Paying cash for vs taking out a bond on an investment property

Private Property South Africa
Rawson Property Group

If you can afford to pay cash for a property, are there any good reasons why it might be wise to take out a mortgage bond on it?

The obvious argument in favour of taking a bond is that it gives the buyer a reserve for unexpected expenses or investment opportunities.

Buyers may have other financial interests and it can pay to put as much cash into these as possible because they need development and many businesses do, in fact, give a return that is better than the bank mortgage rate.

In these circumstances it can make good sense to take out a bond while investing elsewhere.

Whether or not extra cash is immediately needed, it is always wise to keep a cash reserve for emergencies, especially if the buyer’s reserves are stretched by the property purchase.

If subsequently things do go wrong, the stretched buyer may then be forced to sell the home, quite possibly at a price that is unsatisfactory because the market is not right for a sale at that point.

When in the boom era interest rates were at 12 to 13 percent and property was increasing in value at 17 to 20 percent per annum many people bought knowing that they could make a three to four percent profit simply by adding to their property portfolio, the value increases at that time being very satisfactory.

The current low prices and low interest rates scenario will definitely not last for ever. Those buying at today’s prices are making a very wise move, from which they will benefit significantly when, as inevitably will happen, prices and higher interest rates once again kick in, especially as higher interest rates always do attract foreign investors to South Africa.

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