People often use the term rent-to-buy, which refers to renting a property that you intend to buy at a later stage (if that was part of the rental conditions). This concept is sometimes confused with the term buy-to-let or buy-to-rent, which refers to buying an investment property and letting it out to a tenant. This enables the owner to have a tangible investment asset and to pay off the bond and expenses with the rental income.
Most first-time property buyers feel that the first property they buy should be their primary residence and that they can only start investing in property after that. As a result, they end up spending all their time trying to save up for a deposit and the extra costs of buying a property. The extra costs on a R1M property can easily add up to R60 000, which excludes the deposit. If you buy directly from a developer like Central Developments, you do not pay bond origination duties, attorney fees, nor transfer costs, so all the extra costs are included. You can therefore save quite a bit of money by buying directly from a developer.
You can save even more if you become a “rentvestor” and rent your primary residence rather than buy it. This will give you more disposable income, further enabling you to buy an investment property. Once you have an investment property that earns a rental income and potentially does not cost you any money, you can buy your primary residence. The equity that your investment property accumulates over the years can even assist you with the costs of your next property, be it your primary residence or your next investment.
A practical example of this for a property around R1M is as follows:
Buying your primary residence:
- Purchase price R1M.
- Once-off transfer duties and registration fees = +/- R60 000.
- Bond repayment @ 7,5% over 20 years = R8 100 pm (0% deposit).
- Additional monthly costs (levies, rates and taxes, water and electricity) = +/- R3 000.
- Total costs = +/- R11 100 pm + R60 000 start-up cost.
- Required total monthly income +/- R25 000 pm.
Renting your primary residence:
- Average rental on a R1M property = R8 000 pm.
- Additional monthly costs = +/- R1 000 pm (water and electricity).
- Total costs = R9 000 pm.
- Monthly saving as additional disposable income for investment property = R2 000 pm.
Purchasing an investment property:
- Average purchase price R730 000.
- From developer = all costs included.
- Bond repayment @ 7,5% over 20 years = R5 900.
- Additional costs (levies, rates and taxes) = +/- R1 500 pm.
- Rental income = average R6 900 pm.
- Monthly shortfall investment contribution = R500.
In conclusion, you saved R2 000 pm by renting your primary residence and have an investment property that costs you R500 pm resulting in a saving of R1 500 pm.
“Thanks to Central Developments’ specialised Buy2Let investment team, I bought my first investment property in October 2019 at the age of 41. Although I was a late starter, they efficiently assisted me with some of the best investment options from their very diverse property development portfolio. Sixteen months later, and we are already busy with the fourth investment property, and I can finally start feeling better about my children’s university education and my retirement.”
Mr V Naidoo (KZN).
