How to buy a property and break-even in year one
The ideal position to be in with property investment is breaking even as it means you own an asset that does not cost you a cent! When you break-even on a property, the rent you receive (after the rental agency commission) is equal to your monthly bond payment, the levies and the rates and taxes.
Usually, it takes about four to six years for a property to break-even, which often discourages investors, but there is a way to purchase a property and have it at the break-even point from year one.
In our previous article, Ready, Set, Negotiate, we discussed how to purchase a property at a discount and all the reasons why someone would sell a property at a discount. The trick is to buy the property at a slight discount. It does not have to be far under market value. Even buying a property at a 10% discount is sufficient.
When you buy a property at a 10% discount, for example, it is important to register the bond at the market value or even 10% above the market value. This does not mean the bank will give you the amount above the purchase price, only that you can apply for that extra amount at a later stage – A huge help when you are planning on buying many properties.
Here’s an example:
- You purchase a property that is worth R800 000 for R720 000.
- You apply for 100% financing on a 30-year bond to keep the cash you have to pay out of your pocket to a minimum.
- You register the bond for R850 000. In a year’s time, the property will be worth about R850 000.
- Then you apply to refinance your bond to R850 000 which means you will have up to R130 000 available.
- You park the R130 000 in the bond (access/flexi bond), so you don’t pay interest on the amount you just borrowed (only when the money is taken out of the bond do you start paying interest on the amount you took).
- This money will be sufficient to pay you back for the transfer costs you paid and also to pay the monthly shortfall.
And voilà! You have just purchased an investment property that will not cost you a cent. Now all that is left is to keep going.
Remember, the best time to start investing in property is now, and you can book now for our property investment seminar. Take the risk or lose the chance!