Top tips before you buy your first home

Help! I want to get into property!

Many people want to get into real estate, but don’t know where to start. Whether you’re looking to buy a home for you and your family or looking for investment property – both require you to get a few things in place before you start shopping. 

Let’s jump in and get your house in order.

Getting your house in order

So, your brother comes to you and wants to borrow R 5 000 000 000 000 000 000 000 from you. You know your brother has a severe addiction to nyaope, coke, meth, coffee, women, sleeping, laziness, STDs and potatoes. Would you lend him this money if there is a big chance you will never see him or the money again? Surely not!

The banks are no different. They need to make sure that you’re able to pay back the money and that your financial world is in order. These wonderful lenders use different measurements to decide on lending you their money. Below are a few examples. 

Debt

When it comes to property, the less bad debt you have, the better. In this context, bad debt is defined as anything other than:

  • An existing home loan
  • A car loan 
  • A student loan

It is recommended to cut down on other types of debt – pay off your credit card, personal loans, mashonisas and store cards. This will free up your cash flow and make you look highly attractive to the bank. 

But wait – you can do more to get ready for buying a property!

Your credit record

Before you apply for a home loan, you need to get your credit record in order. 

This is measured by a credit score.

As per legal requirements, all credit bureau agencies supply you with one free credit report per year. 

It’s highly recommended that you keep your eye on your credit record – not only from the perspective of getting ready for a home loan, but also for detecting fraud and identity theft.

For more info on this, check out my article here

Your bank statements

Banks statement?! Yes! 

Make sure that your income and expenses go through your current account.

Your statements will be put to the test to confirm if your income and expenses are as per your declaration.

Saving for a deposit, bond and transfer costs

Property often has a large initial amount that you need to put down – and the more you can put down, the more the banks love you!

This will decrease the perceived risk that the bank is taking and will often lower your interest rate and (obviously) your repayments to the bank.

It’s important to note that you, as the purchaser,  will need to pay the bond and transfer costs. These include attorney fees, postage, petties, transfer duties and deeds office fees. You will need to pay these fees before the property registers. 

For more info on deposits, check my article here!

For more info on bond and transfer costs, check my article here!

Your reason and strategy

It’s important to know what you’re looking for. Are you looking for a primary residence (a place for you and your family to settle) or an investment property? 

This reason dictates many things, including the size of your emergency fund.

Your emergency fund

We don’t believe that things can go wrong.

Sometimes they do. 

As an extra layer of protection, I would highly recommend that you have a minimum of 3 months expenses in a savings account that is accessible in less than 48 hours. 

Your emergency fund for your property is directly linked to your strategy – for rental property and investment property, you need to have a bigger emergency fund in case something goes wrong, whereas for your primary residence you wouldn’t get tenants moving out randomly.

I found this so important, I even wrote an article about it here!

When you're ready to buy property

Once you have your house in order, you can now start with the fun part. Here are some considerations: 

  • You must realise your time is important. Don’t waste your time with loads of agents and people. 
  • Make a list of what you want. Include details such as if it should be pet-friendly, number of bedrooms/bathrooms and garden size if any.
  • Always negotiate property prices and fees – nothing is set in stone except taxes and transfer duties.
  • Make sure you know exactly what you’re buying – Get statements from the body corporate and check out that the roof, electricity and other features are working.

Conclusion

Getting started on property can be daunting.

Getting ready to start investing in property can be even more daunting!

Take the time to get everything in order, including your credit record, cash flow and debt as well as your deposit.

Don’t be too hasty!

Happy investing!

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This Post Has 10 Comments

  1. Tyron

    Hi Frugal – what areas do you focus on with buying property?

    1. frugallocal

      Hey there, that would be telling it! I will say this, I like lower-cost properties, as they give better cashflow.

  2. Juvan Olivier

    Hi Frugal,
    Couple of questions:
    – What entity structure do you use for you property investments?
    – Do you put deposits down, if yes, %?

    1. frugallocal

      Hey Juvan, thanks for your comment! Interesting question. I have this in my posts todo list. Personally I did have quite a few in my own name, and started buying them in a company now. I will go into all of this in my blog post soon.
      Concerning deposits, yes! and no.
      The thing here is that I try for a 100% loan, and then negotiate it down if I feel it’s too high by using the deposit as the carrot. I suggest having a minimum of 10% deposit cash on hand – but it’s not the rule.
      Ideally if there’s a great property deal, you do not want this to slip through your fingers – and the deposit is a safeguard.
      Check my post here for more info!
      https://localmoney.co.za/2020/01/06/2-buying-your-first-property-why-save-for-a-deposit-for-your-property/

      1. Mister L

        Hi Frugal
        Could you please elaborate on the different ownership structures and when which is a better option… (Waiting for that blog post).

        1. frugallocal

          Hey there! Are you referring to pty ltd vs trust vs own name? The post will be out in August ;).
          Let’s just say it depends on what ypu will do with the property in the long run!

          1. Mister L

            Yes, thanks. Looking forward to it.
            Most (relative) blogs talk about buying the first rental property, I’m yet to find one talking about starting and building a property portfolio. How to use one property to buy the next and what are the tax implications etc.

          2. frugallocal

            This is true. I tough on this in quite a few of my posts, like staying tax neutral. remember to get a loan from a bank you can use your existing properties ‘ rent (or at least 70% of it if you have had the tenant for 6 months) as collateral. But more posts to be coming soon 😉

  3. Bonginkosi

    Hi. Frugal
    May ask.
    I currently have a property that I am still paying the bond, but I am not staying in that house, as it is in another province. I am however currently renting where I am staying. My question is it advisable for me to add a second bond or should I rather focus on paying my existing bond, as I do pay extra money every month? Thanks

    1. frugallocal

      Hey there, this is one of those “how long is a piece of string” type comments. If you want to buy another property, why not get a bond on that property? Remember if you are trying to buy a primary residence (where you will live) with money from an existing rented property, SARS will complain.
      It’s really awesome that you’re paying more! If you have a flexi bond, this is a cool way to save for a deposit and bond/transfer costs.
      Good luck on your endeavours!

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