Things to consider before buying a second home

A second house may serve as a holiday home as well as an investment since owners can easily rent it out while they are not using it. Buying a second house, like most property purchases, will almost certainly necessitate a second home loan. There are a lot of considerations to consider while searching for and purchasing a second property. These factors include overall the home's intended use, affordability, additional costs, and tax implications.

What is your reason for buying a second home?

Owning many houses may be part of a good financial strategy, a long-term retirement plan, and can offer you unique lifestyle alternatives. The following are the main reasons why you may want to purchase a second home:

• A sound investment

People typically add to their property assets in South Africa because they perceive high financial potential. The aim of an investment property is usually to rent it out. You may need to keep your own preferences out of the purchase for this. When buying as an investment, you'll want something that will appeal to tenants or future buyers.

• Planning for your retirement

A healthy retirement strategy may include the acquisition of a second house. When you buy a home in a desirable location you may use it for personal enjoyment or as an additional source of income during your working years. When it's time to retire, you can move in permanently to your second house. You also have the option to sell it and upgrade or downsize to a new property. Your first home could also be sold or handed down to your children.

• Your own holiday home

Perhaps you frequently go on holiday to the same area. Having a holiday home here will make more sense than to be paying exorbitant amounts on rentals. If you plan on buying a holiday home, be sure it provides all you and your family will need in terms of indoor and outdoor space as well as facilities for the foreseeable future. While it will be feasible to let out your holiday home as a short-term rental, you may want to have it at your disposal whenever you want to kick back and relax. 

Can you afford a second home?

You'll need to be sure you can afford a home loan to cover the expense of your second property if you require one. You should have paid off your first mortgage in full, or at the very least made steady, on-time payments, by this point. While banks will evaluate your capacity to pay monthly bond repayments in the same way they did with your first loan, they will likely be more restrictive. After evaluating your income and spending, they will most likely need a substantial deposit.

Remember that projected rental revenue will not persuade your finance provider to approve a bond application for South African property investments.

Have you reviewed the additional costs involved?

You will incur additional fees when acquiring your second house, just as you did when purchasing your first. Bond fees, transfer duties, and legal expenses are all extra expenditures.

There will even be additional expenses once you receive the keys to your home. It's possible that you'll need to furnish the property, as well as take care of monthly upkeep, rates, taxes, energy, water, insurance, and security.

There may be levies to pay if the property is an apartment or part of a development. If you intend to rent out your home, you'll also need to factor in the cost of a letting agent.

Did you consider the tax implications?

Keep in mind that rental income is taxed, so if you intend on renting out your second house, you'll need to disclose it as part of your income. This is also true when renting a holiday home. Furthermore, capital gains taxes will apply when you sell a second property, as this tax takes into account potential future price increases.

If you need assistance finding a second property or putting one on the rental market, contact Knight Frank now. Our representatives will be able to assess your property's prospective growth as well as provide rental rate advice.