Middle income earner, buying an RDP house could be your ticket to property investment

RDP house

As a middle income earner, it is not impossible for you to be a property investor if you plan right. All you need is to prioritise and compromise for now in order to pave your way to property investment.
RDP houses are build and provided to low income earners by the South African Government as part of the social housing project by the Department of housing. The only strict rue the low income RDP beneficiaries have to abide by is the number of years they have to own these houses before they can sell them. Well obviously as years go by, situations change and someone who is a low income earner today might be a middle income or even a very high income earner tomorrow and the need for that RDP will disappear- that’s where you (middle income earner) come in.
You probably have seen many of these RDP houses up for sale by different estate agents but did you ever consider buying one? Well if you are a middle income earner with a dream of being a property investor 1 day you should think about it. RDP houses are usually sold for as little as R 100 000 ( prices differ from area to area) and that’s a really attractive price since you won’t find a new development house for that price, even if the development is in the township amongst the RDP houses.
RDPs near taxi ranks, shopping malls and schools are usually on the R250 000+ mark in the Gauteng area.
Most wannabe property investors want to live lives as high as they can afford right now while complaining that they do not have enough money or means to buy an investment property.
Wouldn’t it be easier to live below your means for a couple of years in order to get into your property investment business beginning with the choices you make today?
Let’s look at the following scenario;
1.       You earn R 27 000 and you have R50 000 you want as a deposit for a house.
2.       According to your bank, you qualify for R 700 000 bond and if you were to buy a R 700 000 house, you would pay R 7 952 on a 12.5% annual interest rate without a deposit and R 7 384 with your R50 000 deposit.

3.       You have 2 choices here,
a.       To buy your R 700 000 townhouse in your dream starter suburb or semi suburb
b.      To buy 2 RDP houses that cost half your maximum affordability each

4.       If you choose (a), you will be comfortable for now but after all the other expense you have to pay for on monthly basis like your car, petrol, utilities, home maintenance and security, clothing, school fees etc., you are hardly left with any money to invest for an investment property and your only hope is a combination of getting a higher paying job and an impressive credit record for you to qualify for another bond for an investment property and with such high unemployment rate in South Africa at the moment, the chances of you getting that dream job in record time are medium to very, very slim.

5.       If you choose the less desirable option (b) and you buy 2 RDP houses near taxi ranks, shopping centres or schools for R350 000 each in a township, 1 for your residence and 1 for investment purposes – you will thank yourself in a long run.

6.       Think of it this way, if you choose the right (safe) area with high rental opportunities, your investment property will probably pay for itself and maybe even give you a little bit extra to add on to your current residential property.
a.       You take your R 50 000 and deposit your residential property  which will leave you with a monthly repayment of R 3 408 inclusive of all related fees such as initiation fees, property  transfer costs and bond registration costs on a 12.5% interest rate for a 20 year term.
b.      You buy your investment property on a 0 deposit and you pay R 3 976 monthly to your bond on a 12.5 % interest rate on a 20 year term.     
c.       Most old RDP houses have +-300 000 Erf and that is enough space for you to add at least 3 rental back rooms. Building plans must be approved by the local municipality.
d.      Install prepaid water and electricity meters for each room for peace of mind and unstable municipal bills.
e.      Rental income on the main RDP house is R2 500 to R3 000 in most Gauteng townships and R 1000 R1 500 for each outside room, I you have 3 that will equal R 3000+ and your monthly rental income from your investment property will be R 5 500+- R3 976 you are still left with R 1 524 which can assist you in paying for your residential property.
f.        Which means you only pay R1 882 OR LESS from your salary and that gives you an option to save R5 000 on monthly basis for the deposit of a R 700 000 town house in the suburbs.
g.       In 12 months and you will have an attractive R 60 000+ deposit for a R 700 000 home.
h.      Your current residence will turn into your second investment property and bring in 5 500+ helping it pay for itself and live an extra.
i.         If you take the R 1 882+ *2 that you remain with after paying both your investment properties and pay them back into the bond accounts monthly – that will help you pay off your investment properties sooner than the full 20 year terms.  R 1 882 extra on a R 3 976 bond can make a huge difference!


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