Renting out your only property?

Fingerlessliz

Fingerlessliz

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With the economy the way it is, we are all trying to come up with ways of making a few extra bucks, and more importantly, create a bit of wealth. So I was wondering if I could actually rent out my only property to get the ball rolling.

The idea behind this is: if I rent out my property for R7000 then rent another property to live in for no more than R7000 and wait about 6 months to build a record of tenant history to be able to claim the income. Now I can prove I have an additional Income of R7000 (with tenant history and rental contract) and I can buy another (bigger) property to rent out (while I still rent) to eventually claim that additional income. If I need to sell my initial property to buy a bigger property that is also fine, the idea is to create additional income so that a bank will approve a bigger loan.

I understand the risk of tanants not paying, and maintenance costs etc. Of course everything has their risks. But am I missing something? Could this actually work?
 
Is the first property still mortgaged? If in the affirmative and if you say that you'll still be renting in the R7 000+ house, that would mean its still an expense you'll have to declare to the financial institution. In fact your total income will be less.
 
Honey Badger said:
Is the first property still mortgaged? If in the affirmative and if you say that you'll still be renting in the R7 000+ house, that would mean its still an expense you'll have to declare to the financial institution. In fact your total income will be less.
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Yes, the property is still mortgaged at R7000 a month. Then the levy is R2300 and rates R500. I will obviously still cover rates/levies not covered by the rental income, but I thought gaini g the extra R7000 in rental income could be used to apply for a bigger home bond
 
Fingerlessliz said:
Yes, the property is still mortgaged at R7000 a month. Then the levy is R2300 and rates R500. I will obviously still cover rates/levies not covered by the rental income, but I thought gaini g the extra R7000 in rental income could be used to apply for a bigger home bond
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The easiest is to use the bond of the first property to buy the second. Then use both incomes from the properties to pay off the bond.

Rental income would need to be declared, so think a long those lines, especially for your situation.
 
Fingerlessliz said:
Yes, the property is still mortgaged at R7000 a month. Then the levy is R2300 and rates R500. I will obviously still cover rates/levies not covered by the rental income, but I thought gaini g the extra R7000 in rental income could be used to apply for a bigger home bond
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Nope.

Rental income R7000 - Mortgage of R7000 -> R0 and the bank wont lend you more on R0.
 
Snyper564 said:
Nope.

Rental income R7000 - Mortgage of R7000 -> R0 and the bank wont lend you more on R0.
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This is the bottom line.

I've been there. Wanted to rent out my previous house so that I could buy a more expensive (actually just a bigger house since my family was growing) house. The bank told me that I'd basically be breaking even and its a much better idea to rather sell the first property, which, for other reasons - the area deteriorated - I eventually did and bought the other house using the profit of the first house as a deposit.
 
Also, those levies are insane.

My previous place we paid R1600 which included a service fee for the fibre line, maintenance of the complex, security, etc, etc. That was for a townhouse.
 
In theory it could work, since your bond repayments cant be more than 30% of your total income, but why rent if you have your own property?
Rather stay in this home, and buy a smaller, house/ flat you can afford and rent that out, or move into the flat and then rent out your other house.
The 30% is per bond, not total bond amounts.
I bought a house in 2015 in a town in NW. 2017 I was retrenched and had to move where the work was. I rented out my house and rented in the new town up until this month. Got an amazing deal for the house I am renting and the bank approved me for a 100% bond on the second house (which I am staying in).
Who knows where life will take me, but if I am still in this town in 5 years time, I will definitely be looking to buy a flat somewhere, to also rent out. Investing in property is a great idea, since it basically pays for itself. But you will have to declare the income (minus the interest and maintenance). In my case it worked out pretty well, since my wife earns a meager salary, we included the rental income on her salary and we didn't have to pay anything additional on taxes.
Just be clever about it, wait for the good deals and learn how to "work the system" so to speak.
 
Think the bottom bottom line is : If you apply again for a new BOND .... you need to complete income vs expenses

If your current property isnt bonded ... then it is a nice idea, but then you need to rent super cheap

Lastly, if you go via FNB, they only take into account 50% of your rental income (remember that please)
 
Anti-Chris said:
In theory it could work, since your bond repayments cant be more than 30% of your total income, but why rent if you have your own property?
Rather stay in this home, and buy a smaller, house/ flat you can afford and rent that out, or move into the flat and then rent out your other house.
The 30% is per bond, not total bond amounts.
I bought a house in 2015 in a town in NW. 2017 I was retrenched and had to move where the work was. I rented out my house and rented in the new town up until this month. Got an amazing deal for the house I am renting and the bank approved me for a 100% bond on the second house (which I am staying in).
Who knows where life will take me, but if I am still in this town in 5 years time, I will definitely be looking to buy a flat somewhere, to also rent out. Investing in property is a great idea, since it basically pays for itself. But you will have to declare the income (minus the interest and maintenance). In my case it worked out pretty well, since my wife earns a meager salary, we included the rental income on her salary and we didn't have to pay anything additional on taxes.
Just be clever about it, wait for the good deals and learn how to "work the system" so to speak.
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the 30% is total bonds actually (that is how FNB works by the way)
 
Landlord here.

