Home Buying

[Bighit]

i am wondering if there is any real profit in buying a house :/

I guess it depends on your spending habits. If you rent for R10000, but decide to spend 10k on a bond, then I'd imagine it's better to buy. If you had to rent for R5000 as opposed to buying for 10k, then I'd imagine that renting is better. Wonder what the break even point is, without having to go into a detailed calculation.

Also with rent increases, all depends on your negotiation skills, if you can show you got x% increase and inflation was x%, then you can argue for your rent to only increase by x%

 

[CamiKaze]

It also depends on if you want to stay for 20/25 years and if the property has the potential to bring in more if you eventually decide to rent it out or sell it.

I have a 3 bedroom that I just bought and I know that I can charge 3.5 - 4k per tenant per room. That is more than what I pay on the house monthly.

Buy a house only if you can rent it out for more than your monthly if you decide to go that route .

 

[Brenden_E]

I agree. Rent is insane these days. Depending on the area, you might find that your bond repayment will actually be cheaper than the rent.

Not likely! Plus you'll have additional expenses like property tax to pay for.

 

[^^vampire^^]

Not likely! Plus you'll have additional expenses like property tax to pay for.

Very likey. My bond, rates, taxes, levy are all covered by my tenant. In fact I find it extremely hard to believe anyone renting their properties out isn't covering most, if not all, of their expenses each month. I'm still renting it out quite cheaply because I wanted to get someone in quickly. I could have easily charged an extra R1000 on top of that which I could use for wear and tear etc.

 

[AdrianH]

Some tips from my recent nightmare house purchase.

1. Get the approved plans up front. If they don't have them, make sure that it's a clause in the Offer to Purchase (and make sure you give them a deadline to provide the plans otherwise it's not really binding)
2. Make sure that you get the 'extended' rates figures from the council. The council will issue a Rates Clearance Certificate even if there are debts older than two years.
3. Make sure the seller is not so heavily in debt with the bank that their bond exceeds the sale value of the property. YES, this happened to me and delayed the transfer by months as we had to wait for the seller's bank to accept an acknowledgement of debt from the seller.
4. Make sure there is water pressure in the taps when first visiting the house.
5. Check for damp.
6. Make sure you list the fixtures you want to receive 'in working order' in the Offer to purchase. Gates, Garage door, Geyser, Oven, Stove. etc.
7. Make sure there is sufficient parking.
8. Go for a house which has as much privacy as possible and check out what the neighbors are like. ie. you don't want to move next door to a bunch of students.
9. TAKE PICTURES when viewing the house.
10. Buy the cheapest house in the best area.

You missed the most important one. Make sure you can get good internet connectivity.

 

[Brenden_E]

Very likey. My bond, rates, taxes, levy are all covered by my tenant. In fact I find it extremely hard to believe anyone renting their properties out isn't covering most, if not all, of their expenses each month. I'm still renting it out quite cheaply because I wanted to get someone in quickly. I could have easily charged an extra R1000 on top of that which I could use for wear and tear etc.

Where is this fabled property of yours located? I've read tons and tons of articles and the general rule is after 3-4 years you break even.

 

[Greg C]

more or less related to home buying.

I am trying to see if investing in a bigger property makes any sense, or rather to invest the extra funds i have separately.

Does anyone know if Rent price increases keeps to inflation, or have they exceeded inflation the last 10 years?
considering the extra expenses(Tax/Levies/Insurance/Maintenance/Bond/transfer costs), i am wondering if there is any real profit in buying a house :/

Love the question. Actually yes in line it has been in line with inflation. A previous post was that in year 3-4 you break even. In general it cant be said because its completely due to the market and the area you bought it.

Quick discussion (I work for the bank)
we work on a general 10% rule. If a property is going for say R600 000 to R800 000 which is most development places 2 bed 2 bath etc the rent will be 10% of that value so between R6k -8k minus extra's such as levies water and lights etc
You cant account for electricity etc but shouldnt be on your bill the tenant will fit that. You should come close to break even in year 1 or 2 depending on your increase with inflation. Normally leases come with a 10% increase overall if managed and should allow for break even. Property wont realise a gain over and above until year 3-4 or so where you actually make a profit. Remember you can get an access facility on your bond when there is equity in the property.

When applying it depends on your risk profile this is a difficult answer but we clients are ranked 1-5
1 being best 5 being worst depending on risk, how accounts are managed credit history etc,. If you are number 1 you can get a bond approval of 90-100%. The bigger the deposit the better and of course to help cover registration and attorneys fees. when selling make sure you take this into account so if you're in the market for turning properties this will dampen your income for getting the property into the status needed plus fees for the sale etc. Most times people come out around R100 000 or more for holding a property for around 5 year and goes up depending on value. Just my 2 cents . Note the bigger the deposit the better the chances of approval.

