Part 2: How to create your very own property piggy bank
The second of a 2-part series
Last week I discussed why property is, in my opinion, the way to save for a future income. In this second part of Piggy’s Miniseries, I’m going to take you through the steps I take, to save for my future income.
1. Identify a node.
2. Research, research, research.
3. Find an asset with a rental (or potential rental), that after expenses (not including your bond repayments, but including estimated tax), will net you an income that matches what you’re saving for.
If for example, you’re saving for your child’s varsity fees which are R100,000 a year in today’s money, you’re looking for an asset that will net you at least R100,000 per annum.
4. Make sure the yield is at least market related.
5. Make sure there’s healthy demand for the property and it’s easily rentable.
6. Check your cash flow. It goes without saying, you want this to be positive, i.e. the expenses (including the bond repayment) are not more than the income. You don’t want to be putting extra money in each month!
7. Buy the property, using as little of your own money as possible.
Tip: Make sure you’re not likely to need this money again for the short to medium term. If you think you’re going to have to sell in the foreseeable future, rather pick a more liquid asset class.
Keep your nest egg warm:
8. Manage and maintain your asset and your tenant. If you don’t want to or can’t do this yourself, there are many managing agents or estate agents that will do this for you. Just remember to include this management expense in all your investment calculations.
9. There will come a time when your property generates a positive cash flow. In other words, you have money left over after your expenses. Put the extra money into your bond. Just do it.
Remember, aside from interest rate fluctuations, which should only affect your cash flow in the first few years of the investment, your bond repayments don’t go up, but your rental income does. The quicker you pay off your bond, the quicker your property starts paying you.
10. Once the property is paid off, thank your young, wise self and enjoy getting paid… every month… for doing… Pretty. Much. Nothing.
For assistance with investing for a goal or professional property services, contact Kat.