How to Invest in Property

There are only four forms of passive income - Dividends, Rental, Interest and royalties. Things like RAs, pensions etc are actually a combination of the first three.

When you buy property for rental income, you need to follow a few golden rules. Here they are -

1) Don't invest more in one property than you can afford to lose if things go wrong

2) Do the numbers. You must establish what rental income a particular property will produce before you consider buying it.

3) From there you calculate what bond the rental will service.

4) Make allowances for vacancy (usually 1 month per year), levies, rates, repairs and maintenance, eviction costs, outstanding rates and taxes, transfer duty etc. that will not be paid by the tenant.

5) From there you can calculate what you can pay for the property (see how we went about all this here)

6) And finally, you make the decision to buy.

 This is particularly important if you plan to buy on auction. You must know when to stop bidding and stop you must - there's no emotion in this game.

Then how are you going to own the property? In your own name(s), in a company, in a trust?

As a rule of thumb, it is usually best to buy in the name of a company (or CC) that is already owned by a trust. The logic underlying this is too extensive to cover in this post, but you'll find plenty of information on our web pages. Start here

If you have a question, share it with me and others by posting a comment. I'll respond via comments.

Should you wish to make an appointment, please feel free to visit Derek's diary and book a time that suits you.

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South African Institute of Chartered Accountants. Designation CA(SA)  Internationally Accredited Financial MediatorsIndependent Regulatory Board for Auditors. Designation RA<Engineering Council of South Africa. Designation Pr(Eng) Member of MENSA, the High IQ Society




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