“Property is a long-term investment; don’t buy unless you’re in it for the long haul.” It’s one of the most common pieces of advice buyers hear, but it’s not very useful when life doesn’t stick to the plan.
What do you do when you’ve just bought a home and you find yourself being unexpectedly transferred to another city, country, or even continent? Is it a case of kissing your investment – and all the money spent acquiring it – goodbye? Or are there better options available that won’t leave your finances in quite the same mess?
“It’s a tough situation,” said Bill Rawson, chairman of the Rawson Property Group, “and certainly not ideal from a stress point of view. A lot of people in this predicament do choose to sell and absorb any losses they incur, but this is definitely not the only – or the best – option available.”
Rawson said that thanks to the costs involved in making a property purchase, the losses on a sale made immediately after purchasing the property can be extreme.
“To break even, you’d need to cover not only your original purchase price, but also your bond, transfer and legal fees, and the commission your estate agent will earn on your sale,” he said.
“If you bought your property for R1 million, that means adding around R50,000 to your asking price to cover the bond and transfer fees you paid, and at least another R55,000 for the commission that your real estate agent will earn. That brings your asking price to R1.105 million – over 10% more than you paid a few months before. The chances of achieving that kind of growth over such a short period of time are very slim.”
Thankfully, there are other options available that don’t involve taking a huge financial knock.
“Instead of selling, I always urge home-owners in this kind of situation to consider renting their property out,” said Rawson. “You can then choose to rent a property for yourself in your new city, or apply for another bond and invest in a second property to add to your portfolio.”
Renting a home for yourself while paying off your original bond is typically the simplest and least financially-demanding option, but a second purchase may not be as difficult as you think – and the rewards can be high.
“Banks are very strict about granting second bonds,” Rawson stressed, “and in normal situations, people seldom have the additional income to qualify for more than they are already paying on their first home. However; when people relocate for a new job or a promotion, it’s often because of a fairly significant pay raise. This increased income, combined with the rental income from their first property, may well be enough to convince the bank of their ability to service another loan.”
As an additional incentive to encourage your bank to grant you another bond, Rawson suggested looking at any properties in possession, or distressed sales they may have on their books.
“Banks are often more generous with bonds on properties they already have a vested interest in,” he said, “and these kinds of sales also tend to be very well priced, and offer great value to buyers on tight budgets.”