Access Bond to Create Wealth

[SherlockMZ]

Hi Guys

I have an idea and want to know if you think it will work. This is the idea:

I want to buy a property (+/-R500k) via a bond. (I can cover the transfer costs and 10% deposit)
I want to put tenants in and I expect to be paying in an extra +/-R1000 per month to cover levies, Rates,etc.

After a year can I pull out my initial deposit and use it to buy a 2nd property and continue like this year on year?


Assumptions
- In the first year I would save for the transfer costs 2nd property.
- I will be able to cover the bond repayment increase of the first property when I pull out the deposit.


Any guidance will be appreciated

 

[Waaib]

I think it depends on who your bond is with and what they allow. If you get a bond for the full amount (R500k) and then give 10% deposit (R50k) do they bond R500k or R450k? If they bond R500k then you should have access to the deposit but it would kind of defeat the purpose, the bank purpose, of needing the 10% up front so I reckon they'd take the deposit and bond the rest only. ... I think.

The other issue you may have is that your credit risk for the 2nd,3rd bond is assessed based on your total financial profile so you may not qualify and last time I tried this your rental income is excluded. So house 1 you apply for R500k. When you apply for house 2, another R500k, they start your debt rating/score at R500k and add the new place so now you're being scored on R1mill.

 

[SherlockMZ]

That makes sense. I'll definitely pop into the banks and find out what they say

 

[itareanlnotani]

Probably not for a few reasons.

1) The bank will not necessarily give you a full 100% bond.

Typically the bond amount is on the actual bonded amount (ie full bond less deposit plus transfer costs).
No transfer duties on properties < 500k, but you will have transfer costs - 15-20k.

2) You won't be able to buy another property as you won't have cash flow income for it.
Banks typically consider rental income at about 30%, so unless you have sufficient income for both properties, they won't extend a second bond to you.

You won't have enough paid into the 1st bond either to fund another purchase, especially after a year.


I do what you want to do (use an access bond as cheap cash flow financing for other purchases), but its not something the bank likes.
I can only do it as I don't necessarily need a bond for purchases, and can use the access bond to fill in the difference if necessary.
For example I just used my access bond to build a house; I can use my cash reserves for other things that make more income.

 

[Paul_S]

Probably not for a few reasons.

1) The bank will not necessarily give you a full 100% bond.

Typically the bond amount is on the actual bonded amount (ie full bond less deposit plus transfer costs).
No transfer duties on properties < 500k, but you will have transfer costs - 15-20k.

+1
In addition the banks have changed the way access bonds work.
They will only allow you to withdraw the extra cash you've paid into the bond - not the full amount.
Should you wish to access the full R500K bond again you'll need to apply for "further lending" which involves credit and affordability checks.

 

[TJ99]

You can't take out the deposit, that's not how a bond works. If you pay the 50 grand (10%) in it means your loan amount is only R450k.

You could look at getting a 100% loan and then putting the 50k in as an overpayment meaning you can access it but your interest rate will be a lot higher.

Other than that, yes lots of people do this, the problem is it's risky if one or more of the properties doesn't have a tenant.