Real Estate Investor Magazine South Africa September 2014 | Page 32

FINANCES

BY KOOS DU DOIT

Annihilate Buy-To-Let Bonds

How to own a paid-up investment property in 9 years

S

mart property investors will be aware that
paying off a bond faster will save hundreds
of thousands of rands in interest and shave
years off the bond term. But, like all bondholders
facing tight budgets, buy-to-let property investors
may not see their way clear to find a few extra
hundred rands each month to accelerate their
bond repayments. However, the passive income
generated by a buy-to-let property makes it quite
easy to pay off a bond in half the time, without
taking any further cash out of your pocket each
month.
Let’s take an example of a R500,000 property
acquired with a 100% bond at an average interest
rate of 12% over 20 years, and a rental of R5,000
a month. This produces a monthly shortfall
(the difference between the rental income and
the property expenses), which is funded by the
investor out of his/her own pocket each month,
of around R1,800 per month in the first year.
However, this reduces to R1,500 in the second
year, R1,200 in the third year, R850 in the fourth
year and R475 in the fifth year, because the rental
increases each year. Thereafter, the property
breaks even (the monthly rental income exceeds
the property expenses) and the property begins
to generate an ever-growing monthly profit. This
ever-growing monthly profit can be used to pay
off the bond in record time.
Reinvesting rental surpluses
If this ever-growing monthly profit is reinvested
into the bond each month, the investor will pay
off the bond in just 12 years, shaving 8 years off
the bond term and saving R506,500 in interest
payments. Half a million rand in savings and
ow