How to buy your first rental property
Category Rentals
Property is an excellent investment that may generate an adequate and steady revenue flow. However, it may require a significant amount of time and work, so it's important to understand what you're getting into when you buy to let a property.
Property is a tangible investment that often grows in value over time. However, it takes time to turn a profit. While your tenants cover the majority of the bond while you reap the long-term benefits, you must have the cash flow to handle any unexpected circumstances, maintenance, and taxes.
According to the Income Tax Act 58 of 1962, If you own at least five new and unused residential properties in South Africa, you can claim a tax deduction of 5% of the purchase price, as long as you are letting out the properties.
Step 1: Decide how much money you want to spend
Be honest with yourself about the amount of investment you want to make. You must qualify for a mortgage bond or loan if you need one. Begin by considering the sort of property you want to buy, researching locations, and rental demand. You can buy an investment property as a person, as a business or close corporation, or as a trust.
Step 2: Determine your financial capacity
First and foremost, contact a bond originator to begin the pre-approval process. You may begin your search for your ideal investment property with confidence after you have received pre-approval and understand what you are getting into.
Step 3: Finding the right property
The function of your investment property will affect where you look for it. Will you eventually reside in the property, or will it be leased to a renter indefinitely? Buying a home for personal use is a highly emotional decision and a long-term investment. You'll be considering your own requirements. The property's location must also fit your personal requirements.
If you're looking to buy a property to rent out, investing in the low to mid-range residential rental market implies you'll be entering a high-demand sector. This market is always flooded with young students, professionals, and young families. In this case, set aside your emotions and think like an entrepreneur. A high-demand location to invest in will have good schools, facilities, transportation, and so forth.
Step 4: Consider all the costs
When acquiring a home in South Africa, the investing process does not finish after you sign a contract; there are one-time and monthly charges involved. A deposit, bond costs, transfer charges, and initiation expenses are examples of one-time expenditures. Regular monthly charges include bond repayments, property insurance, levies, rates, taxes, maintenance, and repairs, among other things.
Step 5: Signing an offer to purchase
An offer to purchase is a contract that specifies the terms and conditions of a property transaction. Everything agreed upon must be included in the offer. The agreed-upon purchase price and any selling terms will be included in the offer to purchase. The seller will certify that the house is structurally sound and fit for habitation to the best of his knowledge and will supply copies of compliance certifications.
Step 6: Making an application for the bond
Even if you have a strong credit score and have been pre-approved for a bond, you must still apply for a home loan. Income statements outlining all monthly income and spending will be requested by the bank. The predicted rental income on the property will play a role in establishing your affordability; but, if you are a first-time investor, most retail banks are unlikely to take this into account. Some banks may only take a fraction of the rental revenue into account.
Important documents you will need to submit:
- Last three months' salary slip.
- Last three months' bank statements.
- A copy of your South African ID document.
- A copy of the purchase agreement.
Step 7: Placing a tenant
Congratulations, your bond was approved and the offer was accepted. It's now time to find the best rental agent to manage your property. Remember to verify that the agent has a valid fidelity fund certificate and is following South African property regulations. Contact Seeff Hillcrest & Kloof if you are looking for an experienced rental property practioner.
Author: Seeff Hillcrest & Kloof
