Financing an investment property

Financing an investment property.

Mainstream banks often only consider a portion of the proposed rental for first-time property investors.

For those who believe in the merits of property investment and wish to grow their portfolio, perhaps the most critical hurdle to overcome will be sourcing suitable property finance.

Many of the mainstream retail banks are less eager to finance investment properties than primary residences.

I presume this is because these banks believe that individuals are most likely to prioritise the stability of their homes and family, and so are more likely to honour their monthly bond repayments on their primary residence before any other financial commitments.

Whether you want to sell your residential property or buy a new real estate investment, a house or an apartment, your Property Angel is here to help you find your unique home.

Property Angels – Attorney Realtor Partner

An example of this is how these banks treat investment property rental income. As part of any property finance application, banks require an investor to submit an income statement detailing all monthly income and expenses, thereby demonstrating that the investor has sufficient free cash flow to pay for the monthly instalments on the bond being applied for.

For most property investors starting out, the expected rental income from the proposed investment property forms an important contribution to the affordability of their monthly repayments. A bank’s unwillingness to take this income into account can spell the end of the bond application and hence their property investment.

Most of the mainstream retail banks aren’t keen to take the proposed rental into account for first-time property investors, and if they do, they only consider a portion of this rental income. The same applies to existing property investors buying another property. In this scenario, unless the investor has a strong track record, these banks will take the full bond instalments on each of the existing properties into account, but are reluctant to consider the full rental income generated by each – again rather opting to only take a portion of the existing rentals into account, which is often capped at 70%.

One way to overcome these challenges is to ensure that the bond application is supported by copies of existing signed lease agreements and bank statements proving consistent rental income from the property in question. A complete and well-organised bond application will be well-received by the banks and ensure your best chance of approval. If there is an existing tenant some of the banks will consider including a percentage of the rental income with proof of the monthly deposits and the existing rental agreement.

Another option is to seek out a specialist bank which has a more entrepreneurial view on property finance rather than a one-size-fits-all approach. These banks back the investor and consider each proposed investment on merit, taking all rental income into consideration. However, these banks have criteria for the clients they finance, including the investor’s profession, strength of earnings and balance sheet.

Once a bank is willing to grant finance, an investor may consider registering a bigger bond than the initial property finance amount. For example, it is possible to ask the conveyancer to register a bond in the deed’s office for R2 million notwithstanding that the bank’s loan is for a lower amount of R1.5 million.

The benefit of this is that as the property grows in value, the investor is able to refinance the property, subject to another credit application, and increase the property finance up to the registered threshold to make more funds available for subsequent property investments. Registering the higher bond amount upfront saves the investor time and money later as there is no need to register a bigger bond down the line when more finance is required.

Some may find the obstacles in raising bond finance for property investments too daunting, but those budding investors who push hard, make sacrifices and find a creative solution to financing their first investment property will discover that each subsequent step in the right direction will open new doors to finance and therefore further property investments.

Author: Gareth Bailey is area principal for Durban coastal at Pam Golding Properties.

Original Publisher: Moneyweb

Property Angels is an online property portal that promotes residential and commercial property for sale across South Africa. You can buy, sell, list and find South African properties online. Find houses for sale in Johannesburg, Cape Town and Durban which are the three biggest cities in South Africa.

At Property Angels we will help you sell or buy your next house or office space so that you can move on quickly and affordably.

Traditional Estate Agents do offer good service but you want so much more when it comes to selling or buying your next home.

Some of the top property companies online in South Africa include Private Property, Property 24, My Property, Property Fox, PropertyCoZa, Remax, Pam Golding, LeadHome, SA Hometraders, Gumtree and Property Angels.

Whilst most online property brands offer online visibility for Estate Agents South Africa, Property Angels offers online visibility for Attorney Realtor Agents South Africa.

Whether you have a property for sale or you are seeking a house to buy in the southern suburbs, Northern Suburbs, Eastern suburbs or Western suburbs, choose Property Angels as your attorney realtor property website in South Africa. Sell your property online through Property Angels.

Your dedicated Attorney Realtor will call you back today or the next business day.

Whether South Africa is in a buyer’s market or in a seller’s market, contact Property Angels today for quick and efficient online and face to face service.

List your house for sale with Property Angels. You can also find property to view, property selling tips and many other useful property and finance blog articles and property products bespoke to your needs. Buy and sell your private residential property through Property Angels. Allow Property Angels to become your chosen property website portal for your choice of homes to sell and homes to buy.