Property is reputed to be one of the best long-term investments you can make so you’re itching to get into the property market. But house prices have rocketed so much in the last year that you are wondering if you will ever be able to buy your own place. These are some of the things you can do to make buying property a more affordable proposition:
Banks will consider your home loan application more favourably if you have already saved up a deposit.
Usually, the deposit is a minimum of 10 to 20%. However, remember that you will also need funds to cover the purchase costs – including transfer and registration. A large deposit can go a long way towards reducing the actual amount you have to borrow from the bank, which means you will have a lower bond repayment each month.
If you want to buy a bigger house but you don’t really need all the space right now, you could take in boarders. The additional income can go towards paying the bond. Following the same line of thinking, you could rent out the property and use the income to pay off all or most of the bond, with the idea being that you can move in and take over bond repayments when you can afford them.
However, if you choose to go this route make sure it is worth your while. A rental property needs to generate a rental income of around 12% of the purchase price a year to be viable. For example, a townhouse selling for R399 000, where you know you can expect a rental income of R3 800 a month.
When you are choosing an investment property that you intend to let, do your homework. Find out if the area is in high demand for renters. Use a managing agent if you don’t want to deal with the everyday hassle of being a landlord. The managing agent will handle rent collection and property maintenance on your behalf. Remember that your rental income is taxable but you can take advantage of tax deductions. For example, you can deduct the interest on your home loan as well as costs such as levies and maintenance.
You could apply for a joint bond and share the responsibility of the bond instalment with someone else. This person could be a parent, a spouse or a live-in partner. Before you enter into this type of arrangement, ensure that all details are made clear to both parties upfront – for example, you might want to split the bond repayment 50/50. Also consider the other costs that come with owning a property such as electricity, water, rates and levy. Have a written agreement regarding the disposal of the property if the two of you part ways at any point.
The general rule of thumb is that your bond instalment should not be more than 30% of your gross income. If you want to ensure that you pay off your home loan as quickly as possible and to make it more affordable, you should consider revising this figure down. Calculate your affordability (30% of your gross income) taking into account your current expenses and then reduce it by buying a smaller place for a lower amount or by buying in a cheaper neighbourhood. This will not only give you a more reasonable bond repayment but also provides you with a buffer if interest rates rise (and they always do).
One man’s misfortune can be another man’s gain. The discount you can get on a repossessed property varies between 10% and 50%. You can approach the banks directly for a list of repossessed properties available or you can check with local auction houses. If you choose to buy via a sale-in-execution, make sure you arrange to view the property prior to the auction. Remember that the property is sold voetstoots. This means you will have no claim against the previous owner for anything wrong with the property and you are responsible for all repairs, if any are required.
You don’t have to buy a house to invest in property. One of the easiest and most cost-effective ways to invest in property is via the stock market. If you invest in a unit trust that invests in property, such as the Stanlib Property Income Fund, you have increased diversification. Instead of just investing in a single property, you are investing in many. The costs are more affordable – you invest a minimum of R500 a month. You can stop payments without any penalties if your circumstances change and you can disinvest within 48 hours. If you purchase a house, on the other hand, and you decide to sell, the sale could take place within any time from four weeks to six months.
Getting into the property market is rarely a bad idea – just do the sums and make sure you can afford it. Don’t bank on benefiting from a property bubble. Rather stick to investing in property for the long-term (10 to 20 years).