Property Advice

First steps to financial freedom through property investment

Private Property South Africa
Private Property Reporter |
First steps to financial freedom through property investment

What does financial freedom mean to you?

Here are some interpretations:

  • Having an income sufficient enough to stop working.
  • Being able to afford to subsidise or fully pay for a beloved passion or hobby.
  • Not stressing about having enough savings.
  • Ability to live the life you desire.
  • Not having to compromise on purchase decisions.
  • No debt.
  • Ability to retire early.

Do not confuse the concept of financial freedom with that of being rich. Financial freedom is achievable by any income earner, but not everybody will be rich, nor might they want excessive wealth. Essentially when you are financially independent it means that your income exceeds your expenses, which will allow you to achieve all the aforementioned targets. One of the most time-proven ways to do this, is through the acquisition of properties.

Your first thought might be to buy a single property and rent it out. During this time, the tenant pays a monthly fee and, in the long-term, the property pays for itself. Repeat this process over time, and once home loans are paid off, you are earning profit after deducting expenses associated to ownership.

There is nothing wrong with this strategy, in fact it is the most popular. It’s also a hands-off approach that requires little effort, and will get you on the road to financial freedom … but it does take time, hard work, discipline, persistence, knowledge … and some money!

Where to get the money

There are numerous ways to secure funds enough to buy your first property:

  • Traditional bank home loan.
  • Savings.
  • Private loan (perhaps from a family member).
  • Through a partnership with a like-minded investor.
  • Rent-to-own: after an agreed-to period of rental, you have option to buy.
  • Through the ‘access’ that is in an existing home loan account.

A simplified buy-to-rent scenario

Once you have secured your first rental property, you must ensure that the rental covers at least the home loan repayment, rates/levies, and if using one, the rental management agent fee. If you have bought well, or you make additional payments into the home loan account, you will have access to the funds already paid in. The process is as follows:

Find a property, make an offer to purchase.

  • Apply for a home loan, be approved, and pay transfer fees.
  • Take transfer and advertise for tenants, or engage a rental agent/agency.
  • Sign the lease agreement, and wait.
  • Every six months review the home loan statement to check if there are funds enough for deposit on a second property, and if so, do a pre-qualification check with the bank for a new home loan.
  • Seek property number two, and repeat the process.

Warnings

The trick is to gain as much knowledge as possible about property investment while your first property is being leased, and using this experience to understand property dynamics. Unforeseen circumstances should always be accounted for as you do not want to over-extend your financial commitments.

It may be that it takes a couple of years before you can buy a second property, but be realistic about your affordability status. Financial freedom through property also does not have to come from investing in expensive properties. Having three or four smaller apartments that are in high demand, for example student flats, can be far more lucrative than owning two free-standing properties that have high maintenance costs or are difficult to rent out.

Related Articles

Anna-Marie Smith | 22 Jul 2013

10 Steps to increase savings for owners, landlords and tenants

Motivation for a greater savings culture in SA by Finance Minister Pravin Gordhan was heard at the 10th anniversary celebrations of the SA Savings Institute. Emphasis fell on the need for a changed mindset toward increased ...

Scott Picken | 01 Sep 2013

Global Wealth Index – South African’s wealth has decreased 77% a year for the last 30 years!

Most South Africans don’t know how to understand their wealth, in terms of Global Wealth. Therefore we have created the Global Wealth Index TM to understand the impact of cost escalation and the Rand Devaluation on our Global ...

Real Estate Investment Magazine | 14 Oct 2014

Have a happy home

Martin Seligman’s book “Authentic Happiness” talks about how happy people are more likely to have more casual and close friends, are more likely to be married and are more involved in group ...

sample image of property alerts

Get instant property alerts

Be the first to see property alerts for your area.
;