Advice needed: move into newly purchased flat or rent it out?

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calgal90

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I would like to get some opinions –

We have just purchased a flat. Originally, we wanted to rent it out from the beginning and stay where we are now for a while. We are currently renting a townhouse 7km away from where we bought the flat. However, the idea of tenants seems to be more and more risky after reading on forums and speaking to a few people. So now we are not sure whether we should stick to our original idea of renting the flat out or move into the flat ourselves.

We have 2 cats and a small dog (slightly smaller than a jack russel). Luckily, the flat is pet friendly and has a small private garden. Our furniture will not all fit into the flat, so we will need either to sell some of it or put it in storage.

Monthly costs and property specs of flat:
Bond: R10800
Levies, rates, taxes etc: R1500
Small storage unit (if necessary): R700
Specs: 2 bed, 2 bath, small lounge, kitchen, small garden (25m2)
Total costs: R13300
Pro’s:
  • Don’t have to deal with tenants or agents
  • Staying in our own place so we can make it our own (drill holes, paint, make improvements etc).
  • Cheaper than staying in rented townhouse
Con’s
  • Going from a house to a flat might be crappy, we are used to our privacy and space.
  • Have to sell or store some furniture.

Monthly costs and property specs of townhouse we are renting:
Rent: R8700 (rent will go up on 1 Dec 2017 to roughly R9600)
Garden service: R350 (we won’t need this if we move to the flat)
Additional costs to pay into bond & levies (market rental for flat is R8500): R4000
Agent’s fees: R850
House specs: 3 bed, 2 bath, lounge, kitchen, garage, garden, on the road.
Total costs: R13900 now and R14800 from 1 Dec 2017 with rental increase.

Pro’s
  • Don’t have to move
  • Can keep all our furniture
Con’s
  • More expensive than staying in flat.
  • Opens us up to risk with regards to tenants.

Anyone else been in the same situation? Opinions and past experiences will be greatly appreciated! :D
 
What is the commute like in each case? Does it make a difference in terms of how long it will take you to get to work?

Looking at the above, I'd try to stay where you are. You are getting a very good deal - your current rent is about the same as you would like to charge people for your 2 bedroom flat.

But, I would adjust that rental income down. Taking into account the possibility of having your flat sit empty for a month, and the likelihood if damage that needs to be repaired or cleaning that needs to be done, I'd adjust your expected rental income down to R7500.

If I may ask, why did you buy? It sounds like you don't know what you want to do with it.
 
What is the commute like in each case? Does it make a difference in terms of how long it will take you to get to work?

Looking at the above, I'd try to stay where you are. You are getting a very good deal - your current rent is about the same as you would like to charge people for your 2 bedroom flat.

But, I would adjust that rental income down. Taking into account the possibility of having your flat sit empty for a month, and the likelihood if damage that needs to be repaired or cleaning that needs to be done, I'd adjust your expected rental income down to R7500.

If I may ask, why did you buy? It sounds like you don't know what you want to do with it.
 
There are going to be certain advantages to renting out your flat such as claiming your levies, repairs, rates, transportation, interest on the bond and telephone expenses from SARS. But for me the biggest influence would be the rental you plan on charging.
 
Ancalagon said:
What is the commute like in each case? Does it make a difference in terms of how long it will take you to get to work?

Looking at the above, I'd try to stay where you are. You are getting a very good deal - your current rent is about the same as you would like to charge people for your 2 bedroom flat.

But, I would adjust that rental income down. Taking into account the possibility of having your flat sit empty for a month, and the likelihood if damage that needs to be repaired or cleaning that needs to be done, I'd adjust your expected rental income down to R7500.

If I may ask, why did you buy? It sounds like you don't know what you want to do with it.
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In terms of the commute, it doesn't make a difference for either of us. The flat is 7km away from where we currently stay.

We originally bought to rent the flat out to tenants and keep it as a long term investment. This is still very much an option, hence why I am asking for opinions. A lot of people have advised us to rather stay in our own flat because of their bad experiences with tenants and that has made us look at both options.
 
If you rent out then you don't need to pay a storage fee right? Let it be the responsibility of your tenant. Then R12 600 - R8 500 = R4 100 + R 900 = R4 900 is the added expense that you have to deal with until the next yearly increase. Add to this the fact that you can claim for the expenses that I have already mentioned. This amount will be the cost of your convenience should you decide to stay in the house.

If your rental increases yearly at 10% your rental income will eventually surpass your expenses barring any major problems. Unless your area is filled with human like animals, I think you should be able to find decent tenants if you grill them hard enough, do a credit check and request a two months rental as deposit. Also if you intend to buy another flat\house at a later stage, the proof that you're collecting decent and consistent rentals can also form part of your next bond request. Just my humble opinion.
 
marlin178 said:
You may want to see this site: http://www.house.me/
Heard them on the radio the one day but to be honest, haven't really explored this.
Click to expand...

I checked them out now. Looks like an interesting concept. It seems they are launching a new 2.0 product soon, so will look into it again once that is launched.
 
calgal90 said:
I checked them out now. Looks like an interesting concept. It seems they are launching a new 2.0 product soon, so will look into it again once that is launched.
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Sure...
If you go the rental route, there's some good advice here plus a copy of the lease I used for my tenant :D
 
if the goal is the maximise the return on your investment then you definitely should rent out the unit

you will be utilising a concept in finance called leveraging, I have already shown by way of a schedule in a different thread the extent to which your returns are multiplied if you go this route

also there are insurance products which protect you against most of the risks that you face when renting out
 
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saturnz said:
if the goal is the maximise the return on your investment then you definitely should rent out the unit

you will be utilising a concept in finance called leveraging, I have already shown by way of a schedule in a different thread the extent to which your returns are multiplied if you go this route

also there are insurance products which protect you against most of the risks that you face when renting out
Click to expand...

Any chance you could send me the link to your thread with shows the returns?

And what are the insurance products you are referring to?
 
the thread is a mess now, but here is the schedule

calcs.jpg

basically the person in the schedule has R4000pm additional disposable income and qualified for a bond of R400 000 on the basis that they earned R30 000pm in total.

in terms of insurance I am currently using rentshield and had a good experience with them recently when my tenant decided to go rogue
 
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saturnz said:
if the goal is the maximise the return on your investment then you definitely should rent out the unit

you will be utilising a concept in finance called leveraging, I have already shown by way of a schedule in a different thread the extent to which your returns are multiplied if you go this route

also there are insurance products which protect you against most of the risks that you face when renting out
Click to expand...

For the last time, it's not leveraging if you buy the entire asset with a 100% loan.

Also, you fail to point out that leveraging can work both ways - as in increase your return or increase your loss....
 
Jehosefat said:
How do you figure that?

Incurring a liability to fund an asset is, by definition, leveraging.
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No, that's called financing.

Increasing the return on an asset, using finance, is leveraging.
 
Splinter said:
No, that's called financing.

Increasing the return on an asset, using finance, is leveraging.
Click to expand...

Edit: although I am guilty of looking at this from a finance/company point of view.

Anyway, what needs to be understood is that leverage is not a magical tool that only grants returns. It can also go the other way and cause losses and insolvency.
 
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