Mpho says: I have a small portfolio of properties that I’ve invested in: a block of five flats; a two-bed townhouse (paid off); and a four-bed townhouse (where I live).
I’ve recently applied for a bond, which was declined because of NCA and was based on affordability.
The paid-off townhouse doesn’t yield much in terms of income (because of high levies and rates) and is worth about R600 000.
Would it be wise to sell the townhouse so that I can use the cash to buy six more flats with the proceeds? My calculations are that per flat of R100 000 I should be able to get more returns in areas where levies are not that high (Johannesburg CBD).
Please also do advise if you know of a reputable (but reasonably priced) financial adviser around Johannesburg.
Maya replies: The fact that you have been turned down for an additional mortgage suggests that you are stretching your budget too far. When buying property you also need to look at your returns and you are probably correct in considering opting for a smaller flat where your profits would be higher.
Koos du Toit, CEO of P3 Investment Group, which specialises in investment property, says that chances are that you are a bit overexposed in your own name. He recommends that you look at using a trust, which used in the correct way might improve your chances of getting more bonds.
However, remember that trusts do pay capital gains tax at a much higher rate so you would need to look at these properties as a long-term asset that you would want to transfer to your children. If you are planning on buying and selling then a trust may not be the right vehicle.
Du Toit says that your R600 000 property should give you at least R4 000 net rental income per month. That works out at a yield of 8%. If you are not receiving that yield then you could be doing better. Du Toit says flats in Johannesburg CBD give much higher yields but the risks are very high.
Du Toit recommends that you rather buy two small duplexes/flats in a better area for about R300 000 each. This would give you an immediate net rental income of about R4 000 per month.
However, it is not easy to sell your townhouse at present. It might take some time to get it sold.
In terms of financial advisers with an understanding of property, look at the P3 Investment website
www.hope.co.za. Also look for advisers who charge hourly rates rather than commissions. You can get a list of advisers in your area at www.fpi.co.za
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