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February 26, 2019

How To Finance Your First Investment Property

The most common misconception regarding property investment is that you need to have a huge amount of money to get started. This is not true. In fact, you’ll often hear stories about people who started investing with almost nothing!

The property investment sector is open to everyone, which is why it’s possible to get started, without having to be a millionaire. Let’s take a look at the various ways you can finance your first property investment without breaking the bank.

  • Head to the bank
  • Saving for a deposit
  • Is property a good investment option?
  • How do I start investing in property?

Head to the bank

If you’re venturing into the world of property investment, then you should know that plenty of research and decisions await. It’s daunting to think where to start but we’ve narrowed down a few financial options that you could use:

Apply for a bond

If this is your first property, then you’re eligible to apply for a home loan. You’ll find home loans on offer from many banks. Your starting point should be the bank that you’re currently with. Perhaps they’ll provide you with favourable rates, especially if you’ve been a longtime customer.

When you’re applying for home loans, you’ll need to do a bit of shopping. This may seem like a lot of work but remember, it’s a big financial decision you’re undertaking. It deserves some patience and time. Do your research among the big banks and then start doing a comparison. Things you need to consider include terms and conditions, interest rates, and repayment terms.

100% home loan

If you’re still worried about putting down a huge deposit, some banks offer 100% home loan. As the name implies, it’s a product that provides a full home loan. This option is being provided by more and more banks as they’re committed to ensuring everyone has a shot at securing a property.

Still sounds too good to be true? Well, there are some conditions that you need to meet. The most important one is having a great credit score and the ability to meet all repayment terms. This means that you need to have a good record when it comes to paying all your other accounts.

Buy with a partner

Purchasing an investment property with another person means that the finance is not all on your shoulders, which is less stressful. If you are considering a partner, you need to find someone you trust and has a good financial record – a best friend is not the same as a business partner.

If you found your partner, you need to clearly stipulate roles, splitting of finances, and possibly an exit strategy. You need to treat this like a business transaction – everything needs to be put in writing and agreed upon. Remember you and your partner will also need to agree on a budget. However, the good news is that with a partner, applying for a home loan may be easier.

Investment loan

Banks and other financial institutions are also offering buy-to-let loans. Banks are well aware that South Africans are starting to invest in property. If you are applying for this loan, you’ll be assessed on existing and predicted rental income, have access to a property management service, and legal services to protect you.

These services have been provided because banks know how expensive it is. By providing an all-in-one package, it encourages more people to apply. It’s an inexpensive solution that works well for a property investor – allowing anyone to enter the market without any trouble.

You will need to do research to see which banks provide this service. The main condition is that the residential property needs to be an existing dwelling and not vacant land.

If you’re still required to pay a deposit, remember it’s not the end of the road.

Saving for a deposit

If you’re still required to pay a deposit, remember it’s not the end of the road. It’s just a minor stumbling block but something you need to prepare for nonetheless. If you’re serious about investing in property, then you’ll know that sometimes you’ll have to put some money in to build a successful property portfolio.

If you’re wondering what the deposit will be, you need to use a deposit savings calculator. This provides you with great insight into how much you should be saving. Some online calculators will ask for the property purchase price, what percentage of the property price is required (usually 10%) and the deadline. It will calculate the deposit goal for you. If this sounds scary, then don’t worry – this is meant to motivate you.

Once you’ve calculated your deposit, here are some saving techniques to help you:

Set a savings goal

Once you’ve determined the deposit goal, you need to start working out a budget that will help you achieve it. If you haven’t used a budget before, then get ready to do so. Setting a savings goal means sitting down and scrutinising your finances.

If you’re doing this on your own, it might be challenging. The point is to not make it too challenging for yourself that you’re demotivated. It’s meant to be exciting!

Start off by setting a realistic goal. There might be a part of you that wants to save more than you can – to achieve your savings goal faster. Remember, you have other responsibilities too. Save enough so that you’re still able to survive each month.

Track your spending

During this period, you’re about to realise how frugal you are. Track all your spending to ensure that you’re reaching your deposit goals. The goods news is that with the evolution of the digital era, there are apps to help you.

