Property Investment Cape Town
We are looking for
Property Developers!

Top buying tips for young investors

Taking the initial steps to building a property portfolio can be a daunting task for many young people who are trying to sustain themselves without direct financial support, mostly because they are unaware of the avenues and procedures involved in getting a foot in the market.

Getting approval for a mortgage bond and actually paying the bond off each month can be quite a challenge for a young person or family, but there are a few options available to them to ease this challenge.

Starting a portfolio at a young age does not need to remain an elusive dream. In order to build confidence and master the fears that come with starting a new investment, thorough research and planning needs to be done. Would-be property investors need to explore all their options and educate themselves before taking action.

Some of the main points to consider include how to structure the ownership investment (e.g. sole owner, partnership or trust), how to finance the investment and what assistance is available to you, if any (e.g. tax rebates, urban development zones, surety and investment partners), and which bank to use for the mortgage finance.

Would-be investors should think about where to buy, what type of property to buy (sectional title, freehold, residential, commercial, etc.), and whether to renovate the property or not.

Of these points, the most intimidating and daunting is the question of how the property will be financed. Getting approval for a mortgage bond and actually paying the bond off each month can be quite a challenge for a young person or family, but there are a few options available to them to ease this challenge.

If the investor has someone who is both willing to help and is in a strong enough financial position, usually a parent or family member can stand surety for them. This means that they agree to pay any bond repayments that the investor fails to meet on their own. For someone with a reasonable amount of disposable income, this can be a great option for them as they will only be paying the difference between the bond repayments and the rental income that they receive from the property, and in some cases, this rental income can cover the entire monthly bond repayments.

Another means of assistance in getting your investment started is by going into the venture with additional investors. This can be quite risky because if one person defaults on their portion of the payments, the responsibility will fall on the others. It is, therefore, essential to invest with people you know, trust and that you are certain are in a position to always come through, i.e. close friends and family. Be sure to have a thorough Partnership Agreement drafted by an attorney so that there is a mechanism to deal with any transgressions or situations that may arise.

The banks are likely to approve a bond that is held jointly by two or more people because it spreads their risk, and the combined salaries of the investors will likely prove more than adequate for their loan criteria.

Also, an important factor that a young property investor needs to consider is what type of property to buy and where to buy it. “In my opinion, a low priced residential unit, in an area where year-on-year house prices are increasing faster than inflation and perhaps where future renovations can take place, is the safest bet to take for someone in this situation.”

A prime example of a young investor who succeeded in breaking into the property market is a case where John Weston, from the Bergvliet franchisee, sold a property in Diep River to a young man just starting his career.

The young buy-to-let investor asked his parents to stand surety for him and bought the property for R503 000 on a 100 percent, 20 year, prime rate loan (which is now at 9.25 percent).

The costs involved each month include a mortgage payment of ± R4 606 and levies, security and tax fees which, combined, come to ± R1 200 each month — his total monthly payments, therefore, totalled ± R5 806. With the R5 000 rent payment that this investor receives, he is only paying a total of ± R806 per month from his own pocket.

By using the bank’s money to finance his investment he is, in essence, paying R806 for R4 606 worth of capital.

Even if interest rates increase each year, the investor’s rental will increase too, which will work in his favour in the end.

In this situation, it is obvious that the young investor found himself in an almost perfect set of conditions, which enabled him to get such an advantageous outcome. Although not everyone will find themselves in such a position, there are similar instances that young people can take advantage of.

Source: http://www.property24.com/articles/top-buying-tips-for-young-investors/20697

Leave a Reply

Your email address will not be published.