Property and real estate have long been considered reliable and valuable investments. However, it’s not the easiest market to break into, particularly due to the high initial cost of a property loan. Consequently, owning property remains a pipe dream for many South Africans, even with the lower interest rates resulting from COVID. The reality remains that the journey to becoming a property owner and real estate investor is anything but affordable or easy. That said, FNB’s new “Group Buying” app feature may just be the break that young investors are looking for.
The app now allows eight friends or family members to invest in a single property together by applying for a joint loan. This new feature could be a game-changer for those interested in turning real estate into a passive yet lucrative side hustle.
The Inspiration Behind FNB’s Group Buying Feature
According to the CEO of FNB Property Finance, Lee Mhlongo, their “records show that when a customer considers purchasing a property, they tend to forget all the other additional costs included in their home loan such as registration costs, transfer duties and sometimes a deposit, presenting more barriers for one to afford the property.” Mhlonho continues to say that collective buying, or group buying, would be an excellent way for an enterprising group of buyers to share the costs. In turn, the purchase and process would become more affordable, allowing everyone to share in the eventual profit.
The initial goal, it seems, was to allow families with multiple earners to afford to buy a property they could share. However, it’s quickly become apparent that the new app feature has created an excellent opportunity for families or groups of trusted friends to access affordable home loans. In so doing, these groups can split the costs and the long term profit of either rent or sale.
How Properties Can Turn A Profit For Groups
Real estate typically generates profit in one of two ways. The first is through appreciation; the location, local developments, and improvements can all increase the value of a property. The group can sell the property for a profit in a few years, dividing the earnings amongst themselves.
For a more passive, long term income, the group can rent the property out for commercial or residential use. This will generate a set monthly income that can cover property costs until the initial loan is paid, or the profit can be split amongst all group members. In this way, a group can make a home loan more affordable while still earning an income from their investment.
That said, there are some pros and cons involved with group buying, including a few risks. Luckily, there are steps you can take to minimize these risks.
Affordability vs. Joint Liability
When a group applies for a joint property loan, each member will be held liable for their portion of the incurred debt. While that makes the investment more affordable for everyone, it also poses a significant risk. For example, if one person in the group defaults on their monthly instalments, the overall account will go into arrears unless the other members settle the shortfall. In turn, the credit score of all parties will be impacted, and each individual may be held liable for the loan.
For these reasons, it’s absolutely vital to ensure you trust each member of your group before applying for the group loan. Additionally, it’s an excellent idea to have a solid contract that outlines what each person is responsible for and lays out rules and consequences for defaults or other possible problems.
It’s always better to be prepared for the worst and hope for the best than to encounter a problem without any planning.
Insurance, Maintenance, and Damage
As we’ve already mentioned, several hidden costs are involved with buying, owning, and renting a property. Group members will need to determine how to break down the costs of insurance and maintenance. There will also need to be a contractual clause regarding any damages to the property, whether caused by tenants or acts of God.
Conclusion: Should You Or Shouldn’t You?
That’s the big question; are the possible rewards worth the risks? Honestly, yes, it is. If you have a group of friends or family members that you trust implicitly, and if you put the correct security measures in place, there’s no reason why property investment couldn’t be a highly profitable venture or side hustle. Whether you want a lump income from a sale or continual passive income from rent, buying property as a group has several financial benefits. For ambitious entrepreneurs, young or old, group buying is the opportunity of a lifetime.