Some apps will provide you with an overview of how much you’re spending on food, entertainment, and clothing budget. While scary, these insights will give you an idea of what to cut down. So, perhaps stop ordering pizza this week and stay in and cook? Also, is it necessary to have a Netflix and a ShowMax account?

Cutting down costs, even if it’s just for a few months, will help you achieve your goal. It’s going to be difficult but it will be worth it.

Use a separate banking account

The other challenging part about saving is having the discipline to put the allocated amount away. Once all the bills are paid, we’re often tempted to use the leftover money for yourself – whether it’s buying those boots you had your eye on or eating out.

Investing in property is a serious venture, which means you need to be disciplined when it comes to your savings goals. To help, open a separate savings account and have money debited into this account each month. Now you won’t be tempted into spending the money and once you see its growth, it will motivate you more.

With all the saving and huge financial obligations, you’re wondering if property is still a safe investment option?

Is property a good investment option?

With all the saving and huge financial obligations, you’re wondering if property is still a safe investment option? Yes, it is. Many people, including our co-founders, have found great wealth within the property investment space.

Property investment provides the following benefits:

Increased cash flow

If you’re investing in property and still have a full-time job, you’ll create another income stream. Having that extra cash flow after all the bills have been paid could be really helpful. You can start paying off your debt and become financially independent long before your retirement. You also have the opportunity to do whatever it is you’ve wanted to – travel or perhaps buy something you’ve put off for a long time.

What most investors do is use that extra cash flow to save for another property or use it to start their own business. Whether it’s a property business or something within another field, the possibilities are now endless.

Doesn’t affect your loan repayment

If you’ve taken out a bond for the property and have a tenant, they’re basically repaying the loan on your behalf. No extra cash is taken from your account and you’re still able to live comfortably without the extra financially responsibility added.

Once you’ve completed bond repayments, you’ll still have your property. This means that you’re able to generate another income – and can do with this money as you please. If you want, you’ll also have the option to sell the property. The value may have appreciated within the years you’ve had it and you’re bound to get a great amount for it. Again, this money provides you with the opportunity to live financially free.

The chance to become an entrepreneur

You need to manage a property investment like you manage a business. Investing means that you have the chance to develop your entrepreneurial skills. You’ll learn about finances, gain project management skills, and expansion if you’re thinking about managing a property portfolio.

After a successful stint the first time around, most people quit their full-time job to venture into property permanently. It’s easy to understand why – you control your hours and answer to nobody else but yourself.

It’s accessible

You don’t have to be a business graduate to enter into the property market. The property market is open to anyone! All you need is the right strategies, the discipline to achieve your goals, and the right people in your corner. The next few steps will come to you easy: finding the right location, what makes a good investment, and financing your deal.

With all the necessary information and research, you can educate yourself on the South African property market and discover where to get started.

How do I start investing in property?

If you’ve squared up your finances and you’re ready to start your journey, then perhaps it’s time to get started. But, where do you start? Well, there are a couple of things you need to think about before you start viewing properties:

What type of investor are you?

We admire your eagerness to get started but you need to be clear on what type of property you’ll be investing in. Will you be earning your profits on buy-to-lets or flipping? This is an important question because it informs the type of property you’ll be looking for.

If you’re looking at buy-to-lets, then you need to consider a few factors. These include your tenants. Who will you be renting to? If it’s a young couple looking to start a family, then a small house in a location known for its clubbing spots may not be ideal. Knowing your tenants will narrow down the property type and location.

If you’re looking to flip a property, then you need to search for distressed properties. These are often below market value, which may help save on your budget.

Distressed properties are a great way for first-time investors. They may look unsightly but expert investors will see the real value in them. Having a distressed property to start off your portfolio will help you add more property in the long-run.

Looking to find out more about property finances? We host free property seminars around South Africa. For two hours, our students will discover everything from property management, financing, to negotiating.

We’ve educated over 20 000 students in almost two years and have witnessed great success stories. Book your FREE seat, bring along friends and family and let’s start your success story.