How do House Bonds work?

[saturnz]

I will never buy a house, a standalone property is the worst form of property investment in my view

I hope to buy property soon, just need just rob a few banks first

how soon? if you accept property prices are increasing every year, then you have to generate additional income to compensate

for example, my flat has been increasing in market value at an average rate of R120 000pa

 

[SauRoNZA]

Levies,rates and taxes also increase on property.

In CPT it is better for "middle class" family to rent at this stage, as it is really difficult to afford property. I can't even afford a flat in a decent area, because the levies are insane sometimes!

I hope to buy property soon, just need just rob a few banks first

There are two problems here.

1. Perception : My neighbour was renting the place next door for more than I was paying on my home loan at the time. Identical houses.

2. “Decent Area” - People often want to live beyond their means through renting and look down on the places they could be buying instead. At the end of the day the real world difference is a matter of little consequence.

Generally if you can afford to rent you can afford to buy, just not necessarily at the exact same location.

The difficulty doesn’t come with money but rather with compromise.

Many people especially want to buy a house where they grew up, but they forget that their parents didn’t live there forever and only ended up there at the peak of their lives.

 

[SauRoNZA]

I also recently bought for R1 050 000, got a 100% bond and FNB did not require life insurance. It was a new property, bought from the developer. But I don't think that would have any effect on the life insurance requirement.

I believe it also changed with regards to if it’s a joint bond (you and the wife for instance) vs just one person taking the bond.

 

[saturnz]

2. “Decent Area” - People often want to live beyond their means through renting and look down on the places they could be buying instead. At the end of the day the real world difference is a matter of little consequence.

Always buy in the best location, the real world difference is extremely material. This does not necessarily mean you must live in the property you purchase, this to is a mistake.

 

[SauRoNZA]

Always buy in the best location, the real world difference is extremely material. This does not necessarily mean you must live in the property you purchase, this to is a mistake.

You forgot to say “the best location YOU CAN AFFORD”.

When it comes to buying or not buying you rather compromise on the location.

And when I said the real world difference I’m referring to say the difference between Plattekloof, Welgelegen and Panorama.

All virtually the same real world areas at vastly different prices.

Also saying you don’t need to live in it is a whole different conversation. Obviously you look at very different things when choosing to buy to live in or rent out.

Like I won’t buy to live in a 80sqm place, but that would be fine to rent out in the right location.

 

[zerocool2009]

I believe it also changed with regards to if it’s a joint bond (you and the wife for instance) vs just one person taking the bond.

If it is a joint bond, or if you are married within (both parties must take out insurance). I know a friend who was very uphappy about that recently

 

[SauRoNZA]

If it is a joint bond, or if you are married within (both parties must take out insurance). I know a friend who was very uphappy about that recently

That’s exactly what I’m saying.

Because if something happens to the one the other can’t pay for it any more and the risk is therefore increased.

 

[zerocool2009]

That’s exactly what I’m saying.

Because if something happens to the one the other can’t pay for it any more and the risk is therefore increased.

Spot on !!!

 

[saturnz]

You forgot to say “the best location YOU CAN AFFORD”.

When it comes to buying or not buying you rather compromise on the location.

And when I said the real world difference I’m referring to say the difference between Plattekloof, Welgelegen and Panorama.

All virtually the same real world areas at vastly different prices.

Also saying you don’t need to live in it is a whole different conversation. Obviously you look at very different things when choosing to buy to live in or rent out.

Like I won’t buy to live in a 80sqm place, but that would be fine to rent out in the right location.

well if you can get a R1m bond you can buy a parking bay in Camps Bay, most locations are accessible if you think laterally (edit: scrap that, I doubt you can buy a parking bay with a bond)

also no investor ever consumes their investment, so if you live in your house, consider it more consumption than an investment, you doing yourself a great disservice living in your investment.

 

[SauRoNZA]

well if you can get a R1m bond you can buy a parking bay in Camps Bay, most locations are accessible if you think laterally

Sure, but you can’t live in a parking bay.

And I don’t think the bank will be near as willing to give you R1m for a parking bay as they would for a house either.

