Houses...where does one begin?

[ToxicBunny]

R900k bond is about R7,810.41 at prime over 20 years.

Yes for the first year the rent is R6000... then its R6600 the next year, then its R7260, then its R7990, then its R8800.

So in 5 years your rent is now matching the bond + rates, and you have NO asset value to show for it what so ever...

Most people do not have the willpower to save the difference between a bond and rent.. so they will just piss the money down the drain.

Oh, and you pay roughly 1 times the value of the bond in interest (give or take).. not 3 or 4 times.

 

[Sinbad]

When you buy a house you have an asset to show for it. When you rent you buy an asset for the landlord. Your call.

 

[Freshy-ZN]

And when interest rates fluctuate? The disparity between renting and paying off a bond seem to be pretty constant since I've been monitoring. This is not a recent thing nor is it a short lived thing. There's still the matter of paying off 3-4 times the purchase price which no one seems to want to touch.

I'm not saying never buy your own. I'm suggesting buying it later.

 

[Freshy-ZN]

As a matter of interest, what sort of interest rates are 1st time buyers getting at the moment?

 

[Sinbad]

You pay nearly as much rent as you do interest actually. More so as the rent escalates each year while your outstanding principal on your bond (and thus your interest burden) steadily decreases.

 

[ToxicBunny]

You don't pay 3 - 4 times the price...

you pay double the price... so your bond of R900k ends up being a payment to the bank of R900k + give or take R900k interest.

 

[Sinbad]

You don't pay 3 - 4 times the price...

you pay double the price... so your bond of R900k ends up being a payment to the bank of R900k + give or take R900k interest.

Yup and at the end of it you have an asset, whereas by renting you've paid a similar amount and have nothing to show for it.

 

[ajv]

@OP when you decide on a place, make an offer substantially lower than the asking price and negotiate from there upwards. I bought my place almost 10 % less than the asking price.

 

[Paul_S]

Before everyone summarily discounts my 2c, think about it a bit further.

Here's a quick/rough calculation:

R 1 million house
Repayments 8678
Rates/taxes R500
Maintenance R500 (unless you bought a piece of rubbish)
Water&Lights R1500
Total 11178
vs
Renting a 2 bedroom flat
R6000 per month all inclusive

Renting will save around R5178 per month initially.
The total cost of the house will be R2,682,720 including all costs over a 20 year period.
The total cost of renting assuming a 6% increase per annum will be R2,661,805 after 20 years which is fairly close to the house.

Now assuming you saved the difference you'd have saved R392,359 after 10.92 years.
However thereafter the rent exceeds the payments on the house so you're affectively losing money every month.

So let's summarize at year 20:

House
Total Expenditure: R2,682,720
Total value: R 2,712,640 (assuming inflationary increase of 5% per annum)
Net gain: R29,920
Bond repayment: R 0 per month

Rent
Total Expenditure: R 2,661,805
Total savings: R 20,914 (because after year 10.92 you're losing money every month compared to a house)
Total value: R 0 - R 2,661,805 + R 20,914
Net gain: - R 2,640,891 (yes that's a minus figure)
Rent: R 19,242 per month

So you've effectively lost a net worth of nearly R2.7 million rand after 20 years by renting and your monthly rental will now be R19,242 per month while the house owner's bond is paid off and his house is increasing in worth.

Even if you argue that you're saving up for a deposit you only manage to effectively save R392,359 after nearly 11 years.
All the while house prices continue to increase which reduces the buying power of your perceived savings.
At year 7 the house would have gained R 418,036 in value (assuming 5% per annum) while your savings will only be R331,573 so you're not even keeping up!
It just gets worse as time progresses.

Buy now - save later.

 

[Sinbad]

Paul please redo that calc with renting an equivalent house and having to pay for water and elec? So you can compare like for like in terms of living standard. So start the rent at around 8k (or more. House next to ours is being rented for 15)

 

[Other Pineapple Smurf]

You don't pay 3 - 4 times the price...

you pay double the price... so your bond of R900k ends up being a payment to the bank of R900k + give or take R900k interest.

True

That guy has no idea of what he is talking of as he is ignoring time value of money.

When my grandparents made their last bond payment it was R29, which was their bread and milk for the week, compared to it being my grandfathers salary when he made his first payment.

@OP your rent will always go up and yes its true that rates fluctuate but not that much. We worked out a rate of 12% to see what we could afford and then bought within our budget.

Also pay in a little bit more to reduce your years. It also allows you to absorb any small increases in the rates. We are going to pay in an extra R500 per month and that gives use a bit of a breather. We will also increase our repayment by 5-10% each year so while my bond repayment will remain relatively the same in proportion to my salary (% wise) and this way I can reduce my 20yr bond to 10yrs.

This way if interest rates hit 20% again, it won't effect us much.

 

[Other Pineapple Smurf]

@OP when you decide on a place, make an offer substantially lower than the asking price and negotiate from there upwards. I bought my place almost 10 % less than the asking price.

