Does this make financial sense?

[TheGuy]

Hi Guys

Can you please tell me if doing this makes financial sense.

I currently have a rental property with an Access Bond. Now I have been paying extra money into the bond and now after a year I have quite a bit available.

Does it makes sense to use all that extra money as a deposit on another rental property?

Then to keep doing this in future.

Problem I see is when doing this the bonds on the properties will never be paid of but in return I will acquire more property.

 

[HavocXphere]

Yes because its saves you the cost of originating a new bond.

Thats assuming you can carry the whole thing financially & they provide a return.

 

[TEXTILE GUY]

Hi Guys

Can you please tell me if doing this makes financial sense.

I currently have a rental property with an Access Bond. Now I have been paying extra money into the bond and now after a year I have quite a bit available.

Does it makes sense to use all that extra money as a deposit on another rental property?

Then to keep doing this in future.

Problem I see is when doing this the bonds on the properties will never be paid of but in return I will acquire more property.

As long as the rentals rise better than the compounded interest on the capital amount, yes.
I assume you pay the bond from the rental gained, plus the rates, and of course declare tax on the profit?

The pension people always claim a house or a property is not an asset.
IMHO, as long as the rental covers the bond plus a bit, the maintenance and rates, it will be a solid appreciating asset.

Having said that, with our government .... all logic is off the table.......

 

[Messugga]

As long as the rentals rise better than the compounded interest on the capital amount, yes.
I assume you pay the bond from the rental gained, plus the rates, and of course declare tax on the profit?

The pension people always claim a house or a property is not an asset.
IMHO, as long as the rental covers the bond plus a bit, the maintenance and rates, it will be a solid appreciating asset.

Having said that, with our government .... all logic is off the table.......

One has to be careful about this though. What happens when a tenant defaults for a few months? You have to be able to carry the monthly expenses even without that income.

Failure to take that into account sunk a whole bunch of people when the housing market collapsed in the US.

 

[TheGuy]

Thanks guys the first property will start to turn a profit from next year as I bought the property with no deposit and I also learned a lot from this property. The second property I will buy smarter and because of the big deposit I should turn a profit from the beginning.

The risk about tenants not paying I can mitigate by getting rental insurance from the letting agent.

 

[CheekyC]

Be very careful. It is a house of cards. If you lose one tenant it all comes crashing down. A friend bought and geared 9 properties like this. One day it came tumbling down and he still owes the bank piles of money...

 

[HavocXphere]

Thanks guys the first property will start to turn a profit from next year as I bought the property with no deposit and I also learned a lot from this property. The second property I will buy smarter and because of the big deposit I should turn a profit from the beginning.

The risk about tenants not paying I can mitigate by getting rental insurance from the letting agent.

Wait...your first property is not yet profitable (or even in a year) and you want to add more leverage? Colour me skeptical...

CheekyC is right...you're building a house of cards here. I'd suggest you sit on your hands for a year....or however long it takes to make an actual profit/break-even.

 

[TheGuy]

Yes I will wait till the first property turns a profit. Also I will make sure I'm able to cover both bonds in case both are empty one month

 

[brianj74]

You shouldn't really be putting extra cash into a rental bond when the interest is deductible.

 

[rodga]

Yes I will wait till the first property turns a profit. Also I will make sure I'm able to cover both bonds in case both are empty one month

Thing is, what happens when you get a bad tenant that refuses to pay and refuses to move out? Will you be able to cover the bond for 6 months? What if it's longer?

 

[Messugga]

Thing is, what happens when you get a bad tenant that refuses to pay and refuses to move out? Will you be able to cover the bond for 6 months? What if it's longer?

You might need to factor legal costs into the equation in that case as well. And it happens. To many people.

 

[broloks]

Don't go through a letting agent, they are useless and take a big cut. You can insure the rent yourself and also get some cover for legal costs. Have a look at http://www.rentmaster.co.za

 

[SauRoNZA]

Personally I wouldn't float two bonds at once.

Either pay the new one cash or finish paying the first one before buying another.

 

[patrick]

I used to own two rentals like this. Then I decided I didn't like the risk (ever try to get rid of a non-paying tennant) or being a landlord so I got rid of them.

 

[TheGuy]

Thing is, what happens when you get a bad tenant that refuses to pay and refuses to move out? Will you be able to cover the bond for 6 months? What if it's longer?

There are companies that insurance you against this. They will pay you the rent including all the legal fees of getting the tenant removed.