How To Invest In Property
Property investment enables you to generate a passive income. This means that you can earn money you don’t have to work for.
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If you’ve been thinking of investing in real estate, we’ve got great news for you!
Today, we’re going to show you step by step how you can invest in property to finally achieve financial freedom.
In this video, we’ll talk about the three basic investment pillars that you need to know to start your real estate investing journey.
So, grab a pen, take some notes, and let’s get into it!
Let’s break it down:
There are 3 questions we need to ask ourselves when investing in real estate:
Firstly, how much can you afford to invest?
Secondly, why are you investing?
And, finally, how can you find the best property investment deals that work for you and not against you?
Let’s start with working out how much you can afford to invest.
As a rule of thumb, usually, you would qualify for a home loan that has a bond repayment that is a third of your income.
Then based on what that number is, you can work out the total value of the property that you can afford to invest in by dividing it by 0.01 since your monthly bond repayment is usually around 1% of the total property value.
So let’s say, for example, you and your spouse earn a combined salary of R30,000 per month.
That means that you would then qualify for and afford a R10,000 monthly bond repayment.
So, that’s R10,000 per month that you can pay on your home loan.
And if that’s the case, then it means you can afford to buy a property worth 1 million Rand.
Moving onto the next pillar, you need to know exactly why you want to invest in real estate.
Whatever your reason, you need to give yourself that unique and attainable cause so that you can align your goals with your dreams.
When it comes to investing in property, there are two strategies that you can deploy.
#1, you can invest in a property that has high capital growth,
Or #2, you can invest in a property that has a high rental yield.
So what’s the difference?
Capital growth refers to the overall growth your property will experience on a yearly basis depending on that property’s location.
So for example, if you’re investing in a property valued at R1 000 000 in an area with 10% capital growth, this means that each year your property’s value will go up by R100 000.
In this case, the quicker you pay off your bond the sooner you can reap the rewards of your capital growth.
Rental yield refers to how much income your property will generate you on rent.
If you’re looking for a property that has a high rental yield, you’re ultimately looking for a property that’s going to give you profit every month on your rental income after expenses are paid.
It’s important to know this because most of the time when a property has a high capital growth, the rental yield is lower. And vice versa.
So you need to ask yourself, why are you investing in property?
Is it for the long-run return on investment? Because then, in that case, you want to invest in a property with high capital growth.
Or are you investing in property to achieve more disposable income? Because then, in that case, you want to invest in a property with a high rental yield.
For the example of this exercise, let’s say you want to buy a property that gives you a high yield on rental income…
Next, let’s talk about choosing the right asset for you to invest in.
You’ll always have options when investing in property, it’s up to you to choose a property that allows you to make passive income on your own terms.
Let’s look at two options and which would be the best choice.
You find a three-bedroom house that’s in a secured estate,
It’s selling for R500 000 with a monthly rental of R5 500 and regular expenses of R300 per month which includes your tax and levy.
Furthermore, your bond repayment on this home is R4900 per month.
And growth in this area is 10% a year.
You find a two-bedroom apartment that’s also in a secured estate and is selling for R500 000
But your monthly rent is only R4 500 per month.
And your regular expenses are R300 per month which includes your tax and levy.
Your bond repayment on this home is R4900 per month.
And growth in this area is also 10% a year.
So, which option will you choose?
Option 1, right?
Since you’re earning R5 500 a month from rental income,
And your total expenses are only R5 200, which is the combination of your bond repayment of R4900 plus your expenses on tax and levy of R300, you’ll be able to enjoy a monthly cash flow of R300!
Whereas with option two, since your rental income is only R4500 and your expenses are R5 200, you’ll be paying an additional R700 each month into paying off your bond.
Now that you’ve chosen the right deal, here’s what you can expect for your rental growth over the next 5 years.
Your rental growth after year one will be around R6 050 per month,
R6 665 after year 2,
R7 320 after year 3,
R8 052 after year 4,
And R8 857 after year 5.
Thanks to a 10% annual capital growth, that same property will be worth over R805 000 after five years,
This means that your investment would have increased by R305 000!
You can then choose to sell it, or continue increasing your monthly rentals until you’ve paid off the home loan.
With that increase in the value of your home, you can refinance the property and purchase a second or third property.
And if you repeat the process every two to three years, you can build a solid property portfolio and achieve financial freedom on your own terms.
With PropInvest, you can make all that a reality without needing any experience in real estate investing.
We do all the heavy lifting for you so that all you have to focus on is growing your portfolio.
So if you’d like to find out more about how PropInvest can help you make smart property investments, then secure your free no-obligation property investment consultation today.
We can’t wait to meet you!