+1

My house was in the market for R800K. I know one offer was for R650K but since the house had lots of interest in it, we made an offer of R735K. Still less than the asking price.

 

[Other Pineapple Smurf]

Here's a quick/rough calculation:
....
The total cost of renting assuming a 6% increase per annum will be R2,661,805 after 20 years which is fairly close to the house.
....
Buy now - save later.

In my area, rental increases are now 10% pa as standard! This is what motivated us to buy after renting for 10 years as our new rent increase is nearly a bond payment.

 

[Other Pineapple Smurf]

Paul please redo that calc with renting an equivalent house and having to pay for water and elec? So you can compare like for like in terms of living standard. So start the rent at around 8k (or more. House next to ours is being rented for 15)

My new bond is R1500 less than to rent the same house (we have a friend who is a rental agent and gave us the areas market value) so lets say that R1500 makes up my rates n taxes. So we are even.

Now next year same house will be R2200 more than my bond but in all honesty because its situated 150m from the railway station (yes, in the Cape we use public transport) and 500m from the High School, the rent will easily be double my bond + rates n taxes within 3 years.

Its a no brainier to buy if you can.

 

[sly]

Agree 100%

my story @21, bought a R250K unit(Now valued at R350), paid off last year,
@24, bought a R450K off plan(now valued at R580), should be paid off in 18 months.. just followed this simple advise here http://www.justonelap.com/100SecondDetail.asp?int100SecondTipID=39

i started off a low base salary of R7.5K take home.. currently taking home R28K.. car paid off.. not living beyond my means..

Getting married next year and planing to buy a bigger place for 1.2-1.5 mill,

i'll have rental income of about R8.5K to pay off the bigger house... i was lucky to always get 100% loan from FNB..
2 houses to my name.. even if I get retrenched i will have a roof over my head..

just do your homework

 

[krycor]

I agree with the buy don't rent crowd BUT you have to look at the market vs your reason for renting. Currently the housing market is overpriced and ready for tough times as it readjusts. If you ask people in investment/market analysis they will tell you this is coming.. but does this mean you shouldn't buy?

Nope.. everyone has to live somewhere. What's become apparent is that buying places as a quick turn around investment is going to become less to impossible for a period much like it did in other markets. Basically SA is in for tough times so for a short term 5-10yr pov.. nope, better option would be to invest im told.

Reason i disagree with the rent crowd is simple, the money is consumed immediately and the scarier situation in SA is that the current rental costs are often just shy of 10-25% of the mortgage for that place you renting. i.e. if you can afford to buy, buy otherwise you basically just paying someone else to own the place. Yes I know there is levies but this depends heavily on age of place and maintenance, security etc all, in all.. No consider this, if your rent is about 5k, your end of year cost is what? 60k? if you were owning it that would me maybe 60k + 15-20k.. but guess what, you maybe have 50k of that paid to an asset.. And trust me, ask anyone in jhb thats moved up here how long they've been renting and people easily go.. oh ****, 5 yrs, time flew. <-- not a situation you want to be in.

 

[walterl]

I've never rented a place in my life...bought my first house when I was 21, and okay, was priced at R69k in 1988...LOL! Was a three bedroom house with pool, sold it just 5 years later for R95k

 

[Chevron]

Before everyone summarily discounts my 2c, think about it a bit further.

Two examples:

I owned a house in Waterfall, upper Highway area, Durban. I had no bond. I would have gotten R6000 rent a month but I sold the house for R1million. The person who bought the house had to take out a bond for say R900 000. That's monthly repayments of what, about R9000 a month? Then there's R550 for rates and lets assume R1000 a month average for maintenance. So for the privilege of owning the house they now pay R10 550 a month for something they could have rented for R6000. That's R4000 a month to play with.

Then next rent goes up and that's R3000 to play with. Then next rent gos up again and it's R2000 a month.

You see where this is going?

Bond payments stay they same baring interest rate changes. Rent goes up EVERY SINGLE YEAR.

 

[Other Pineapple Smurf]

my story @21, ...

.. not living beyond my means..

...

just do your homework

Thats the secret that took me a while to realise. Funny how as soon as I stopped living beyond my means it took me less than 12 months to buy my house.

 

[Other Pineapple Smurf]

I agree with the buy don't rent crowd BUT you have to look at the market vs your reason for renting. Currently the housing market is overpriced and ready for tough times as it readjusts. If you ask people in investment/market analysis they will tell you this is coming.. but does this mean you shouldn't buy?

Nope.. everyone has to live somewhere. What's become apparent is that buying places as a quick turn around investment is going to become less to impossible for a period much like it did in other markets. Basically SA is in for tough times so for a short term 5-10yr pov.. nope, better option would be to invest im told.

...

Agree that on face value the market is overpriced but thats because too many sellers believe we are still in a boom, reality is nobody is getting their asking price. I've read reports of sellers accepting prices more than 20% less than asking in certain suburbs.

The market is still on the down in certain markets this year and by 2015 it will be on the up. I would not buy today to sell next year, but if your looking at 5 years and have gotten a bargain, then the risk is worth it.