Manage your affordability

By Coert Coetzee

The big buzz-word at banks at the moment is “affordability”; the new Credit Act has emphasised this issue. It’s always necessary to afford whatever you are doing, and so I have no problem with affordability being such a big deal right now. Those of you who have attended my seminars will know that I always say you must make sure that you can afford what you are doing. I also always say that it’s not for the bank to tell me what I can or cannot afford; I can calculate this myself. For example, if the bank says I can afford a bond repayment of R6,000, but I know that I can't, then I would surely be very foolish to believe the bank. It works the other way around too. If the bank says that I cannot afford a R6,000 repayment, but I know that I definitely can, then why should I not be allowed to buy a property?

The new Credit Act was established to protect us against credit providers who make us believe we can afford debt that we actually can’t. This is a good thing! I am thrilled about it! Over the past few years I have repeatedly seen banks putting some of our members in positions they should not be in. I have seen over and over how our members don't like it when Treoc Finance tells them that as far as we are concerned they cannot afford any more bonds. They then go off to other bond originators, who get them more bonds and more bonds. Many members of the club are totally over-exposed at the moment because they did not want to listen to Treoc Finance, or because they did not use Treoc Finance at all. Now that interest rates are going up, they’re streaming to us to try and fix the problem.

Another problem that our wayward members have is that they have used up all their affordability to buy properties, and have kept none back to use for refinancing. With interest rates going up and cashflow now coming under strain, they cannot get refinancing to relieve the pressure.

People like this will come to me at a Platinum function and complain because Treoc Finance cannot help them. We would very much like to help, but we can do nothing if you cannot qualify for a bond. You chose not to follow the Treoc Way, but now that you’re in difficulty you want to quickly fix the situation by getting back to the Treoc Way. Sorry, you have problems, and you aren’t going to like our answers and advice – which would be to decrease your exposure by selling some of your properties. You may very well not like this at all and may go back to the "other" bond originators. They will once again "help" you – your problem will just get bigger and bigger, because they are actually only helping themselves. For them it’s not about whether you can afford a bond, but rather whether they can get one for you. And that's how the problem grows.

I know Treoc Finance is under immense pressure with regard to workload, due to the Treoc group growing so fast; and because of this, the service has not been as desired. But a lot of our members stayed loyal to Treoc Finance through this phase and followed their advice. These are the people who are not over-exposed today. They are the wise investors, who are going to go to bank auctions one day and pick up the properties of the foolish investors, who were just chasing volumes.

It is still not too late. Turn back to the Treoc Way, be patient and never do what you cannot afford. Make sure that you will be able to buy and keep for ever, and that your children and grandchildren will also be able to buy and keep for ever with the trusts that you established. The Treoc Way is a holistic method that involves setting up the correct structure, purchasing correctly, financing correctly, managing correctly, and refinancing correctly. If one of these aspects is left out or not handled properly, you're going to get burnt. And that is certain!

If you work patiently and correctly, you will build a property kingdom that will take care of you and your descendants. If you work hastily and incorrectly, it will all come tumbling down like a house of cards.

National Credit Act

Ian Deyzel, Managing Director of TREOC Finance told me on Friday that they achieved in July the highest ever bond grant figure per month. It is a new all time record and the month is not over yet. Looks like the NCA was written by us for us!