Witness Mdaka, founder and chief executive of the property platform ADP Prop, has a blunt message for anyone who believes property cannot lose money: it can. Speaking to host Henry on the Entrepreneurs Chat podcast, he said he knows people who were very wealthy less than ten years ago and who are “not wealthy now because of property”. He put it down to a handful of mistakes that he says he has made himself.
How he got into property
Mdaka grew up in Tembisa. In 2008 the bank told his mother she had overpaid the bond on the family home by R150,000, and instead of extending the house she used the money to build back rooms. His first tenant, he recalled, paid R800 in rent, and his mother told him that if he wanted to go to university he had to look after the rooms. After a business degree and 14 months at a youth marketing company he started a construction company that retrofitted houses, then decided the rooms business was the most consistent earner of all the businesses he had run, including a spaza shop. He began building studio apartments with their own bathroom and kitchenette in the townships, starting in Tembisa.
Where the money goes
Building one proper unit, he said, can cost between R150,000 and R200,000 depending on who builds it. The first batch of rooms may run smoothly, but the next project is never the same as the last, and the mistake he sees is investors who skip the quantity surveyor, town planner and architect. “A lot of people self-manage their building projects, but how many people actually have the skills to manage a project from the beginning all the way to the end? That’s how people lose money,” he said. He spoke from experience: he took on projects bigger than he was used to, could not raise the extra money to finish one, and now owes a friend who put R1 million into it.
Vacancy is the second problem, and it grows with the portfolio. Ten units are easy to fill, he said, but at 100 or 200 units the biggest challenge becomes vacancy. He has a friend with more than 1,000 units: at that size, a 20% vacancy rate means 200 empty rooms, whereas at 100 rooms a 5% vacancy is five. A portfolio that pays out every month is not necessarily profitable over 12 months, he added, and “if you’re running a portfolio, it’s a business”.
The third is property management. A landlord who has never managed property may hang a chandelier so high that nobody can change the bulb. At one of his own properties, he said, a drain had to be unblocked every two months, because a yard was designed for one family and a yard with 20 rooms can house 80 to 90 people.
The municipal bill you do not see
That same logic is why municipalities charge a bulk services contribution when a property is rezoned from a single home to multiple units. Mdaka said some of his own units earned him letters from the municipality for building without zoning. In one municipality where he owned property, he said, building without zoning and plans attracts a penalty of R5,000 a day on top of rates and services.
He described how that can trap a buyer. An agent offers a property with 20 tenants each paying R2,500, or R50,000 a month, for R2 million, and the numbers suggest it will pay itself off in two or three years. But if the municipal statement carries the penalty, 31 days at R5,000 comes to R155,000, far more than the rent. Owners who fall behind can have services cut, including electricity, and a buyer inherits the problem unless the property can be rezoned, which small stands often do not qualify for.
Checks before you sign
Mdaka’s list is practical. Ask for the zoning certificate, especially if the property is already operating as rental rooms or a business. Ask the agent for a Fidelity Fund Certificate, the proof of registration that the Property Practitioners Regulatory Authority issues, which we covered when it dropped the BEE certificate requirement. Put suspensive conditions in your offer, such as subject to a roof inspection, a structural engineer’s report, due diligence or financing, so the deal falls through if they are not met. And appoint your own conveyancer rather than accepting the seller’s: he described paying the purchase price to his own conveyancer, who arranges bank guarantees, and warned of buyers who sent money to a seller’s friend who turned out to be a divorce lawyer.
He also said buyers currently have room to ask these questions. “In the property industry right now, it’s a buyer’s market. There’s more supply than it is demand,” he said, because many people lack the credit scores or cash to buy.
Investor or entrepreneur
Mdaka draws a line between a property investor, someone with a job or business who uses spare money and bank finance to build a portfolio, and a property entrepreneur, who spends every day building and scaling. A friend of his delivers 50 units a month, he said, and others deliver 200. He chose to move into technology instead. His advice to people tempted by the idea of property without capital was direct: “You can’t watch a podcast and say, ‘Now I’m going to buy a property with no money down.’” Passive income is a myth, he added: “It’s never passive, my brother.”
He also cautioned buy-to-let investors to count every cost. In his example, a townhouse rents for R7,000 against a R7,000 bond, but municipal fees of about R400 and levies of up to R3,000 turn that into negative cash flow. Renting, he said, is sometimes the better choice, though a buyer also builds equity. Investors should decide whether they want equity growth, cash flow or both.
Mdaka founded ADP Prop after realising, in 2018, that he still managed his portfolio the old-fashioned way. The platform lists properties for sale and rent, tracks tenants and invoicing, and includes a directory of service providers, a marketplace and finance partners. He says it has more than 27,000 users.
