Step 2 : Affordability & Personal Finance
How do you Buy a Home on a Single Income ?
Your earnings are the ultimate decider of whether or not to invest in or buy property . Equally so , a person ’ s earnings sometimes become one of the biggest hindrances from purchasing a property , especially a first-time home buyer .
According to CEO of Greeff Christie ’ s International Real Estate , Mike Greeff two incomes are always better than one , as far as a bank is concerned . However , that is not always the case . There are so many families that either have one income , or singles who want to purchase a house on their own .
Purchasing a home on a single income is definitely possible , but there are a few extra things you need to think about before taking the leap .
Get a bond originator
work through bond originators , like BetterBond , who will know which home loan options are available to them . Bond originators can also advise buyers on the various prerequisites involved when applying for a home loan and can collect a set of quotes on their behalf to ensure that they get the lowest possible interest rate on their home loan .
Reduce your credit card limit
if your credit card has never been used , the credit limit will go against your application for a loan . You may be keeping a R30,000 limit on your credit card ‘ just in case ’, but the bank will assess you as though you are R30,000 in debt . Consider reducing your credit card limit to just R10,000 in order to make yourself more appealing to lenders .
The bigger the better
, that is . Regardless of whether you are a one income family or more , the bigger the deposit , the easier it is to get credit . A 20 % deposit is the ultimate aim , because it also means that you pay less on bond repayments . It isn ’ t always achievable for everyone within the time frame they have set themselves but the closer you are to that golden 20 % the better .
Only borrow what you can comfortably pay back
will tell you the maximum amount you can borrow , but that doesn ’ t mean you actually need to borrow that much . Give yourself a little wiggle room , and do the figures yourself . That means that you need to look at your budget , and how much you can comfortably pay off without forgoing your other necessary expenses .
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Step 4: Acquiring your Property
Step 4: Acquiring your Property
A Guide to Acquiring your
First Investment Property
Recently, it’s been said that now is the best time to purchase property, whether it be as a first-time buyer or if you’re
wanting to diversify your portfolio. CEO of Greeff Christie’s International Real Estate, Mike Greeff says, If you fall into the
latter group, those wanting to buy-to-let, it’s imperative that you know what you’re signing up for. Before making what
could possibly be the largest investment you’ve ever made, it’s important to consider the ins and outs as that can have a
huge effect on your returns.
Why invest now?
First and foremost, it’s a buyers’ market. There is a surplus of property for sale and as a result, sellers are open to pricing more
realistically and within the market value. The COVID-19 pandemic has no doubt increased financial stress with many South
Africans needing to take a salary cut or who were unfortunately retrenched, but because of COVID-19 and its effect on the
economy, the South African housing market now offers some of the best buying conditions than it has in previous years.
Since the beginning of 2020, and largely due to COVID-19, we have experienced four major Repo rate cuts and because of
this, the interest rate of 3.75% is the lowest it has been for the past 50 years. The Repo rate cuts have led to the prime lending
rate being favourably low at 7.25% which means that as a buyer, you will be getting ‘’more credit for your affordability’’, says
Liz Botha, Home Loan Specialist at BetterBond.
The benefits of investing in property
It’s a well-known fact that property is the best investment one can make and the benefits of are endless. With well-chosen
assets i.e. properties, investors can enjoy predictable cash flow, excellent return on investments, tax advantages,
Property is a solid, tangible investment with
relatively low risk. The property market offers a
greater stability than the stock market, for example.
Although the profits may not be as liquid, the risks
are far lower. The chances of losing a large portion of
your capital are much less with property.
By investing in property, you are essentially building
up equity in a valuable asset and as you continue to
pay off the home loan, the amount you owe reduces
and the value of your asset appreciates.
Property tends to appreciate over time which means
that when or if you decide to sell, you are most likely
to be able to sell it for more than what you paid for it.
For now, investors can also make money through
rental income and because rent usually increases by
10% each year, that leads to even more of a cash flow.
A tenant covers a portion of the bond through rental
payments, while you, as the investor, reap the
long-term reward. Once the property is paid up, you
will start earning passive income on the property
which means a higher cash flow.
According to the Income Tax Act, if you own at least
five new and unused residential properties in South
Africa, you will be allowed to claim an annual
allowance of 5% of the purchase price as a tax
deduction, provided that you are renting out
Decide how much you want to
spend on your investment
It’s important to be realistic about the size of investment you would like to make. Remember that if you are not
going to purchase the property in cash, you will most likely need to get a home loan, therefore you need to
know how much you qualify for. Reach out to a bond originator, like BetterBond and find out what your
affordability is. Once you know what you qualify for, have one of their experts get your pre- approval started
and once you have that, you can start the hunt for your perfect investment property with ease.
When looking for a property, consider the type of property you would like to invest in. Do the necessary
research to determine the rental demand as well as the areas where you could potentially invest in.
Finding the perfect investment property
Location is key when buying an investment property. Do some research on the areas you are considering and
determine whether the area adds value to your property.
Consider the following:
Market value of the entire area
How much buying/selling activity there is in the area
How long properties are listed for before they are
Rental demand in the area
The demographic as well as the income bracket that
is dominant in the area (this is an important factor as
it will determine the type of tenant you will attract
e.g. young professionals, small families, students etc).
Once you have decided on the area where you will be buying, you will need to compare the prices of different
properties to establish the best fit for you.
Consider all the costs
Buying a property as an investment or as a residence is costs a substantial amount of money. Yes, it’s an asset
that will yield long-term returns, but the initial costs can be overwhelming. It’s imperative that you are aware of
these costs throughout the buying process.
Once off costs:
Deposit (will not always be necessary) Municipal rates
Bond costs, transfer costs, initiation costs, possible
levy deposit if you purchase a sectional title unit Capital Gains Tax*
* Capital Gains Tax (CGT) is a tax levied on profit from the sale of property. This means that when you sell your investment
property, the government will tax you on the profit you have made on that sale.
Regular monthly costs:
Repayment of home loan
Insurance on the property
Life insurance to cover the bond
Monthly levies if its a sectional title property
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Proximity to schools, CBD, shopping centres, and all
other necessary amenities
Electricity & water (usually charged to the tenant but
if the property is vacant, you will have to foot the bill)
Maintaining the residence
Repairing damages to the property
Rates & taxes
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