Would it be financially safe to invest in real estate while renting a place for me to live in or while living in a house that I pay a bond for?
In saying that, there are loads of variables to be considered when weighing up these options and there isn’t an easy answer to your question. I do, however, have an idea that could decrease your risk and have a very similar outcome on the creation of your wealth. This way will require you to be patient and disciplined in your journey to building wealth.
I will show you a calculation that could help you with your decision. These are just imaginary numbers, but the principle remains the same. If you purchase a home to the value of R2 million over 20 years at a 7.5% interest rate, you would be paying R16 111.86 per month. If you increase your monthly repayment by 10% you will pay off your property in 16 years and four months.
Let’s say you keep paying the R17 722.10 on the investment property for the next three years and eight months. Let’s imagine you buy a property in a good location for R1 million. Your monthly repayment at 7.5% will be R8 055.93 per month. Let’s assume you receive R8 000 rental income per month, and you will probably pay close to R2 000 on levies, rates, and taxes. This leaves you with R6 000 that you can use to service the bond. Let’s see what the effect will be if you pay R23 772.
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