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6 Things to consider when buying a second property

Buying a second home is a major commitment, so it’s important to research the local market. Here are six things to consider before taking the leap.

Property Investment Tips

Article summary

  • Research the area you want to invest in before you decide to buy a second property there.
  • Ask the expert estate agents in the area you want to buy in for property value growth projections and expected rental income.
  • Remember that there will be tax implications for this second property investment. Consult an accountant to find out exactly how much financial pressure this might put you under.

Buying a second home is a major commitment, so it’s important to research the local market and find out as much as you can about property investment in South Africa. Here are six things to consider before taking the leap.

1. Why do you want a second property?

People usually add to their property investments in South Africa because they see good investment value, want a holiday home or are setting up somewhere they can retire to. Depending on the purpose of the purchase, you may need to keep your personal tastes out of it.
If you’re buying for investment purposes, you need something that will be attractive to renters or future buyers. If you’re looking for a holiday home, make sure that it has everything you and your family might need for the foreseeable future in terms of indoor and outdoor space as well as amenities. And if you’re looking for a retirement home, make sure that it is designed to accommodate an older person or people. For example, a single storey home is preferable to one with stairs. If you’re buying an apartment, is there a lift?

2. Will you be able to afford it?

In the vast majority of cases, potential rental income will not help convince lenders to approve a bond application for property investments in South Africa. While banks will assess your ability to pay the monthly bond repayments much the same as they did with your first property, they are likely to be more stringent. They will probably ask for a large deposit after scrutinising your income and expenses.

3. Are there additional costs?

If you’re applying for home finance, the extras start with bond fees, transfer duties and legal fees. Then you must assess the costs of possibly needing to furnish the property, as well as monthly maintenance, rates, taxes, electricity, water, insurance and security.
If the property is an apartment or part of a development, there might be levies to pay. If you’re buying a holiday home you may want a letting agent to manage the property for you.

4. What are the tax implications?

Any profit made from rental income on the property is taxable. If you intend to rent out your second property, you’ll have to declare it as part of your earnings. And when you sell, it will be subject to Capital Gains Tax. It’s best to involve an accountant who can help you project all the tax implications for property investments in South Africa.

5. What else should you know about the property?

Remember to check for any structural damage, damp, and any poor finishes that will need replacing. It’s standard practice for the seller to supply an electrical compliance certificate, and, in most municipalities or areas, a gas compliance, plumbing and beetle-free certificate. The latter can be waived by agreement between both parties.

6. What other property investment tips do you need?

To establish the value and rental prospects of the property it’s best to consult with estate agents who operate in the area you’re keen on. Ask them about potential growth in property value and rental rates (you can also get an idea by searching online). Assessing the occupancy potential during the year is also useful, especially if it’s a holiday home and you’re likely to use the property yourself in high season.

If you’ve thought it through, and decided you’re set on purchasing a second property, then bear in mind that ooba home loans, South Africa’s largest home loan comparison service, offers a range of tools that can make the home-buying process a lot easier. Start with their home loan calculators, then use the ooba Bond Indicator, a free, online prequalification tool, to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.

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VAT Increase Disclaimer

Effective 1 April 2018, by order of National Treasury, Value-Added Tax (VAT) will increase from 14% to 15%.

Please note that this increase will retroactively effect VAT-inclusive calculations in articles contained in our website.