Investing in property can be one of the most rewarding financial decisions you’ll ever make. It offers the potential for steady income, long-term growth, and a way to build wealth. But, like any investment, it requires careful planning, smart decision-making, and a solid understanding of how to stay cash positive. Whether you’re considering putting down a large cash deposit or going for a 100% bond, here’s a simple guide to help you get started.

1. Understanding Property Investment

When you invest in property, you’re essentially buying a physical asset that can generate income over time. This income usually comes from renting out the property to tenants. The key to success is making sure that your rental income covers your expenses, leaving you with a positive cash flow.

2. The Importance of Cash Flow

Cash flow is the amount of money left over after you’ve paid all the expenses related to your property. This includes your bond (mortgage) payments, property taxes, insurance, maintenance costs, and any other fees. If your rental income is higher than these expenses, you’re cash positive. Staying cash positive is crucial because it means your investment is paying for itself and potentially putting extra money in your pocket each month.

3. The Role of a Large Cash Down Payment

One way to increase your chances of staying cash positive is by making a large cash down payment when purchasing the property. Here’s why:

• Lower Bond Payments: A large down payment reduces the amount of money you need to borrow. This, in turn, lowers your monthly bond payments, making it easier to cover your expenses with rental income.
• Better Interest Rates: Lenders often offer better interest rates to buyers who can put down a significant deposit. This means you’ll pay less interest over the life of the loan, saving you money and improving your cash flow.
• Instant Equity: By putting down a large deposit, you’ll immediately have more equity in your property. This can be beneficial if property values increase or if you decide to sell in the future.

4. When a 100% Bond is Not a Bad Idea

While a large down payment has its advantages, starting with a 100% bond (where you finance the entire purchase price of the property) isn’t always a bad option, especially if you’re strategic about it.

• Preserving Capital: If you don’t have a large sum of money to put down, a 100% bond allows you to invest in property without needing a significant upfront payment. This can be useful if you want to keep your savings intact for other investments or emergencies.
• Leveraging the Market: By using other people's money (the bank’s), you can take advantage of potential property value appreciation without having a large amount of your own money tied up in the property. If the market is strong, your property’s value may increase over time, giving you equity without requiring a large initial investment.
• Tax Benefits: In some cases, the interest paid on your bond can be tax-deductible, reducing your overall tax liability and potentially improving your cash flow.*

5. How the Process Works

Step 1: Research and Choose Your Property Start by researching areas with strong rental demand and good potential for property value growth. Look for properties that are priced reasonably, are in good condition, and require minimal maintenance. Make sure to consider factors like location, nearby amenities, and the overall condition of the property.

Step 2: Financing Your Investment Decide whether you’ll be making a large down payment or going for a 100% bond. Speak with a financial advisor or mortgage broker to understand your options and get pre-approved for a loan. This will give you a clear idea of how much you can afford and what your monthly payments will be.

Step 3: Purchase the Property Once you’ve found the right property and secured financing, it’s time to make the purchase. Work with a real estate agent to negotiate the best deal and ensure all legal and financial paperwork is in order.

Step 4: Managing Your Investment After purchasing the property, focus on finding reliable tenants and setting a competitive rental price. Regularly maintain the property to keep it in good condition, and stay on top of any repairs or issues that arise.

Step 5: Monitoring Cash Flow Track your income and expenses closely to ensure you’re staying cash positive. If your expenses start to outweigh your rental income, consider ways to cut costs, increase rent (if market conditions allow), or even refinance your loan for better terms.

6. Long-Term Success

Property investment is a long-term game. The key is to remain patient, keep an eye on the market, and be prepared to adapt your strategy as needed. By staying cash positive and making informed decisions, you’ll be well on your way to building a profitable property portfolio.

* In South Africa, the interest paid on your bond (mortgage) is generally not tax-deductible for personal residential properties. However, there are specific circumstances where you can claim a tax deduction on the interest:

1. Rental Property

If you purchase a property with the intent of generating rental income, the interest on the bond is tax-deductible. This deduction falls under the expenses you can claim against the rental income you receive. The key point is that the property must be used to generate income, and you can only claim the portion of the interest that relates to the property being rented out.

2. Home Office Deduction

If you use part of your home exclusively as a home office and meet certain requirements set out by the South African Revenue Service (SARS), you may be able to claim a portion of the bond interest as a tax deduction. The deduction would be proportional to the area of your home used as an office compared to the total area of the home. This deduction is typically only applicable if you work from home and the home office is your primary place of business.

3. Business Use

If the property is used for business purposes, such as running a business from home or using the property as office space, the interest on the bond can be deducted as a business expense. The property must be used to generate taxable income, and only the portion of the bond interest related to the business use is deductible.

Important Considerations

• Record Keeping: You must keep detailed records of all expenses, including interest payments, to support your deduction claim.
• Proportional Deduction: If only a portion of the property is used for income-generating activities, the deduction must be calculated proportionally.
• Consult a Tax Professional: Tax laws can be complex, and it’s advisable to consult with a tax professional or accountant to ensure you’re claiming deductions correctly and in line with SARS regulations.

In summary, while bond interest is not deductible for your primary residence, it can be deductible if the property is used to generate income, such as through rentals or business activities.

If you're looking to invest in property in Cape Town's Northern Suburbs, including Brackenfell, Kuilsrivier, or Durbanville, Shireen Louw is here to guide you through every step of the process. With her expertise, you can make your next property purchase with confidence, ensuring that your investment works for you. Contact Shireen today and take the first step toward a successful property investment journey.

Email: realestate@shireenlouw.com

Cell: 066 272 6424