As a property practitioner, I am always happy to see people realise that the aim in property ownership is to pay off your bond or at least to pay off the bond to a level to allow you to invest in extra properties without being over-indebted.
At most, the net income from a property investment should cover the bond.
With investments, the aim is seldom to make an income but rather to make an income that covers the bond and allow you to expand your portfolio by buying extra properties on which the total bond is fully funded by the net income.
Over the years I have explained to readers how, by paying a little extra each month, taking bonuses and windfall incomes, and then adding a portion of the increased rental or your own increases, to pay extra would pay dividends in the medium if not short term.
Those that did not take our advice are now suffering the consequences as their bond payments rise because of rising interest rates.
Those that did are in some cases years ahead on their bond payments and so are paying increased rates on a lower balance.
But more than that, they don’t have to increase their monthly payments because they are already paying the higher monthly payment.
So, not only are they in advance on their payments but in most cases they don’t have to increase their monthly payments.
While times are tough, with high inflation, I still advise sticking to the same formula.
Take any increase in rental and pay it off the bond.
Increase your monthly contribution whenever you get a pay increase by taking 25 percent or more of your increase and paying it off your bond.
You can also take 25 percent of any bonus or windfall (from sale of a second car for instance) and pay it off your bond.
Remember it was a bonus when you were paying seven percent on your bond – think how much more effective it is now that you are paying 11 percent.
Just think how much better off you will be when bond rates start coming down in two years or so!
- Mike Spencer is the founder of Platinum Global, a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia. mike@platinumglobal.co.za