 

[RogueTr00per]

more or less related to home buying.

I am trying to see if investing in a bigger property makes any sense, or rather to invest the extra funds i have separately.

Does anyone know if Rent price increases keeps to inflation, or have they exceeded inflation the last 10 years?
considering the extra expenses(Tax/Levies/Insurance/Maintenance/Bond/transfer costs), i am wondering if there is any real profit in buying a house :/

This depends on whom you speak to. At a guess it's maybe 50/50 in terms of people being for or against property as an investment. Warren Ingram (Galileo Capital) who features on the Money Show on radio 702 / Cape Talk each Thursday is against property. Moneyweb.co.za articles that I read were split on the idea, though I think they were more against property.

It also depends on where you buy. Lots of factors to consider.

 

[SauRoNZA]

Some extra fuel to the already enflamed conversatoin.

If you can't afford to pay the house off in <10 years then it's not an investment.

Yes it might still be better than renting for various other reasons, but don't go under the old school disillusion that buying a house automatically means investment.

Rather buy a house for less that isn't quite to your standard but that you know you can pay more in on (say 40%) than the required installment.

Pay it off double quick and then buy another one.


Buying a house that you can just barely afford every month for a 20-year term is a silly silly idea.

 

[diggitydaz]

Some extra fuel to the already enflamed conversatoin.

If you can't afford to pay the house off in <10 years then it's not an investment.

Yes it might still be better than renting for various other reasons, but don't go under the old school disillusion that buying a house automatically means investment.

Rather buy a house for less that isn't quite to your standard but that you know you can pay more in on (say 40%) than the required installment.

Pay it off double quick and then buy another one.


Buying a house that you can just barely afford every month for a 20-year term is a silly silly idea.

What happens to the house when you die ?

 

[SauRoNZA]

more or less related to home buying.

I am trying to see if investing in a bigger property makes any sense, or rather to invest the extra funds i have separately.

Does anyone know if Rent price increases keeps to inflation, or have they exceeded inflation the last 10 years?
considering the extra expenses(Tax/Levies/Insurance/Maintenance/Bond/transfer costs), i am wondering if there is any real profit in buying a house :/

I am having much the same debate with myself.

I look at places that cost double what my property originally did and now about R600k-800k more than it's worth right now and I see nothing that I want to actually move to or that seems to justify the venture.

We need a double garage and at least another bedroom and preferably another entertainment room. Then I ask myself if it doesn't make more sense to just spend 300-400k on the place we have even though it's supposedly over investment but it seems like I stand to piss much more money away by moving.

Or I go crazy and buy a house that's 3 times the price and then I live in a nice place I can barely afford and end up bankrupt instead of retiring at 45.

 

[RogueTr00per]

Some extra fuel to the already enflamed conversatoin.

If you can't afford to pay the house off in <10 years then it's not an investment.

Yes it might still be better than renting for various other reasons, but don't go under the old school disillusion that buying a house automatically means investment.

Rather buy a house for less that isn't quite to your standard but that you know you can pay more in on (say 40%) than the required installment.

Pay it off double quick and then buy another one.


Buying a house that you can just barely afford every month for a 20-year term is a silly silly idea.

Word dawg... I need you to sit on my shoulder every time I buy a new place!!

 

[Sepeng]

Some extra fuel to the already enflamed conversatoin.

If you can't afford to pay the house off in <10 years then it's not an investment.

Yes it might still be better than renting for various other reasons, but don't go under the old school disillusion that buying a house automatically means investment.

Rather buy a house for less that isn't quite to your standard but that you know you can pay more in on (say 40%) than the required installment.

Pay it off double quick and then buy another one.


Buying a house that you can just barely afford every month for a 20-year term is a silly silly idea.

What if, first and foremost, you see your house as a place you're gonna be spending a bunch of time in, raising your family, having friends over? I agree about not buying at your limit though. Balance, and all that jazz.
Not sure if I'd prefer one big a$$ house that I love, or owning 3 ok houses that collectively might be worth more than the one big a$$ one.

 

[SauRoNZA]

What if, first and foremost, you see your house as a place you're gonna be spending a bunch of time in, raising your family, having friends over? I agree about not buying at your limit though. Balance, and all that jazz.
Not sure if I'd prefer one big a$$ house that I love, or owning 3 ok houses that collectively might be worth more than the one big a$$ one.

