gautrain and Rapid Bus Link to increase mobility in city. New investments in

    CBD infrastructure.

    - The 2010 Soccer World Cup hype will increase the demand for properties

    around Ellispark and CBD.

Threats

    - Property market is in a down cycle.

    - Interest rates may increase further in the future.

Financial Statements and Projections

Annexure 1 Estimated Capital Growth forecast. These figures does not reflect the

    fact that the directors believe Johannesburg CBD property are 50-60% undervalued

    compared to Pretoria CBD property prices!

Annexure 2 Estimated Income Statement. Depending on the level of gearing the

    banks allow the company to take on, this income estimate may change. The mortgage

    payments will increase the expenses, but the capital growth percentage will increase

    exponentially on each investment.

     7

Report this document

For any questions or suggestions please email
cust-service@docsford.com