The days of cheap rates & taxes are over. As are the days of 10% rent increases every year. Case in point - my rent hasn't increased in 5 years. Property in SA is becoming a liability, even if it's paid for.
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Debt-free?
- Thread starter fire2029
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The days of cheap rates & taxes are over. As are the days of 10% rent increases every year. Case in point - my rent hasn't increased in 5 years. Property in SA is becoming a liability, even if it's paid for.
zerocool2009
Honorary Master
Spot on ! (I would add work on your credit limit) Use that smartly ... and you will be rich one day !
zerocool2009
Honorary Master
Not in my view ! It is all how you manage it ! All my tenants also had no increases in 5 years !
zerocool2009
Honorary Master
I read a book ... and in it was one sentence .... "if you are a landlord .. you have your own property club, with guys who rent as a leg of your investment" You might rent ... and you are part of someone bigger plan
Usually it means that they have very low net worth (can’t afford a deposit), or make bad financial decisions (could afford a deposit, but prefer the bigger place), or that they’re rich (personal property ownership is a blip), or that they’re bad investors (think they can get a higher post-tax yield to risk ratio elsewhere).
The first 2 are the most common, but one can never be sure.
pinball wizard
Honorary Master
I am currently debt free. Thanks.
Me.
RedViking
Nord of the South
Lol. That's like saying food is debt. EVERYONE will have expenses. No everyone has debt.
RedViking
Nord of the South
You grandmother. Your father. Your neighbour. With debt moving into the doghouse won't erase your debt.
ISP cash cow
Executive Member
Totally debt free. My credit cards are even in credit.
I disagree that renting & investing the savings makes you a bad investor. There are a lot of costs in purchasing property (transfer fees, duty etc) which you struggle to regain for a long time in a flat market (i.e. SA). Unless you plan on staying put for 7+ years, it doesn't make sense to buy.
mr_norris
Expert Member
This was painful to read. I am assuming you were being sarcastic.
If you were not, then you also are in debt if you own a house that's paid for, because of rates, taxes, and utilities, insurance. Of course, if you add in the need for food, water, insurances, and so on, we are all in debt.
Rent is not a debt because you haven't borrowed any money (if you have, well then I'm wrong and RIP because you have big problems). You are paying for a service.
As you said, you are leveraging - the risk profiles on this can be extremely hazardous. I know several people who had many millions in the SF Bay Area property market, whose investments turned negative as soon as the property prices dropped 20% or so. They wouldn’t have been in this situation if they hadn’t leveraged. Similarly, a change of rates/taxes, expenses, levies, etc., can turn a leveraged rental investment’s cash flow negative relatively quickly, but not so with unleveraged rental investments.
Also, a risk-free post-tax return that exceeds your bond interest rate is really hard to come by.
I’m not against leverage in principal, but often people who “know what they’re doing”, don’t realize that they’re riding a long wave that will come to an end. They also don’t take into account that their expected yield is actually lower since they have to pay for the privilege of leverage (eg, bond interest or an option premium). They think that leveraging increases their yield, but it doesn’t, it just increases the amplitude of both gains and losses (in an unbalanced way), which means that they are really betting on having special knowledge about said investments.
Not saying that you’re unaware like they hypotheticals above (I couldn’t possibly know), but many people are.
Drifter
Honorary Master
Sadly not. Being retrenched twice in 5 years put me back, was out of a job for 8 months 1st time and 3 months 2nd time. Trust me, that kills all your savings/investments to a point where you nearly lose everything. But I stood up, have not made any debt in 4 years and slowly killing what is left. Just the bond is quite a chunk of money still. Chit happens. Criticize all you want, until it happens to you. I even managed to pay for my daughters 2 degrees while going through this Sometimes we lived off soup and bread, but we pulled through.
I am assuming some significant time of stationary living otherwise you’re renting anyway or paying fees every time you move.
As you rightly point out, switching properties too frequently will incur these costs again and again, however, one doesn’t need to sell even when one moves. One can typically rent it out assuming some level of career progression over the period of ownership. This can bring in the 7+ year constraint somewhat.
I still have all the properties I took bonds out on, all have appreciated and now either provide rental income or rent free living.
Like all investments, I would say say that if you have any special knowledge that creates strong expectation that property prices will go down or that the country’s risk status makes the property within overly risky, then it makes sense to invest elsewhere. Note the emphasis on “special”, because I believe that otherwise, these factors are already baked into the price.
Lacking special knowledge of the economy or property markets, I believe that people don’t capitalize enough on the special knowledge they possess of themselves, namely that they are likely to be static for long periods of time, or that they will eventually have to provide housing for someone else (elderly parents, grown up children, etc.).
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Pineapple Smurf
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well in that case no one is debt free, therefore this thread should never have started in the first place
Stokstert
Executive Member
Debt free and own a debit card only. Never had a need for an expensive car and kept them for at least ten years, with a Jetta even 25.
Pineapple Smurf
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Clever, back in our day we had 4 speed gearboxes, no head rests and black bumpers while our rich friends had 5 speed, 4 headrests, colour coded bumpers and power steering
The snowflake millenials of today will never understand how spoilt they are with their first car costing>R200k