Should I sell my holiday property and settle my mortgage?
JP asks: I have a plot at the coast which is worth about R840 000 and is paid off. I have also bought a new home and my bond is R840 000.
My question is, would it be better to sell my plot at the coast and cancel my bond and use the monthly bond premium as savings, or should I leave the plot to grow in worth?
Maya replies: This all depends on your personal circumstances and also on the property in question.
What is the potential future value of the land? Did you buy this property because you believe it could increase substantially in value or as a holiday property to keep for the future? This property would need to increase in value by your mortgage rate every year in order to offset the cost of your mortgage on your home.
Are you managing your debt and saving? If you are struggling to service your debt or your retirement savings are falling behind, you will want to look at ways to improve your cash flow, possibly through selling the land.
Remember that we are entering into an increasing interest-rate cycle so you need to make sure you can continue to service your bond.
If you are managing your debts and your savings are on track, then there is no urgent need to sell the property. It comes down to a personal decision.
We all tend to live the “could have, should have, would have” motto, so sit down and draw up a financial plan of where this property fits into your future. Make an informed decision so that you have no regrets later.
Unless there is a major development about to take place, holiday property is typically not a great financial investment. You may find better ways to invest, such as being debt free and investing your current bond repayment as you mention.
However the property could be a lifestyle asset that you will use and it will bring you a lifestyle benefit. Not all investments are financial.
Questions you need to answer:
What will it cost me to develop the land?
Is this something I can afford to do?
Do I want to develop it closer to retirement to use as a retirement home?
If so how am I going to pay for that development, do I have additional savings?
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