Second property: Is it a good investment if it is bonded?

For many people the appeal of property is that it's a transparent investment, one that you can literally see and even physically touch. Unlike stocks and bonds, for example, property is relatively easy to understand, with information about market trends and performance widely available and often part of the conversational lexicon. 

But is investing in a second (or third) property a good idea if it is bonded? Giel Viljoen, Principal at Leapfrog Stellenbosch, says the answer is "yes, but". 

"Any property purchase, whether your first or tenth, should be carefully considered in line with your financial position and your lifestyle goals and aspirations. Make sure to weigh up all the pros and cons so that you can make a well-informed decision based on the numbers, the facts and prevailing market conditions," Viljoen says. 

Affordability, always 

The main consideration around a bond is always whether you can afford it. In the first instance this includes whether you can comfortably afford the monthly repayments on the bond from your monthly income. Typically, the bond cost should be no more than a third of your monthly income.

"It's useful to play around with an Affordability Calculator like the one on the MyProperty portal. These tools offer users a quick and easy way to assess what they afford," Viljoen shares. 

He adds that affordability is the main criteria lenders consider when granting a bond, and that assessment considers the applicant's credit record as well as your monthly income to expense ratio. All credit application, including for a second bond, has to adhere to the stipulations of the National Credit Act, hence the extent of the information required to assess an individual's suitability to be granted a(nother) bond. 

It's important to bear in mind though that affordability includes expenses related to property ownership, such as municipal rates and taxes, property maintenance, insurance, and the fees of managing agents, if applicable to a rental property. 

In the case where a property is rented out, the onus remains on the bond holder to service the bond. So if a tenant misses a payment or the property is vacant for a couple of months, the bond still needs to be paid, and should thus be factored into affordability. 

Rental considerations

Unless the second property serves as a holiday home, most buy with the goal of renting it out for income. Here too it pays to do your homework. 

Work with a property professional to get a sense of the demand for rental properties in the area you're looking to buy, the rental income you can expect and the growth projections for the area, all of which will play a role in the purchase of your property investment. 

Viljoen says that the rental price of the property should be competitive with similar properties in the same area. It may happen that this is less than the monthly bond cost, so that's another factor around affordability that needs to be taken into account. 

Many of the same best practice guidelines apply to purchasing a seconded, bonded property. Viljoen share three key ones: 

Go for growth: Buying in a high-growth area where there is robust demand for rental properties. 

Practical over pretty: Opt for a property that is likely to appeal to a vast number of potential tenants if possible - low-maintenance, single storey, garage connected to the property and other such practicalities. 

Head first: A second, bonded property is, by implication, not your primary residence but rather an investment (even if it is a holiday home) so approach it as you would any other big financial decision, which is clearly and devoid of emotion.

So is a second property a good idea? "Yes absolutely. If you can afford it and if you're committed to making it work for you as an investment," Viljoen concludes.