7 Ways to Finance a Property Deal

Chapter 1

Bank Finance

To be honest, you’re most likely going to have to start here. It is possible to lend money from an investor, but the investor will want you to have some experience before lending you money. If you can do a successful deal with the bank’s money, it’s much easier to lend money from a private investor, because you’ve got credibility.

I’ve had the privilege to be involved with some of the discussions at ABSA bank regarding investor specific packages, and it’s amazing to see how interested the banks are in funding investors.

ABSA for instance, have a few products specifically catering to investors. They have one product where they will consider future rentals of a deal and add it to your affordability. Before, banks would look at your salary to determine whether you can pay off the loan or not. That would be a limiting factor because once you’ve bought 3/4 properties, your affordability would run out and you wouldn’t get more lending from the banks.

In South Africa, the banks look at two main criteria when giving you a loan. They look at your credit score and your affordability. Historically, they would look at your salary and assume 30% of your salary can be used for repaying a loan. Therefore, if you earned R10 000, the bank would allocate R3 000 to bond repayments and you would qualify for a loan of roughly R300 000. But now, most banks are looking at your rental income and adding it to your salary. Therefore, if your salary is R10 000 and your rental income is R8 000. They will take a portion of the R8 000 and add it to your affordability. Each bank is different, but they will take around 60% – 80% of the rental income and add it to your affordability.

To get a better understanding as to the banks offerings and what products might suit your needs, go to your banker or research online. The banks are looking to fund our deals, but we must understand their limitations and requirements to do business.