As your property portfolio expands, it makes sense to unlock equity in properties that are partly or mostly paid off, to gear up and buy more properties. Property refinancing is how you unlock equity. It can reduce restructured loan repayment fees, and help you scale your property investments. It’s also a way to unlock capital in your portfolio without having to sell a valuable property or incur capital gains tax!
IGrow Wealth Investments provides investors with guidance based on sound property portfolio strategies. These strategies are based on Jacques Fouche’s (IGrow Founder and CEO) philosophy of the 3 R’s: “Retain, Refinance, and Reinvest”. These three tools help you keep your valuable property assets (retain), and then you can use their equity (refinance) to grow your portfolio through reinvesting.
Let’s examine the pros and cons of property refinancing.
How Does Refinancing a Property Work?
What will happen is that you will replace your current home loan with a new home loan. This will be under your current financial lender (or, perhaps, a different bank under amended loan terms).
The new loan that comes into play may offer:
1) a better interest rate
2) a longer loan repayment term (the period during which you repay your home loan) with lower monthly payments
3) access to additional capital through unlocked equity
“Home equity is a form of forced savings. As you pay off your bond, you’re essentially transferring your cash into home value, thereby helping you build wealth over time. For many, home equity is their largest financial asset, providing significant security in retirement or in times of financial need. Unlike many other investments, home equity is a tangible asset that can also increase in value over time, making it a key part of a long-term financial plan.” – Cobus Odendaal, CEO of Lew Geffen Sotheby’s International Realty in Randburg, Johannesburg (Source)
IGrow investment strategists and IGrow Home Loans can help you restructure your portfolio strategically and access equity to meet your financial goals.
Property refinancing in South Africa
Utilising property refinancing as a tool in South Africa is a growing trend among experienced investors. Financial lenders usually allow refinancing if the property has appreciated in value since the initial home loan was awarded.
Banks will undergo a reassessment of your property’s value and your finances. They will then figure out the additional financing they will offer you. IGrow’s bond originators will help you run an affordability assessment. They will also negotiate on your behalf with lenders to arrange the best restructured home loan possible.
Do refinanced properties pose Capital Gains Tax fees?
Capital gains tax is not something to worry about, as it is not involved with refinancing.
You aren’t selling the property, so CGT implications aren’t triggered. All you are doing is restructuring your original home loan. CGT only comes into play if you want to eventually sell a property that is not your primary residence.
We advise IGrow investors to work together with our tax consultants and IGrow’s investment strategists. In this way, the newly structured home loan won’t cause unexpected tax hurdles later on. To illustrate this, refinancing through the use of a trust or company structure may require a different tax compliance approach.
The Pros of property refinancing
- You have access to equity without selling your property assets.
- Lower interest rates can be introduced through restructuring your revised, new home loan. This means reduced home loan repayments.
- There will be funds available (through the equity of your property) to reinvest and expand your valuable property portfolio.
The Cons of Property Refinancing
- There may be potential early termination penalties tied to your original home loan.
- Valuation and legal fees may be necessary in reinvesting.
- You may encounter greater overall debt if you manage your restructuring process poorly. That’s why we have skilled bond originators and portfolio planners on the IGrow team. In this way, you don’t run into bad scenarios.
- There is a risk of over-leveraging.
Conclusion
Property refinancing is a powerful tool when used wisely. Jacques Fouché’s 3 R’s: Retain, Refinance, and Reinvest remind you that you don’t need to sell your property to experience growth. You can retain your top performing properties and continue to generate income from them. You can then refinance properties to unlock equity, and reinvest to expand your portfolio.
Do you want to find out if refinancing is the correct strategy for your property portfolio? You can book a consultation with an IGrow Wealth Investment Strategist today. It’s free and carries no obligation – just great advice, tailored to your personal goals and financial situation.
