Buying a second property could be a smart investment move

Buying a second property as an investment

Property can be a good investment. In the long-term property could increase in value so it could be a way to build your wealth.

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Your second property could be a holiday home or even a rental property to give you some extra income. Read on and discover what you need to know about buying a second property.

What’s important when buying an investment property

Financing your second property is the same as buying your first home. But it needs to suit your prospective tenants or your investment goals so you need to balance all the costs against the money you expect to receive.

Location, Location, Location
The location of your property and what it offers like internet, pool or gym, as well as closeness to shops, schools and transport are key in making your property desirable to tenants.

Check prices and average rents as well as getting advice from a local letting agent
Getting a loan
Getting a loan for a second property

You may require a deposit for a second home. A deposit will lower the amount of your loan and you might get a better interest rate and reduce your monthly repayments.

If you already own rental properties, the rent you’re currently receiving could be used in the affordability assessment for your new home loan.

You will need to prove that the rent is constant, by showing that you have a signed lease with the rent deposited into your account for the last few months.

Check out our buy-to-let offering for more information.
Equity in your existing property
Using the equity in your existing property

Equity is the difference between the outstanding balance of a home loan and the current value of the property.

With sufficient equity in your existing property you could take a Further Advance on your loan, to cover costs like the deposit, transfer fees or even renovations you might want to do to the new property.

Earning rental income on a property is subject to taxation by SARS. However, you can claim for some expenses like loan interest paid, levies, rate and taxes, maintenance, etc. Get an accountant to advise you.
Costs of second property
Consider the following costs if you are planning to rent out your second home.

At purchase:

Deposit

Transfer and registration fees

During Ownership:

Levies for sectional title properties

Municipal taxes

Utility costs - water and lights

Building Insurance

Maintenance

Letting/managing agents fees

Savings to cover potential gaps in rental income

Making your second property a reality

So, buying an investment property is not too different from buying your first property. It just requires more thought and planning. Do your research first and as with any property purchase, don’t just fall in love with the first place you see! An investment property can generate income, give you a holiday home or build your wealth - either way it can be a great purchase provided you plan properly.