Good on you by trying to create an additional income.

Start simple and see where it takes you. Being a landlord is a full time job and is not for everyone.

1. Take decent pics. Decide your target market and advertise. Edit: start with what ypu have. Don't go out and buy another property and try any type of fancy new bonds when you have zero experience.
2. Start interviewing tenants, tenancy selection is probably the most important step. Use the tools from TPN to guide you trough the background checks and lease phase.
3. Monitor and manage for 6-12 months and decide your next steps if any. If are are semi DIY competent, and entrepreneurial minded you should be fine.
 
Honey Badger said:
Also, those levies are insane.

My previous place we paid R1600 which included a service fee for the fibre line, maintenance of the complex, security, etc, etc. That was for a townhouse.
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Yes they're steep, but since we are only 10 units on a 3500 square meter plot of land, there's a lot of maintenance to be done. Also, with the new laws where the body Corp has to have a certain amount in savings since special levies aren't allowed any more are driving up levies.
 
Tman* said:
Landlord here.

Good on you by trying to create an additional income.

Start simple and see where it takes you. Being a landlord is a full time job and is not for everyone.

1. Take decent pics. Decide your target market and advertise. Edit: start with what ypu have. Don't go out and buy another property and try any type of fancy new bonds when you have zero experience.
2. Start interviewing tenants, tenancy selection is probably the most important step. Use the tools from TPN to guide you trough the background checks and lease phase.
3. Monitor and manage for 6-12 months and decide your next steps if any. If are are semi DIY competent, and entrepreneurial minded you should be fine.
Click to expand...
I was THINKING... I could sell my place now for a profit (about R150 000) and use it on a deposit/transfer duty for a bigger house (7 + bedrooms) to rent out as student accommodation. I could make a decent profit (eg. property of R 1 400 000 @ R15 000 pm, rental income of R25 000 pm), but I would then have to rent housing for myself as I wouldn't be able to afford another bond. Not sure if this is makes sense financially.
 
Fingerlessliz said:
I was THINKING... I could sell my place now for a profit (about R150 000) and use it on a deposit/transfer duty for a bigger house (7 + bedrooms) to rent out as student accommodation. I could make a decent profit (eg. property of R 1 400 000 @ R15 000 pm, rental income of R25 000 pm), but I would then have to rent housing for myself as I wouldn't be able to afford another bond. Not sure if this is makes sense financially.
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If you enjoy headaches go for it
 
Fingerlessliz said:
I was THINKING... I could sell my place now for a profit (about R150 000) and use it on a deposit/transfer duty for a bigger house (7 + bedrooms) to rent out as student accommodation. I could make a decent profit (eg. property of R 1 400 000 @ R15 000 pm, rental income of R25 000 pm), but I would then have to rent housing for myself as I wouldn't be able to afford another bond. Not sure if this is makes sense financially.
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You are making an already complex situation, too complex.

Look at my initial post, take baby steps and start with what you have. After proving to yourself that you can generate rental income, work with tenants, have time for landlord duties over your normal job, only then consider scaling.

If you have a property that you think you can already generate an income from, irrespective of how big or small it is, thats where you should start.
 
If you want to invest in property, rather consider:
1. Paying off your existing bond earlier, pump anything and everything you have into your bond, remember that the amount that you save on interest is tax free. <--Win
2. Once you have a sizeable amount prepaid, use it as a deposit on a second property, also bonded (important for gearing, using other people's money to make you money ). The trick is to get the deposit to the right size so that you don't get an income (which is taxed). You ultimately want to have zero income, so ensure that all maintenance expenses and non-payments are declared in order to make it so.
3. Keep paying more than required into both bonds.
4. Rinse and repeat with additional properties. Buy low, befriend the sherrif of the court. Buy wise, easy to let 1 and 2 bedroomed places with no gardens (gardens are maintenance).
5. In around 10-15 years, you should own multiple properties, all bonded, but you are not making a single cent. They will all have appreciated in value (provided that you bought low, and that property prices have increased).
6. Sell the properties. Sell high. Pay off the remaining bonds and pay the CGT.

If you have bought low, sold high, AND if property prices were on a steady increase, you will have amassed a small fortune, due to the fact that you bought properties which were valued (at the time) at R1.5 million, for an investment of 10% (R150 000). When you sold 10 years later, they were valued at R3 million. That's gearing.

The only problems with this is that when you get to 10+ properties, the bank gets a little jumpy about their risk exposure, and interest rates are no longer great, they actually start increasing. So keep it small, when you get to around 8 -10 properties, consider diversifying your portfolio.
 
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