Monday, June 18

Building a property portfolio is not just for the very rich

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“Gone are the days when paying the bond of a single property over 20 years was the only smart thing to do.”

Property has long been considered an excellent, stable vehicle for investment because it has a forced-saving aspect.

Such an investment is unlikely to depreciate, unless the greenbelt next to your home is declared a wind farm, or is rezoned for industrial use. In such cases, you may need to look at alternative uses to retain that value. But if you buy carefully and sell at the right time, you would probably still make money.

Pieter Piek, sales manager at Just Property Invest, says many people imagine owning a property portfolio is only possible for the very rich.

“Gone are the days when paying the bond of a single property over 20 years was the only smart thing to do.”

Piek says if a buyer takes a R1million, 20-year flexi or access bond, at average current circumstances and interest rates, they could pay the bank about R9800 a month for the full 20-year period and own the property at the end of it. However, those looking to build a property portfolio could put a paying tenant in the house.

“Say the rental income covers that bond repayment every month. If you add an extra R1000 to your bond repayments a month, the bond will be paid off in less than half the time as the extra money paid into the bond will be deducted from the capital, saving you interest,” Piek says.

If it’s a flexi/access bond, one is also able to withdraw money at any stage.

“After five years, you could withdraw the excess to purchase a second property for R500000 without taking out a new bond. The second property should be able to achieve a nett rental income of R4500.”

He says owners, in such a case, are still putting the same amount into their access bond, and can add rental income from the second property. “You now have two properties paying off one bond and you still have 15 years left to pay it off.”

In just two-and-a-half years, you can repeat the process, adding another R4500 rental income to the bond repayments, and about two years later you will be in a position to buy an additional unit.

Ten years from the first purchase, the buyer could have four properties and just five years remaining of bond repayments. Once the bond is paid off, the rent can go into an investment account.

If an owner is not able achieve their projected rent or their property stands vacant for a few months, the sums will look different. They should therefore be very careful about the properties they purchase, and thoroughly research rents in the area.

Piek says: “If you buy a low-priced unit that needs work, ongoing maintenance will reduce the amount you can put into your bond. I would look at fairly new builds. You might pay more but you’re getting new geysers, plumbing and wiring.”

He says being a hands-on landlord is not for everyone so owners may need to leave this to a property management agency.

“Thoroughly educate yourself on all legal aspects and capital tax implications. It’s essential to set up an emergency fund for unexpected costs not covered by insurance – I advise our clients to aim for about 20% of the value of the property. You could use excess money in your access bond for emergencies, but that would change your investment outlook.”

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