Farmland vs Property

Rumple4skin

Rumple4skin

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Looking forward to having a discussion on the following...

Long story short - Friend asked me to buy a farm with him after which he will rent back my part. I will never use the farm myself. Farm is between East London and Stutterheim and nett rental yield is only 4.3% of initial investment, but capital growth has been significantly higher than property the last 5 years, according to him. If I were to buy rental property it would most likely be in the JHB/PTA area and I believe I can get around 7% nett yield (please correct if I'm wrong). So how would the 2 options weigh up against each other in terms of pro's and cons? I already have a list in my mind, but there is probably more I haven't thought about.

To make things more interesting, I live and work outside SA in a place where there is no CGT and where I can get a personal loan with only 3-4% interest, but max loan tenure of only 36 months. I mention this because almost all my investments are in stocks. I will have to cash out 2/3rds of it to help pay for the farm, otherwise my loan premium would be too high over 36 months. Add to the fact that the stock market is currently down a lot and the lack of any CGT here makes me wonder if I should just forget the whole rental idea and keep everything in stocks, also considering it's the asset I THINK I know more about. Not to mention I'm not sure if I want to invest anything in SA. I do want to diversify into property though, and SA is so easy for that.

So, thoughts? :unsure:
 
Don't forget rand depreciation.
Historically thats eaten up 7% without blinking.

Rather keep your funds elsewhere.

Property is slow to liquidate, especially in SA. Right now rentals are down too.
I'd steer clear.


I'd keep the money in stock - or at least in the market account ready to jump in /out at pertinent times.
 
I would like to see where you get 7% nett yield in pta/jhb. My properties have done pretty poorly. Semigration, emigration and poor economy has kept growth down never mind the risks of non payment/squatters, falling rand etc.

The stock markets have their issues but I'm rather investing there at the moment instead of more property.
 
Crankshaft said:
Looking forward to having a discussion on the following...

Long story short - Friend asked me to buy a farm with him after which he will rent back my part. I will never use the farm myself. Farm is between East London and Stutterheim and nett rental yield is only 4.3% of initial investment, but capital growth has been significantly higher than property the last 5 years, according to him. If I were to buy rental property it would most likely be in the JHB/PTA area and I believe I can get around 7% nett yield (please correct if I'm wrong). So how would the 2 options weigh up against each other in terms of pro's and cons? I already have a list in my mind, but there is probably more I haven't thought about.

To make things more interesting, I live and work outside SA in a place where there is no CGT and where I can get a personal loan with only 3-4% interest, but max loan tenure of only 36 months. I mention this because almost all my investments are in stocks. I will have to cash out 2/3rds of it to help pay for the farm, otherwise my loan premium would be too high over 36 months. Add to the fact that the stock market is currently down a lot and the lack of any CGT here makes me wonder if I should just forget the whole rental idea and keep everything in stocks, also considering it's the asset I THINK I know more about. Not to mention I'm not sure if I want to invest anything in SA. I do want to diversify into property though, and SA is so easy for that.

So, thoughts? :unsure:
Click to expand...
Your comments surrounding residency intrigue me. Are you are SA resident? Just cause you in a country that does not have CGT doesnt mean SA wont hit you with CGT if you are a SA tax resident.

Whether determined under case law or annual days present in SA etc.
 
I have contacted numerous tax consultants who said they don't believe I will be seen as ordinarily resident based on my individual circumstances and I am not a physical resident. Because of this I made the decision to not financially emigrate either. My brokerage account is registered in the country I live in.
 
Grubscrew said:
Not many success stories involving friends, loans and property.
Click to expand...
If you want pain, suffering and unhappiness in your life it's the perfect choice.

Op don't do it, guess what happens to your rental income if your friend hits hard times... and good luck extracting your money out the deal at that stage.
 
If you believe in and want to help your friend go ahead with this but make sure the details are well set out in black and white before you start.

If you're purely looking at it from a personal investment point of view, I'd think you have multiple better options.
 
If my friend (or family) asks me to buy something that he will then rent from me, it's an automatic NO!
It just sounds like a bad idea overall, and that doesn't even cover the risky land situation in SA, and the low growth rate/rental income compared to equity.

Edit: There's a saying that's thrown around in the crypto space a lot: "only invest what you can afford to lose".
The same goes for loans to friends and family: "Only loan them money you can afford to lose", and by extension, only let your friend rent from you if you are OK with someday not receiving that rental income.
 
Barbarian Conan said:
If my friend (or family) asks me to buy something that he will then rent from me, it's an automatic NO!
It just sounds like a bad idea overall, and that doesn't even cover the risky land situation in SA, and the low growth rate/rental income compared to equity.

Edit: There's a saying that's thrown around in the crypto space a lot: "only invest what you can afford to lose".
The same goes for loans to friends and family: "Only loan them money you can afford to lose", and by extension, only let your friend rent from you if you are OK with someday not receiving that rental income.
Click to expand...
Yeah not getting the rent is one thing, not being able to kick him off the land to sell it is another.
 
itareanlnotani said:
Don't forget rand depreciation.
Historically thats eaten up 7% without blinking.

Rather keep your funds elsewhere.

Property is slow to liquidate, especially in SA. Right now rentals are down too.
I'd steer clear.


I'd keep the money in stock - or at least in the market account ready to jump in /out at pertinent times.
Click to expand...

Yes, that is a worry of mine.

Grubscrew said:
Not many success stories involving friends, loans and property.
Click to expand...

I hear this a lot and it is a concern. I've been in a previous investment with him for the past 4 years with no arguments, but decided to get something in black and white just in case.

B-1 said:
I would like to see where you get 7% nett yield in pta/jhb. My properties have done pretty poorly. Semigration, emigration and poor economy has kept growth down never mind the risks of non payment/squatters, falling rand etc.

The stock markets have their issues but I'm rather investing there at the moment instead of more property.
Click to expand...

One of my friends in the Centurion/Waterkloof area gets 7-8 percent Nett on his 1-bedroom properties. The higher yield is a furnished place and he manages all of them himself. I do not know if this is the norm - maybe he is just lucky.

MightyQuin said:
WHAT KIND OF FARM ?!?!?!?!
Click to expand...

LOL sorry about that. It would simply be used for cattle.


Thanks for all the replies. I decided against it because of:

1) Not my area of expertise
2) Low ROI
3) My partner is a friend
4) Currency risk
5) Political risk
6) And the biggest reason - I can't afford it without selling majority of my stonks.

Back to the drawing board.
 
Crankshaft said:
Yes, that is a worry of mine.



I hear this a lot and it is a concern. I've been in a previous investment with him for the past 4 years with no arguments, but decided to get something in black and white just in case.



One of my friends in the Centurion/Waterkloof area gets 7-8 percent Nett on his 1-bedroom properties. The higher yield is a furnished place and he manages all of them himself. I do not know if this is the norm - maybe he is just lucky.



LOL sorry about that. It would simply be used for cattle.


Thanks for all the replies. I decided against it because of:

1) Not my area of expertise
2) Low ROI
3) My partner is a friend
4) Currency risk
5) Political risk
6) And the biggest reason - I can't afford it without selling majority of my stonks.

Back to the drawing board.
Click to expand...

Where is this farm comrade? Will there be free range beef available in time for Christmas?
 
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