Does this make financial sense?

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TheGuy

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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.
 
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.
 
TheGuy said:
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.
Click to expand...

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.......
 
TEXTILE GUY said:
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.......
Click to expand...
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.
 
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.
 
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...
 
TheGuy said:
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.
Click to expand...
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.
 
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
 
You shouldn't really be putting extra cash into a rental bond when the interest is deductible.
 
TheGuy said:
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
Click to expand...

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?
 
rodga said:
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?
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You might need to factor legal costs into the equation in that case as well. And it happens. To many people.
 
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
 
Personally I wouldn't float two bonds at once.

Either pay the new one cash or finish paying the first one before buying another.
 
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.
 
rodga said:
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?
Click to expand...

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