5 Reasons to invest in buy to let property

By Neil Vorster | 1 The power of property investment

5 Reasons to invest in buy to let property

buy to let property

A great buy to let complex

Have you ever thought of the reasons to invest in property? Is it worthwhile, risky, too much hassle?

Amidst the confusing smorgasbord of options when it comes to investing, how can one choose?

I am going to share my top 5 reasons to invest in buy to let property, and there are many more!

I have been astounded at the returns I have personally achieved over the last 16 years!

Here are my 5 top reasons to do so yourself.

1.    Low Barrier to Entry

No other investment class can compete with investing in residential property, particularly if one invests in townhouses in very good areas

Investment in residential buy to let properties requires that you only have to come up with a minimal deposit. At present, most of our Premium Club members obtain 100% bonds.  The transfer costs for a small townhouse normally amounts to around 4 or 5 percent of the purchase price.

Try borrowing R700 000 to invest in R700 000 worth of shares!

2.    Retire early

The average Johannesburg household spends a quarter of their gross monthly income on rent or their bond repayment. It stands to reason that buying four or five townhouses in Fourways, plus some patience while your tenants to pay off your retirement fund, you will be able to retire on the average Fourways townhouse dweller’s income.

In Fourways, rentals generally rise by 8 to 10% each year. If you are disciplined and pay the excess rentals into your bond every year, it is not unreasonable to expect your bond to be paid off in 10 to 12 years: –  Roll on retirement!

If your current retirement plan involves saving, or the supreme effort of investing sufficient capital in a retirement annuity, then please watch this video below where I compare a retirement annuity (RA)  to buy to let property investment.

 

 

3.    Educate your children

I bought a tiny townhouse in Sandton for each of my daughters when they were finishing junior school. By the time they finished high school, their townhouses had appreciated in value sufficiently for me to take out a second bond of R 300 000 on each property.

This easily provided them with an all-expenses-paid university scholarship, without costing daddy a cent. Click here to read the full story.

When my “Laat lammetjie” son arrived 10 years ago, I thought it a good idea to buy the lad a bachelor unit in Bryanston. He is in grade 4 now and already his townhouse is paying most of his school fees. His rental income is increasing annually and his townhouse will probably be paid off by the time he hits high school.

I fully expect the cashflow from this one small townhouse to pay for his entire high school and university career.

 4.    Your tenant pays for your investment!

Simply put the buy to let property formula works like this:

  • You purchase a buy to let property with 5 – 10 percent of the purchase price in cash
  • You take out property finance for the remainder of the purchase price
  • Your tenants pay rental which covers your monthly bond and levy costs. You’ll probably have to subsidise the rental payment for a few ye
    ars until the rental income increases sufficiently to cover all your costs. Once it goes cashflow positive, your income climbs exponentially.
  • You watch your investment grow in value while your tenants pay off your bond

buy to let portfolio

 

 5.    Inflation works for you

We live in Africa, inflation is here to stay. It’s about as certain as death and taxes.

As inflation prices rise, so do salaries, rentals and property values.(but your bond debt freezes at the original rand amount)  So, how does this affect your property investment? Apart from the obvious increase in property values and rentals, another dynamic is at play here.

An example is best used to demonstrate this dynamic. When I bought my first buy to let townhouse in 2001, it cost R140 000. I took out a 100% bond, so back in 2001 I owed R140 000, and my property was worth R140 000. My loan to value was 1 to 1 (or 100%).

Say, I took out an access bond at the time and I still use the facility, and 16 years later I still owe R140 00. But the property is now worth R700 000, so my loan to value ratio is 140 000 to 700 000 or 20%.

Can you see why I don’t really bother paying off my own bonds?  Inflation paid off 80% of my property in 16 years!

If I had pumped all the increased rental income into the bond over the years, it would have been paid off 3 or 4 years ago. Property investors are of the rare breed who can say “inflation works for me!.”

Are these enough reasons to invest in buy to let property?

If you need help to get you started, click here.

Please comment and share below!

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About the Author

Neil Vorster is a property investment coach, investment author and co-founder of Organic Growth. Aerobatics pilot and cycling nut.

  • Oliver Tommy

    I would love to invest been thinking bout it for a long time and have been wondering what it would is that I need to do or bring in order to set things up with you but I live in ladysmith and would like to know if I come jhb can you help me set everything up while I am there and the cost involved please.

  • Michelle@fitnpoor.com
    http://www.fitnpoor.com
    I would love to invest or flip real estate. My husband and I have talked about purchasing houses, then living in them while we renovated, and then selling it as quickly as possible.

    • HI Michelle, flipping is really hard work if you are living in the house, but can be very fruitful.

      At Organic Growth we specialise in buy to let investing, rather than flipping, dealing or warehousing.

      This video basically tells all in a few minutes https://www.youtube.com/watch?v=tSBCh1XSjRU

  • Raynard

    Expats investing in Rental property

    Hi Neil,

    I am a South African expat that will probably be in Tanzania for the next 3 years, I would like to start investing in South African properties. I have joined the OG investment club and would like to know if you have any specific services tailored for expats. Please could you share with me a link or some specific reading material around 1. tax 2. max loans with the NCA proportionate to disposable income. 3. Paying of the bond faster, wise or foolish with regards to buy to rent? 4. tax payable on rental income.

    • Hi Raynard, most of your questions will be answered by watching this free video training series https://organicgrowth.co.za/plf101-op-sp
      Max NCA loans are regulated by affordability, basically the bank has to ensure that you can afford the bond repayment (no fixed formula) and your bond exposure is now public.
      Pay of your bonds as slowly as possible . Paying in as little of your own money as possible maximises your return on investment and simultaneously inflation will erode the value of your bond while tenants pay it off for you.