Starting a property portfolio

hands passing on house“I am 22 years of age and I work as a risk manager earning R18 000 a month. I am moving to Boksburg to be close to work and will be renting, however I see that Cosmopolitan is building affordable houses selling at R320 000. I am thinking about buying two houses and renting them out to people,” writes Zeni.

Maya replies:

It is great that you want to start using your salary to build wealth via a property portfolio, rather than spending it. In terms of buying a rental property make sure you do your homework properly. For an entry-level property you want to make sure you are able to generate a rental income equal to 10% of your cost price. Any income below this and you are overpaying for the property.

How much can you rent it out for?

If your property costs R320 000 you should receive an annual income of R32 000. Are you able to rent it out for R2 600 per month? Do some investigations around rentals.

Build up a deposit

The property market is not about to run away any time soon, so build up a deposit first. This will firstly lower your risks and make it easier to get financing. You would need to save up a 10% deposit – so R32 000 per property.

Can you afford it?

A R320 000 property would have a repayment of around R3 000 per month. You also need to build in any levies and maintenance costs. A rental property that is properly maintained is easier to rent out.

The banks will not lend to you based on the fact that a tenant will repay the loan. They want to see that you can afford the property from your salary. As a rule of thumb, if you have a good credit record the bank would look at repayments equal to 30% of your salary. Remember however, that they will take other debt into account as well as your lifestyle in terms of affordability. It may count against you that you are still young and have not built up a credit record, but a deposit will show them that you have the discipline and affordability to save. Once your rental is more than covering your mortgage repayment, pay in the extra amount each month to pay off the property quickly.

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