Thuli and Nkosi thought their property portfolios would sustain their retirements. Instead they were debt traps. Here’s how CPMoneyMakeover turned their fortunes around. The new season kicks off on February 23. Follow CPMoneyMakeover for more.
How two investors turned their property portfolios from debt traps into retirement income.
Environmental affairs officer and single mom Nkosi became a property investor by chance rather than design. She bought her first home in a township in 2007. Five years later Nkosi decided to move closer to amenities and work, which would save her money. She bought a new home in town and decided to rent out her township property.
In the meantime, Nkosi moved again for work, letting out her town property as well. Unfortunately, Nkosi was caught out by making two offers on different properties. She had made a commitment on an off-plan development when she was approved for the purchase of an existing property.
Thuli, a mother of four and head of operations at an NGO, has built up a property portfolio of four rental properties with the aim of providing her with an income in retirement in 15 years’ time, but the plan was not working. Both Nkosi and Thuli were overcommitted on the properties and did not plan properly for future liabilities like children’s tertiary education.
The first step was for them to focus on settling their short-term debt, including credit cards, so that they could divert the repayments currently going to short-term debt into their mortgages. This required following a proper budget and cutting back on unnecessary expenses.
Thuli separated rental income from her salary income, opening a second cheque account for her rental income. In understanding the true costs of her properties, Thuli realised only one was earning enough income to cover the mortgage, rates and levies. The other three properties were leaving her with a monthly shortfall of R13 000 a month which she could not maintain. She decided to sell the one property partly due to a high monthly levy which makes up 32% of the rental income. Given the current rental market in the area, it is unlikely that Thuli will be able to increase the rental sufficiently to close this shortfall. She then used the money that was going to fund the property to accelerate the repayment on the remaining properties, so they are mortgage free in 10 years’ time.
Read more: City Press
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