Property economist

question

Posted by: Adam Barnard | 2014/10/08 09:58

Im strongly considering buying a property and building a small house to stay in. The bond would be around R 7000 per month. I have R 11 000 per month dispensable income. Would I get a home loan?

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?

expert answer

Posted by: John Loos | 2014/10/15 14:10

Hi Adam

 

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,

John

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