My long-term goal is to establish a significant residential housing portfolio. In this piece, I want to take you through my journey and what I learned when buying my first property.
I am a qualified Chartered Accountant (SA). But soon after qualifying, I realised I cannot make money just from my salary. I live in Cape Town and here it is often difficult for young professionals of colour to make it and earn like their colleagues in Johannesburg. Additionally, I am driven by a desire to have a platform/investment that will earn me and other professionals alike money even when I cannot work for myself. Property investment is one of those platforms.
Mistakes I made while studying:
When I started my articles, my credit worthiness sort of improved. I had worked as a cleaner before that, so naturally my salary increased a bit from what I was getting as a cleaning supervisor at Constantia Medi-Clinic. I had never taken out debt before. But, I had been told that if I needed to buy a car or a house in the future, I needed to start having a credit record. So what did I do, I went and bought a few household furniture, most of which I lost before qualifying, under finance. I also opened a few clothing accounts to keep myself looking good. I regret these decisions!
I had not seen myself finishing the bridging course I was busy with any time soon. I did not see myself needing study fees for CTA soon. But, that year I pushed myself really hard. I took all six remaining modules on my bridging course in my final semester. Although I worked and studied at the same time, I passed all and found myself needing money to study for CTA level 1 and 2, which I also later passed on first attempts. I had no choice but to get more debt. Being a foreign national and not being able to get a loan from any bank meant I had to pay a higher interest rate (38% per year) from micro-lenders. I do not regret taking out money for my studies. If I had not, I would have not qualified as a CA. What I regret is taking out credit for furniture and clothes. This was bad credit. I could have saved for my education then or saved a deposit towards my first property.
Mistakes I made soon after qualifying as a CA
Soon after completing my articles and qualifying as a CA, I felt the need to reward myself for all the hard work, the stress, and the sleepless nights. I felt I really deserved it after more than 7 years of study to get where I really wanted to be. I bought myself a BMW sport vehicle under finance. Together with insurance and fuel, I paid close to R7000 (and here you can tell me I could have easily found a cheaper property and even paid less than what I paid for this vehicle). Again, this is a regrettable decision because I could have gone for a cheaper option and saved a deposit for a property purchase. Getting an expensive car was a bad credit. A car depreciate the minutes it leaves a dealership and does not bring any income.
My first and second attempt at buying a property
Even after qualifying, I did not earn much. As a result my affordability was low. I decided to join Uber, in order to boost my income and chances of qualifying for a better bond. But, again this was a bad idea because I took my second car on finance. And when I tried to get my first bond, the income from the vehicle was not considered because I had not been in that business for at least 12 months.The expenses from that business were and that dented my affordability a great deal. On my first attempt, the bank qualified me for less than 50% of the value of the property I wanted to buy.
How did I get myself out of this mess?
- First step was clean up all my credit history and accounts.
- I paid off my clothing accounts and closed them. Even up to now, I buy my clothes on cash.
- I paid off my credit card and closed it off. Today, I also purchase mostly on cash and I do not buy unless I really need what I want to buy.
- I have a monthly budget and I stick to it.
- I review my monthly spend to see if I am out of line and take steps to correct where I spend unnecessarily.
- I took on the services of a financial planner, Lifecheq, to help me come up with a financial plan that works for me and in terms of the goals I had for my life. They helped me see my earning potential, protect in and to see my finances in a different way. And trust me here, everyone needs a financial advisor. You will benefit greatly from this.
What where some of my biggest lessons:
- Debt is not good if it does not make money for you. You are better off buying on cash and saving, trust me!
- Agents are in business to make money through commissions. They are not your friends. They may push you to buy not because it’s a good property but simply because they also want to make money. Some will even get much more unreasonable if they have not sold in a while. Agents can sometimes fight for buyers among themselves, do not get involved in these battles.
- Therefore, do your own research and do not rely on their just their word.
- If you are buying as an investments, be sure to at least cover your bond expenses. This is very important.
- If you are getting tenants, rather get professionals with a stable job and source of income. Do background checks and take a deposit prior to your tenants moving in.
- If you are buying from sectional titles, ensure that you know who runs the body corporate. Ask to see their financial statements and their rule book. ensure that their financial affairs are in order. I declined buying a sectional title after looking at their financial statements because I did not like what I saw.
- If you cannot purchase alone, team up with a trusted friend and purchase jointly.
- If you are married in community of property and you are buying a primary resident, both your names need to be on all forms and registrations. If you do not know if you are married in COP check with the relevant departments. But, if you have a prenuptial agreement chances are that you do not need to check for this.
- Go for what you can afford. There is no harm in starting small. Within a year or two, you maybe able to sell and buy what y0u have always wanted.
- Take a good look at your finances. Clean up your finances before you start buying or applying for finance to buy.
- Bond originators might be a better option in getting you a good rate, but no one understand you and your finances more than your current bank. Besides, because they know and have a lot of your details already, they will not be asking for much and will probably approve you much quicker.
- Be wary of buying properties that may need to be fixed after buying. You cannot have this as your first property. The property will sound cheaper, but when y0u start fixing you may find that it actually cost you much more than when you bought a property with no fixes required. “Renovations generally cost big money and unless you are skilled enough to carry out the work on a shoestring yourself, or have a close friend or family member you can call upon, you’ll probably spend too much on the improvements.”
- Location is king. You should know by now that the most important three words in this property business are “location, location and location.” Find a property in the right location. Look for property close to schools, shopping centres and restaurants. In the suburbs, try to find something close to schools and shops. Avoid areas commonly known for land grabs and disputes.
Contact us if you are trying to buy your first house and the bank is asking for more than you can provide on your own, like Income letters, tax documents, and tax clearances among other things.