Welcome to the Money Savvy Podcast. I’m Boitumelo Ntsoko. The topic of buy-to-let properties is a contentious one, with investors looking to improve their financial situations, buying apartments, building cottages and bedrooms a plenty. Is this a good idea, though? And can you make money doing it? Stay tuned as Richus Nel, who is a certified financial planner at PSG Wealth, helps us make sense of rental property investments. Welcome, Richus.
Tumi, so I’m on record with a recent article disputing the easiness of it, of this whole topic. And I think there’s a couple of general assumptions that I think over time [have] actually changed, and that it is not that easy. Read: Express wealth creation: listed equities or financed physical property? And it is not that much more convincing, as it was before in creating wealth.
And just with the current situation with Russia and Ukraine affecting economies, do you think that situation is about to worsen? So hopefully, in a more affluent position than someone more or less just breaking even. I think another misconception is that the tenant sort of pays for most of the bills, which is actually, if you do a projection accurately, you will see that there’s a lot of chipping in from the property owner over the first 10 years, while something’s perhaps mortgaged, for instance.
And what should you look for when purchasing a rental property? So, it’s called the leveraged effect. So, if you have got, for an example, R100 000 as a capital lump sum you are, as a scenario, able to put that in, let’s say, listed financial markets and earn a return on that based on the asset class underneath. Or you can go and you can leverage that R100 000 as a deposit on some sort of a mortgage bond for instance, and you can perhaps borrow a million rand and acquire a million rand property.
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