Posted by: Adam Barnard | 2014/10/08 09:58
The idea is to not pay others peoples bonds anymore by paying high rent. Long term goal is to sell the property for a profit, lets say in 2 to 3 years, keeping in mind the interest and then to do the same thing again until I dont have to pay a bond anymore and only rates and taxes?
Any advice, ideas?
Posted by: John Loos | 2014/10/15 14:10
There are many assumptions one would have to make to determine
whether such a property investment would be profitable for you. When buying a
property, there are often various legal costs related to getting and bond and
getting the property transferred into your name. FNB offers customers various
home loan and property calculators to help with understanding these costs as it
also entailed costs from the banks side in the form on an initiation fee and a
monthly admin fee. You would have to take a view then also on what kind of
rental you can get on the property, allow for potential vacancy at times or the
fact that your tenant might not pay you, as well as other running costs
relating to the unit, such as repair and maintenance costs, levies and rates
and taxes. It would also be a good idea to budget for potential interest rate
increases on all your debt as the SARB has on many occasions emphasized that we
are in an interest rate hiking cycle. Also remember that when you want to sell
the property you will have to pay estate agents commission on the sales price
of around 5% + Vat or more and then also Capital Gains tax that you will not
enjoy the standard primary home exemption on as it is an investment property.
If you are lucky enough to have greater income from the property than costs you
will also pay tax on this at your marginal tax rate, but I must warn that this
is not always that likely within the first couple of year you own a property,
and you will almost certainly have a net cash outflow that you will have to
make on an ongoing basis.
My personal view would be that a 3 year time horizon is too short
for a property investment. One needs to take a long term view on property of
closer to 10 years I would say.
In terms of your question in terms of getting a loan. Banks
basically look at your credit record when determining whether to grant you a
loan or not. If you have a good credit track record and you are able to afford
the repayment, also at somewhat higher interest rates the bank may assess you
at, you should be approved for a loan. But it really does depend on your
personal financial circumstances. You may also have to be prepared to put down
a deposit on the loan. The bank would often be looking at your willingness to
also put some of your own money at risk in your venture and offering a deposit
will certainly count in your favour.
thanks and regards,
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