That was covered by the "other benefits over renting".



There's no problem if that's the reason people are buying and basically consider it a long term rental and understand their needs.



I just don't want people to think its an investment to "just buy a house" when that's not the case if you do it wrong.



Also I didn't mean buy three crappy houses.



Buy one and pay it off. Then upgrade that. The money you'll save on the interest will make it all more affordable in time.



Overextending yourself on the first purchase will just see you struggling for 20 years.



What's the point of the big house if you can't afford the parties you were planning?



Absolutely nothing wrong with a reasonably modest living. Especially if you can retire early because of it.

 

[SauRoNZA]

What happens to the house when you die ?

I don't understand your question, or rather it's relevance.



Same thing that happens to all your stuff, it gets passed on to your nominated beneficiaries.

That includes the debt if you overextended yourself.

 

[diggitydaz]

I don't understand your question, or rather it's relevance.



Same thing that happens to all your stuff, it gets passed on to your nominated beneficiaries.

That includes the debt if you overextended yourself.

I think passing on an appreciating asset to your children is a good investment.

Creation of generational wealth has to start somewhere.

 

[krycor]

btw the whole cant save deposit = cant buy is a poor generalization. It really depends on spending characteristics and this is why, ideally its better to get some of the furnishing before buying a place as then your spend pattern is a bit more normalized and biggish purchases are behind you. i.e. predictable margins of saving is clear. This is why banks usually look at your account over a period prior to giving a bond and/or rate. If however your spending, day to day (excluding once off lossy assets like funiture etc) puts you in a position which you can't afford to save then yes, i agree with statement.

Typically, difference between rent and owning per month is approx. 25-40% more pending levies (so levy, rates, building insurance.. assuming you already paying household insurance), excluding incidentals(garden = maintenance cost, 3-5yr maintenance costs like painting, annual roof maintenance checks, etc) which you need to save a margin for too.

Deposit basically, from what i've seen can either make a non approved bond approved (where the bank determined that affordability is in question) or is used to lure more preferential buyers (lowers risk on their side too).

1st time buyers who can easily afford it all costs associated with ownership i've been told easily still get 110% bonds from banks if you shop around, 2nd time or more buys ceiling is 95-100% though due to the risk added.

 

[^^vampire^^]

Where is this fabled property of yours located? I've read tons and tons of articles and the general rule is after 3-4 years you break even.

There's your problem. You've read tons but not actually talking to people who rent properties out for money.

My bond rounded up is R4800.00 per month. Levies, rates and taxes rounded up R1100.00 per month. So that's R5900.00 running costs and rent is R6000.00 per month. The tenant pays for their own electricity usage. There is minimal to no maintenance required as it's a complex unit and anything that breaks is for the tenant to replace unless it's obvious wear and tear.

The unit is a ground floor 2 bedroom, 2 bathroom with a garden in Honeydew. Many people in the same complex rent their units out for R7000+ per month.

 

[^^vampire^^]

Some extra fuel to the already enflamed conversatoin.

If you can't afford to pay the house off in <10 years then it's not an investment.

Yes it might still be better than renting for various other reasons, but don't go under the old school disillusion that buying a house automatically means investment.

Rather buy a house for less that isn't quite to your standard but that you know you can pay more in on (say 40%) than the required installment.

Pay it off double quick and then buy another one.

Buying a house that you can just barely afford every month for a 20-year term is a silly silly idea.

^ This. You should be able to pay at least twice the bond monthly.

People always buy at the top of their means and then when the interest rates change they are screwed.
If you don't have a disaster account in place in case of things like retrenchment etc etc so that you can continue to live and pay what you do every month for at least 6 months you won't be doing yourself any favours.

 

[Schizoid29]

There's your problem. You've read tons but not actually talking to people who rent properties out for money.

My bond rounded up is R4800.00 per month. Levies, rates and taxes rounded up R1100.00 per month. So that's R5900.00 running costs and rent is R6000.00 per month. The tenant pays for their own electricity usage. There is minimal to no maintenance required as it's a complex unit and anything that breaks is for the tenant to replace unless it's obvious wear and tear.

The unit is a ground floor 2 bedroom, 2 bathroom with a garden in Honeydew. Many people in the same complex rent their units out for R7000+ per month.

I suspect your outstanding bond is only around 40%-60% of the property value, which is why the rent is able to cover the bond+expenses. A new home owner would be paying a bond at 90%-100% of the property value (depending on the deposit) and therefore end up paying more than the rent for an equivalent property.