Debt Consolidation and why it should be your last resort
In investing there are multiple asset classes that you can invest in. Real Estate is one of them. When people think of real estate, the first thing that comes to mind is houses, but real estates so much more than that. Real estate can comprise of land, parks, apartments, malls, offices, etc - basically anything on top of land. And the great thing about real estate is that it is most likely to appreciate in value over time, should the economic and geographic condition of your property be in your favour. Doesn’t that sound like a great wealth building investment. So why are people so hesitant on purchasing property? Well, for staters, they simply dont know how to prepare themselves financially for it.
Real Estate Investing doesnt have to be a mammoth task, all you simply need to do is start planning. Below are some factors that you will need to take into consideration.
Fix your credit score and determine how much you can afford
Creditors look at your debt-to-income (DTI) ratio. They want to see that you will not be drowning in debt should they offer you a loan. They also want to make sure that you are responsible with your money. Having a low DTI gives the creditors confidence that if they give you more debt, that you will be able to meet the repayment deadlines.
Take what you can afford. Now just because you've lowered you DTI doesn't mean you should take any amount of credit that is available. Remember that there are monthly installments that you need to pay plus other costs factored into owning a property. It’s like eating a piece of cake, you won't eat the entire cake because you know that your stomach won't be able to handle it. Instead you take only a slice. The same works with credit. You can't take up a bond that is too expensive for you to pay back.
According to Business Tech (2022): For those in formal employment in South Africa, the current average nominalised monthly take-home pay is R15,042, while in real terms, the average take-home pay is closer to R12,412. Take-home-pay – also known as disposable income – is the number that prospective home buyers should use to work out the price of the home they can afford.
Using the rule of thumb that your bond repayment should be equal to around a third of this amount, or between R5,000 – R6,000, a solo buyer in the current market would generally be looking at a home priced between R600,000 – R700,000 Property24’s affordability calculator shows. This factors in an interest rate of 7.5% and a bond repayment period of 20 years.
Not all properties are listed on Property24
To gauage what type of property you want, in which area, and at what price range, the easiest way is to browse through Property24. From there you can favourite all the appealing properties and even request a visit. However, you may find that a lot of properties are either being sold privately or through a developer to reduce costs such as transfer, commission, or agent fees. The best way for you to find these other properties is to go to different real estate agents, as they are the most familiar with the housing market, and ask them what they have available using what youve favourited on Property24 as a guideline.
Take advantage of the Buyer’s Market
A buyers market is when the supply of properties on sale is more than the demand from the buyers. In this situation, sellers are competing to attract as many buyers as possible to buy their properties. This gives the buyer negotiating power on how much the property should be sold for. And due to the supply of properties being more, as a buyer, you are more likely to find a property of your liking because there are options, rather than settling for something that you are not happy with just because it is the only one available.
Every cent of extra money counts.
Start saving if you haven't started yet. Try to save about 10% to 20% of your total property purchasing price. Yes, you can get a 100% bond but that will only extend the timeline of repaying the bond, and you’ll find that you would have paid more due to interest. Rather save up as much as you can and put a deposit down that will help accelerate the process. Every cent counts. If you have a couple hundred rand left over by the end of the month from your budget, don't choose retail therapy to finsih your money, rather put that extra money into a savings account and let it grow with compound interest. Even the smallest R5 will help you get to your goal quicker.
Real Estate Investing can seem quite overwhelming, but if you write all the numbers down, and if you consult with people who have gone through it before, then you will feel more comfortable and confident in your investment. Knowledge is key, but setting up your finances in the right way to help you attain those goals is truly what will open the doors for you.