Question:
I live in a home that costs me R12 000 per month. Interest rates are climbing and I’m struggling to make payments every month.

I do, however, have two empty pieces of land that I bought from the municipality in the same town where I am living.

One option is taking out a building loan to build houses on these stands and to try and sell them. If I can sell them for the price I want, I can make about R350 000 profit which I can use as a down payment on my current home. I feel this is risky, because I cannot be sure that I will sell them.

The other option is to sell my current home (probably for less than it’s worth) and rent a place. If I do so, should I take out a new loan to build houses on the two stands and then rent them out? This way I’d still own two properties and my cash flow will be much better?

I am just not sure if I should sell my current home.

Answer:
I am assuming that you do not owe anything on the land you bought from the municipality.

While empty land is difficult to sell in the current environment my first action would be to try and sell the plots. They are non-performing assets at the moment, plus you probably have to pay double rates and taxes. You can pay the money you make from the plots into your home loan thus reducing the bond repayments.

If you are struggling to meet your current bond then taking on more debt to build is not a good idea unless you can maintain those payments comfortably.

It will take at least six months to complete the home (they will tell you less, but they are never on time) and then perhaps another three to sell it. So, you will have to bite the bullet for nine months. In my view this is way too risky, because there is always the threat that interest rates could go up further.

This may sound glib, but try and reduce all of your other expenses first. Have a long hard look at your budget to see where you can save money. You will be surprised how much you can save if you really try.

If that does not work try renting out a room in your house. There are scores of people on sites like Gumtree looking to share accommodation. If you go this route thoroughly check out the prospective tenant and his or her employment details. It does not have to be forever just long enough to get back on track.

Selling your house at below market value is not the answer as you may run the risk of having to come up with cash to settle the outstanding bond. This will leave you in a much worse position. If you have equity in the home then maybe it’s an option.

If you can, for example, find rented accommodation for R6000 per month it will give you a reprieve of R6000 per month. I admit it’s a short term solution, but if you get a building loan then you will have to pay it back.

If you build, say, a 150m² house and it you can manage to do it for R3500 per m² then you are looking at a loan of R525 000 and a repayment of R6300 per month. If you build two homes then, obviously, that price will double. So, you have to do some sums.

If you can manage to get those houses built and rented for more that R6300 per month then you will still be in the property game.

However, there will be a period of time where your exposure to the loans is high (the time between when you start paying back and the homes are rented). If I were you I would do one at a time to keep your cash flow on the safe side.

Keep in mind that building a home is not just about the actual construction, but also about getting all the services to the property and paying architects as well as engineers. Make sure you cost that in.

You did not divulge your family details — if you have a wife and children then obviously you will have to find a decent place to rent. However, if you are single living in shared accommodation for a few months while you build is not a bad idea since it can save you a small fortune. If, for instance, you can rent a room for R1500 per month and put your furniture in storage, you could get away with living costs of R2000 per month.

These measures seem radical, but at the end of the day it’s about holding on to your most valuable asset — your home. If you are at risk of losing it, all measures should be taken to save it.

So, some short term pain may be needed to keep you afloat. You could even consider renting out your home for a period of time and moving in where it’s cheaper. You don’t have to sell it.