How to buy a 2nd, 3rd property without paying off your home loan

You do not need to have paid off your first home loan before you can get another one. Picture: Ryutaro Tsukata/Pexels

You do not need to have paid off your first home loan before you can get another one. Picture: Ryutaro Tsukata/Pexels

Published Mar 20, 2023


Being a property investor is a rewarding and exciting career path that is not just limited to those with deep pockets or decades of experiences; young people and first-time buyers can also reap these rewards.

You can even buy a second property immediately after being approved for your first home loan.

Everything, however, depends on your affordability levels and credit score.

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Purchasing your first investment property is one of the biggest steps you can take and a good one, says Christopher Xotongo, a property practitioner at Just Property Port Elizabeth. In fact, once you have bought your first investment property, there is a “high chance” you’ll want to start looking for another one.

“If you've bought your first property using bank finance and would like to secure a second one, do it. The only thing you need to understand is that the banks work strictly on your credit score and affordability.

“This means that if your credit score and affordability are still in good shape to purchase another property, the banks can offer you a second home loan as soon as the first one has registered. In some instances, banks can issue home loans simultaneously.”

The higher your affordability level and credit score, the better your chances are of being approved.

If these factors are not in good shape after your first property registration though, he says the banks would require that you wait to rebuild either of them before considering another home loan. This would depend on each individual's profile, and generally, the wait could be about three months to six months, he explains.

Echoing this, Grant Smee, property entrepreneur and managing director of Only Realty Property Group, says a few conditions come into play when looking at your second investment property, namely your affordability for the second bond, funds available to pay the cost of purchase and deposit required, and your credit exposure including loans, credit cards, and existing mortgages.

“You could, assuming you meet income and lending requirements, buy a second property almost immediately. As you build your portfolio it becomes easier as the banks start viewing your portfolio on a commercial basis with you as a property investor rather than applying normal residential lending criteria to you as the individual.”

He adds that more and more products are being made available to cater for the “professional” property investor market.

The best way to buy a second or third property is to buy using a company or a trust, advises property investor Ben Malapile, adding that the National Credit Act does not apply to legal entities with assets valued at more than R1 million.

“This is why successful property investors use companies and trusts to buy properties. Companies and trusts can buy thousands of properties whereas an individual can only buy according to their affordability in terms of the National Credit Act of 2008.”

A mistake that many people make, however, is maxing out their affordability when buying their primary residence. Then when they start their investment portfolio, they can’t qualify for the bond due to affordability.

How to do it

Malapile explains that you secure financing by proving affordability and good credit standing to the bank providing the finance. The bank will use the same bond application process in accordance with the National Credit Act to grant financing.

“The Act states that the monthly bond instalment of the property being purchased needs to be a maximum of 30% of the applicant’s gross monthly income. The same will apply when buying a second or third property.”

But the “great news”, he says, is that banks also consider the monthly rental received by the applicant as per their lease agreement as part of their monthly income. This helps the applicant qualify for another property as their monthly gross income increases even though they are still paying off another bond.

“As long as you can prove affordability in terms of the National Credit Act, you can buy as many properties as possible.”

Generally, Xotongo says, the banks may require a deposit on the purchase of your second property, but as per the aforementioned, the key detail all depends on how good your credit score and affordability are.

“If your credit score and affordability are high enough, the banks can still grant you another home loan without requiring the deposit.”

He does advise that you should “always take that chance” by getting pre-approved and see where they stand in order to get a second or third bond.

“So yes, it is very possible to get more additional properties while you're still paying off your first one.”

Smee adds that you would get a second or third home loan secured against a specific property. As above the banks initially look at the owner’s affordability, credit worthiness, and credit exposure.

“Later on, the bank takes these into consideration as well as the underlying portfolio for lending purposes.”

Step-by-step process

Without over simplifying things, he states that you buy one property and then rent it out – ideally where the rent covers the bond, rates, levies, management fees and other costs associated with ownership. Once you have funds available, can show affordability and have maintained your credit profile, you then purchase a second and rent again, ensuring you cover costs.

If you are buying in your personal capacity, Malapile explains the process by way of two examples:

  • Example 1:

Step 1 - Put in an offer on three properties (or more, depending on your finances) at the same time

Step 2 - Apply for a bond simultaneously for all three (or more) properties at the same time

Step 3 - Get bond approval and pay the respective transfer costs

Step 4 - Take transfer and get the respective properties ready for tenants

Step 5 - Hire a professional real estate agent to find you tenants with good credit

Step 6 - Sign lease agreements and place tenants

Step 7 - After six months, repeat the process using the lease agreements and rental income as part of your monthly income

  • Example 2

Step 1 - Put in an offer for one property

Step 2 - Apply for a bond for the property

Step 3 - Get bond approval and pay the respective transfer costs

Step 4 - Take transfer and get the property ready for tenants

Step 5 - Hire a professional real estate agent to find you a tenant with good credit

Step 6 - Sign lease agreements and place the tenant

Step 7 - After six months, repeat the process using the lease agreement and rental income as part of your monthly income to buy property number two

Step 8 - Six months after that, buy property number three using the same process. You can repeat the same process every six months to buy more properties

Xotongo states that the first thing you should so is get pre-approved in order to know what your budget is or how much you qualify for. The second thing is to consider the location you want to buy in.

“Do as much research as you can about the area and how much the demand is for accommodation. Thirdly, run your numbers or get a property expert to advise you on how much you can make from a certain property in a specific area. Tabulate all your possible income and expenses.”

The fourth step is to start shopping, with assistance from a property practitioner. These professionals can give you more details about the property and also spot a property that you can purchase below market-value.

Extra advice

Smee says it is important to focus on cash-flow and location when investing.

“Focusing on investment areas as you expand will help to effectively manage your portfolio and leverage the multiple properties to negotiate better management and maintenance rates, and create more efficient management structures than if the properties are distributed across various areas.”

Furthermore, Malapile says building a property portfolio is much easier if you don’t have any properties under your name when starting, or any major monthly expenses like fancy car instalments.

“If you need to buy a home and don’t have any other choice before investing, make sure that you don’t max out your affordability. You can use part of your affordability to buy a home and then the other to build a property portfolio”

For example, if you earn R30 000, your max monthly affordability is R10 000 which is a property for R1m. So, instead of buying a R1m property, buy one for R500 000 to live in and then R500 000 for investment.

“Spending your life buying income-generating properties will result in you achieving financial freedom and building generation wealth. You could end up owning a home your salary could never pay for, driving a car that’s much better than your boss’, and travelling to places that you can only dream of. However, it is a lifetime investment that starts now.”

To buy your first, or second property, search the sales listings at IOL Property.