Plot and plan purchase with current property to sell... or Rent?

[PsYTraNc3]

I'm a fairly new property owner having moved into my first starter home in 2016.
I now need something bigger and was planning to go plot and plan but had no idea how complicated this process could be!

In order for my new property to be built, I need a bond to be approved (not just a pre-approval)
To qualify for the bond mount I need to sell my current property.
So I have to sell > move into a rental > apply for bond > cancel the rental and move in when my home is built.

The other option would be to rent out my property which is something I've always been interested in doing as an investment but is going that route still something that would be recommended?
What costs and implications should I consider if going this route?

Any advice would be appreciated!

 

[PsYTraNc3]

My current home value has increased by over 30% since I purchased it and rental fees for similar places in the area are about 10% more than my bond was before the rate cuts.

 

[Sepeng]

So perhaps a silly question - why the need to sell? I mean when you apply for a bond you simply tell them you won't have the old bond amount going off don't you? How does the plot & plan part influence this?
Also with option two, banks don't take potential rental income into account when assessing if you can afford the new place so you'd have to have a tenant for 6 months minimum I reckon.

 

[1edge1]

You don't need to sell your current house/flat to apply for the bigger bond on the plot and plan. The bank factors in your current bond payments when applying for a bigger bond. Some banks are more lenient than others.

Banks also factor into account a slight margin of error for those that understate their expenses (an increase in water and electricity etc).

Unfortunately, your bond for the plot and plan will be conditional on the sale of your current house/flat.

You can negotiate with the buyer on an exit date to coincide with the completion date on the plot and plan.

 

[AchmatK]

Renting out property can be tricky. I was in the opposite situation to you.

I bought a plot and plan in phase 1 of a development that spanned 5 phases. Bond was approved and payment was made in tranches as I signed off completion of each phase. I was renting at the time and this was my first property. Property was completed in year 3 with final occupation and payment done. Bond repayments only started after completion and not during the draw down period. By the time I moved in, the property had already increased by 20% from my initial purchase price. Current value is R850k and purchase price was R350k.

6 years later I applied for a bond for a freestanding property and was approved without needing to sell my first property. Currently it's being rented out to the same tenant for about 6 years now with rental income that's 65% more than my bond installment. Fortunately I have a very good tenant that pays on time every month even through the current covid situation and fixes things up. Very hands on tenant. Renewed his lease this year for a further 4 years worth a 5% annual increase. My tenant is paying slightly less than the market rental for the area.

In the process of buying an apartment which will only be as an investment and second property in my rental portfolio.

If you buy plot and plan in the early stages, you can have a property worth more than the bond by the time you move in if the area is right.

My primary motivator currently is to leave the 2 properties to my two kids (6 and 10 years old currently) when I kick the bucket eventually. Whether they live there at that time is up to them.

 

[PsYTraNc3]

So perhaps a silly question - why the need to sell? I mean when you apply for a bond you simply tell them you won't have the old bond amount going off don't you? How does the plot & plan part influence this?
Also with option two, banks don't take potential rental income into account when assessing if you can afford the new place so you'd have to have a tenant for 6 months minimum I reckon.

Not a silly question since I am a noob at this and came here for answers.

I did a pre-approval and the amount was quite short of what I need for the new bond.
When I queried it, they said that the pre-approval does not take into consideration the current bond that will be settled and that I would qualify for much more when proceeding with a bond application.
I then just assumed that I would have to settle my current bond while taking out the new one.

WRT renting my current home.
The new erf would be available in 6 months and that's when I would have to do the bond application so it if I had to start renting it out soon, I could wait 6 months before applying for the bond.