When you have no idea where to start with (investment) property
This is where we start.
Good – now that we have you dreaming, let’s start thinking about some practicalities.
You would need to explore the options, so that you know what you are working towards.
Let’s finish it off then with top tips on upping your savings for your first investment property.
Know what you want
Once you have a dream, you need to discover what the market has to offer. You need to know what you are saving for so that you can measure reaching your goals. Check out property sites to get an idea about what is out there. You need to know your market and what you want:
- How many bedrooms are you looking for?
- Sectional title or full title?
- Price range? Target market? Rental market?
Know what you qualify for
Affordability. Note, you sort of need an income for buying a property. No one will lend you money unless you can prove that you can repay your debts!
People often start saving and then start making offers to people. There’s a lot that needs to happen before that. There’s also a few rules that the N.C.R. and other government bodies require you to follow. For example, did you know you can only spend 30% of your income on a home loan?
You could contact a bond originator such as BetterBond who will be able to tell you how much you qualify for. Note that they need a full budget from you, with all your expenses and income. They will then determine your disposable income (i.e. income – expenses) and how much you qualify for.
You probably would need to pay a deposit. Did you know the average home deposit is 12%? It would be a great idea to have an absolute minimum of a 10% deposit at hand in case you do not get a 100% loan. Remember the banks are doing this to make money!
Planned and unplanned costs
You need to plan your own budget and money. Note that the mortgage originator, in their initial affordability pre-qualification process, cannot account for property running costs, rates and taxes. Make sure you budget for these!
Knowing what you can afford is great! Unfortunately many people don’t actually save or plan for extra costs. They believe that it’s as simple as buying a cup of coffee. As you probably know by now, everyone wants to make a buck.
Thus, you will also need to save for bond and transfer costs. You can access a calculator for them here. Note that you might need to add some more cash for municipal fees and other unplanned expenses. Check out my article here for all planned and unplanned costs that could eat into your profit.
Note that you also need to prepare for monthly costs when you have the investment property.
Tips for saving for your property
One of the biggest reasons I have for saving money for the bond and transfer costs / deposit, is that it would get you into the habit of putting that money away. Remember that you would need to put that money in a bond!
Here’s some money tips to get you going:
Get rid of debt
Snip the cards, kill the debt monster. Free up cash flow. Take the extra money and save it. Debt costs more and escalates faster than your savings
Budget and monitor your money
You know I hate the word budget by now. Start monitoring where your money is going. Make it flow in the direction where you want it to go
Make the money unreachable
Put the money away in a 32 day notice or some place where you cannot get access to it to spend it immediately
Transfer money regularly
to your savings account
Make it a routine that you transfer any excess money to your savings account on payday.
Have an ‘evil tenant’ fund
Tenants sometimes don’t pay. Have at least 3 months of bond repayments available in case “the evils” happen
Set money goals and make it visible
Stick the notes on your fridge, Add photos on your mirror. You need the see the dream everywhere you go.
Tips to save some money for your home loan:
Get a cheaper car
Do you really need a R 1 mil car? Sell it and buy a cheaper car. you can save so much money
Sell unneeded stuff
We all have that old phone, books and old television we are not using anymore. Why not sell then for your property fund?
Find opportunities to make money on the side – check out my article here for more info!
Swap the takeaways for a house
This is a challenging one – your dream needs to become bigger than your wants right now.
Get that mobile phone under control
Calculate if you really do need that contract with THAT expensive phone. Prepaid with an okay phone often does the trick.
Related: What does your cell phone cost you?