Cape Town - Does it make sense to buy a second property, and is this a good option to grow your money?
Danelle van Heerde, head: advice processes and tools at Sanlam, weighs up the pros and cons for Fin24 users mulling property investments:
To determine the best investment option for you, you would need to consider your full financial situation.
This would include the retirement provisions you are making, any other investments you have and your access to funds in an emergency.
Diversifying your investments into different asset types is important, as it can limit the impact of negative market movements.
However, there are some general considerations that you should take into account when evaluating property investments.
• A good property investment generally will provide a decent return in excess of inflation. Consider the location, attractiveness to prospective tenants and the level of rent you can earn.
• You can deduct the interest you pay on the bond from the rent you earn for tax purposes.
• Having an access bond provides you with an excellent vehicle for saving (but note that paying additional capital will impact the tax benefits if you are renting out the property).
• Property values are currently still low, and it is therefore still a buyer's market.
• You may not be able to sell the property easily to access your capital.
• Your income stream will be impacted if you do not have tenants or your tenants do not pay their rent, which may affect your ability to make bond repayments.
• Your income stream will be reduced by property taxes, maintenance expenses, etc. You need to take this into account when evaluating a potential property investment.
To determine whether buying another property is an appropriate investment in your specific circumstances, it would be best to get a registered financial adviser to do a full analysis of your financial situation.