Desperately stupid when it comes to property investment

[verronney]

Hey guys!

30 something couple here seriously looking for advice.

My fiance and I are looking to buy property. We currently rent at a ridiculously good price but we've been staying here for more than 8 years and the place is getting a bit small for us now.

My fiancé's dad bought him a sectional title property back in 2021 cash. (Blessed to have that option) He currently rents that out at around R14,500 per month. Levies and rates and taxes are around R3000 so all n all rental income of about R11k.

I clear about R48k per month and he brings home around R25k

All n all after monthly payments, fuel and groceries are done, we're left with about R20k for whatever combined.

We are looking to keep the paid off Sectional title property and keep renting it out, and then take a bond out on it. Use that as a deposit, and have the rest financed. Bank valuation of the property is around R1.6 mil.

Use the rental income to cover the 2nd bond, we're looking for a place with a flatlet so that we can have an additional rental income of say R5-6k per month and also put that toward the payment every month essentially we're left with rates, taxes, utilities and maintenance and the need to build an oh shit fund to cover any unforeseen maintenance and budget for upgrades in order to either rent out the bigger place for bond cover going forward in order to buy another property or sell it at a profit and put that toward a better place and do the whole thing over again as our family grows.

With sky high interest rates, we dont know whether its the right time to buy, nor do we know anything about how bonds work. But thank God I know that mitochondria are the powerhouses of cells.

Any advice for two souls looking to upgrade but have no idea how to do it? Also are putting assets into a trust a thing?

Halp!

Thanks so much

 

[susu]

@verronney Not sure if I understand did he buy the property for you? Are you receiving the rental income and is the property registered on your name? If so you could certainly do that and use the interest as a tax write off.

It currently is a buyers market because of the high interest rates so you should be able to find a good deal if you shop around not that many people looking to buy and many looking to sell because of increased bond payments. If you have the means now is a great time to buy because you will also more thank likely have bond payments that decrease in cost with interest rate relief over the next few years because we have hit the interest rate ceiling so need unless anything out of the ordinary happens to price in increases to your bond payment budget.

Just be sure not to over extend yourself with a bond payment in case you have a vacant property for a few months on your rental income. Might be wise to stay in an affordable range excluding your rental income from your budget or at least partly do so.

 

[verronney]

@susu Thanks so much, yeah so father in law bought fiancé the property in order for him to receive additional income by renting it out, as he was still building hours as a pilot in general aviation, so he was earning very little at one point. Times have since changed, and it's looking up, although we are still very thankful for that additional income. Property is registered in fiancé's name but is paid off. So levies, rates taxes and maintenance is our only worry on this property should it be vacant. But if we take a bond out on it, we're kinda screwed if it becomes vacant.

The point you make on the interest rate makes sense, thanks so much!

 

[susu]

@verronney If you are not looking at buying further properties as rental income I dont think trusts will be necessary with high trust tax rates you would need to create a company as well so that the properties are in the company and the trust becomes share holder to avoid taxes. This can become become costly and is only worth doing if you plan on creating a property portfolio and are using it for estate planning purposes.

 

[verronney]

@susu Yep exactly what we want to do is start building a property portfolio

 

[cerulean123]

@verronney Divide this decision into 2.
1) Fiancé is yielding over 8% on that 1st property which isn’t bad. Bonding it makes sense since the interest on that bond is tax deductible. The only caution is keep the bond value low enough that he can still cover bond repayments if it is vacant for a few months or if interest rates go up say 5%. He could invest the money from the bond in anything but remember he is borrowing at the banks interest rate less the tax saving. So let’s say the bank charge him 10% and his tax rate is 30% then he is paying 7% per annum for that money.
2) The second property is a lifestyle decision. Work out carefully what you can afford on the bond payments excluding rent on the flatlet and remembering you now have to pay the bond on the first property. If you do manage to rent the flatlet out it’s a bonus but don’t count on it. In my opinion your family home life cannot depend on finding a tenant it’s just too stressful. Using the money from the 1st property bond to finance the second is smart cause the 7% rate is most probably lower than he could borrow the money at. I agree that because of high rates and the shit economic circumstances it’s a buyers market.
3) Don’t worry about trusts, the one property is your primary residence so the tax benefits out weigh anything a trust of company structure can provide.
4) The one thing you don’t mention is ownership. You should agree before hand in writing how much you will each own of the new property and what % each of you will contribute per month to the bond. It seems like you earn more so you will pay more monthly but his 1st property loan will cover a large % of the bond.