Sometimes I wonder if we live in the same reality.

 

[SauRoNZA]

also no investor ever consumes their investment, so if you live in your house, consider it more consumption than an investment, you doing yourself a great disservice living in your investment.

Not at all.

It’s called hitting two birds with one stone.

Not a disservice in the slightest.

It’s for this very reason that home ownership sets itself apart from other investments, because you can’t do the same thing otherwise.

 

[saturnz]

Not at all.

It’s called hitting two birds with one stone.

Not a disservice in the slightest.

It’s for this very reason that home ownership sets itself apart from other investments, because you can’t do the same thing otherwise.

let me propose something you might not have considered

your goal is to live in a house, lets assume this

you take out a loan, you purchase a property in the best location possible, lets say its a small studio, you then rent it out and use the funds to rent a house

why?

because now the interest on your bond is tax deductible, together with the usual expenses

the maintenance on the house is now the expense of the landlord, and you have the flexibility of moving etc


moreover the yield and capital growth on the studio in the best location will outpace that of the house

that's how I view things

 

[Sinbad]

let me propose something you might not have considered

your goal is to live in a house, lets assume this

you take out a loan, you purchase a property in the best location possible, lets say its a small studio, you then it out and use the funds to rent a house

why?

because now the interest on your bond is tax deductible, together with the usual expenses

the maintenance on the house is now the expense of the landlord, and you have the flexibility of moving etc


moreover the yield and capital growth on the studio in the best location will outpace that of the house

that's how I view things

Maintenance on YOUR house is still your problem though, and you're not in control of the wear and tear.....

 

[saturnz]

Maintenance on YOUR house is still your problem though, and you're not in control of the wear and tear.....

be more specific, because in my scenario the person owns a studio, not a house

 

[Sinbad]

be more specific, because in my scenario the person owns a studio, not a house

s/house/studio/g

 

[SauRoNZA]

let me propose something you might not have considered

your goal is to live in a house, lets assume this

you take out a loan, you purchase a property in the best location possible, lets say its a small studio, you then rent it out and use the funds to rent a house

why?

because now the interest on your bond is tax deductible, together with the usual expenses

the maintenance on the house is now the expense of the landlord, and you have the flexibility of moving etc


moreover the yield and capital growth on the studio in the best location will outpace that of the house

that's how I view things

Oh I have certainly considered that but here are some conclusions...

1. I have to now rent a smaller house than I could just have bought.

2. I need to ask for permission to paint the walls or drill holes in them and possible get denied.

3. I have to abide by other rules of the owner like which pets I can have.

4. I have to deal with demand and letters from landlords like yourself.

5. I don’t have to move when the landlord feels like selling or raising the rent.

6. My bond repayments are set in stone (interest rate ignored) unlike my rental.

See it’s not all about money. There is a great amount of value in living inside your own property and doing with it as you please.

Not to mention the simple matter of space.

Also even purely on a money matter the total profit vs expenses over a 20 year period will amount to a minor percentage value and that disregards the non-monetary benefits and also favours the outlier situation which could go either way really.

There is also something to be said for timing. My house has increased by 25% in value since I’ve purchased it two years ago. My previous house by 60% in 5 years.

Of course I’m playing hard and loose with those values and not factoring in transfer and other costs. Just going purely by buy and sell value.

The location location location factor is much more relevant to rental than properties buying to own. For the very same reason that people would rent in those areas in the first place and own in others instead.

 

[saturnz]

The location location location factor is much more relevant to rental than properties buying to own. For the very same reason that people would rent in those areas in the first place and own in others instead.

I could respond to all the points raised, but it is just too much effort.

 

[SauRoNZA]

I could respond to all the points raised, but it is just too much effort.

The point is there is no universally true one size fits all solution.

What works for your context doesn’t work the same for everyone else’s.

Different people want/need different things.

 

[Kosmik]

How the hell did you get that right?

We didn't need either , bought R1.14M in 2015.

 

[zerocool2009]

We didn't need either , bought R1.14M in 2015.

For anything over R1kk via FNB (no life insurance needed)