You decided to purchase a second property as an investment, and the cash to purchase the property is readily available.
However, you don't know whether you should take a bond against the property or rather pay cash.
Here are some tips to help:
The benefit of a bond firstly is that you have a cash reserve for emergencies, and that cash can be invested elsewhere on call.
A bond should never be seen as “profit”. In property terms, a bond is still debt – debt exposed to interest rate fluctuations.
There is a fine line when looking at true profit. You don't receive the full bonded value when you sell the property. Your profit is the difference in bond value and the selling price attained. At the current trend, the profit is between 5-6% per annum. If the market takes a slump, your profit decreases. It is important to keep in mind that, when you purchased the property, you paid transfer fees, transfer duties, bond registration fees and bond cancellation fees.
Below is a rough outline of how you should view your profit after resale.
Purchase price + Bond cancellation Fees + Attorney Fees + Bond Registration Fees + Deeds Office Fees + Installation Certificates+ Other Fees = X
Resale Of Property
Selling Price + Bond cancellation Fees + Attorney Fees + Bond Registration Fees + Deeds Office Fees + Installation Certificates + Other Fees = X. Here all you can add is the growth the property had in that period, at a current rate of approximately 4-6% p/a.
It is important to keep in mind that your profit is also directly related to interest rate fluctuations, which will influence your profit at then end of the day. Your profit is thus not as large as perceived, even tough the bond may be (for example) R1,200,000 before resale. A few hundred thousand over a period is still a profit.
Banks asses your credit risk and award a bond tailored to your specific risk. Save your cash, banks are in the businesses of lending money.
Now is a good time to invest in property and Myroof has the right investment for you.