Investment options

[Candystore]

Which reputable financial services institution would give the best interest rate on an investment of approx R1m?

What would the monthly interest in my pocket be?

 

[Pitbull]

Which reputable financial services institution would give the best interest rate on an investment of approx R1m?

What would the monthly interest in my pocket be?

In all honesty.

Buy a property and rent it out. (Maximum return with guaranteed growth)

 

[Jweb_@@]

In all honesty.

Buy a property and rent it out. (Maximum return with guaranteed growth)

Especially if you can secure a repo. It's alot of work upfront(finding the right property, renovations, evictions, etc), but if you do it right, your returns will be phenomenal.

 

[Waaib]

I've been asking similar questions recently. Return is about 5.5% to 6% according to a few people I've asked recently. As far as I understand this is so that th R1m does not reduce over time and I preserved. Ask a financial advisory though. There's tax etc implication.

 

[Hamster]

In all honesty.

Buy a property and rent it out. (Maximum return with guaranteed growth)

What kind of guaranteed growth in % can he expect per annum? (After expenses like tax, levies and upfront renovation costs + rental agent fees if he should go that route)

 

[supersunbird]

You can also look at SA retail savings bonds: https://secure.rsaretailbonds.gov.za/Home.aspx

If you take the 5 Year Fixed Rate 8.50% option you can get the following payments (total R85 000 per year, so you will pay tax on the interest above R23 800 which is the exempt amount) every 6 months if under 60 years old:



If over 60 you can choose the monthly repayment option (R7083 per month) or the semi annual:



Or you can look at the inflation linked ones that will fall and rise with inflation.

The money won't be accessible for the term.

 

[fastesthamster]

In all honesty.

Buy a property and rent it out. (Maximum return with guaranteed growth)

Not necessarily. I have just sold a property after 4 years. Perhaps a longer term would have yielded a different outcome, but the return was fairly average, with an effective annual yield of 8.1%, which was comparable to an investment in an index stock. There are fees when buying the property, fees when selling, tax on rental income, tax on capital gains, maintenance costs, risk of bad tenants, etc.

Nothing is guaranteed, and an index stock is significantly less admin.

 

[supersunbird]

I wouldn't buy property with it, property makes much more sense when a bank gives you a 100% loan on it and the tenants pay the bond and other costs (aka leveraging).

 

[Pitbull]

What kind of guaranteed growth in % can he expect per annum? (After expenses like tax, levies and upfront renovation costs + rental agent fees if he should go that route)

House prices has increased at an average rate of about 8% year on year for about the last 10 years. That's an initial growth of 8% per annum on your investment. On top of that you get rental income. Let's assume he rents it out for R 6k per month (0.6% per month income) That's 7.2% income per annum from his initial investment. (Let's assume he charges R 10k rent and R4k goes to insurance, reparations and what not)

That is a total growth of 15.2% per annum. Or to put it in context of money - R 152 000 per year (R 12 666 per month) his investment will be growing at roughly R 12k per month that way. But just like any investment you have your risks. Good/bad tenants, housing market crash or stagnation and so on. Fact is, he would still have a property worth R 1m and see growth of about R 12k per month. I think this year house prices took a knock and only growth foreseeable currently is about 5%. That's still better than investing at 6% interest.

 

[Pitbull]

Not necessarily. I have just sold a property after 4 years. Perhaps a longer term would have yielded a different outcome, but the return was fairly average, with an effective annual yield of 8.1%, which was comparable to an investment in an index stock. There are fees when buying the property, fees when selling, tax on rental income, tax on capital gains, maintenance costs, risk of bad tenants, etc.

Nothing is guaranteed, and an index stock is significantly less admin.

Did you rent out that property or did you stay in it?

If you bought it cash you would have had the growth of 8.1% plus rental income.

 

[Hamster]

House prices has increased at an average rate of about 8% year on year for about the last 10 years. That's an initial growth of 8% per annum on your investment. On top of that you get rental income. Let's assume he rents it out for R 6k per month (0.6% per month income) That's 7.2% income per annum from his initial investment. (Let's assume he charges R 10k rent and R4k goes to insurance, reparations and what not)

That is a total growth of 15.2% per annum. Or to put it in context of money - R 152 000 per year (R 12 666 per month) his investment will be growing at roughly R 12k per month that way. But just like any investment you have your risks. Good/bad tenants, housing market crash or stagnation and so on. Fact is, he would still have a property worth R 1m and see growth of about R 12k per month. I think this year house prices took a knock and only growth foreseeable currently is about 5%. That's still better than investing at 6% interest.

So then for diversification this is good (also much more awesome if you don't have a loan to pay off). But if you are looking for bigger (riskier?) returns with no upfront costs or loans like 25% there is equities.

 

[Waaib]

But the question is:

Which reputable financial services institution would give the best interest rate on an investment of approx R1m?
What would the monthly interest in my pocket be?

Allan Gray, Coro, Mutual, Sanlam Private Wealth, Voord... none is best. All are good. Some beat others year on year. Depends what term you're looking at.

 

[fastesthamster]

Did you rent out that property or did you stay in it?

If you bought it cash you would have had the growth of 8.1% plus rental income.

Nope, I rented the property out, and after all costs return was 8.1%. As supersunbird said, it only makes sense if you have 100% bond and can get the tenants to effectively finance your capital. Don't forget, your house value may have grown by 8% per annum, but you still need to pay capital gains on the difference, and you still need to pay estate agent commission of at least 3% if you go the agent route.

I think sometimes people neglect some of the hidden costs when considering property as an investment. Given the choice between 7% return, admin-free, and 8% return with higher risk and admin, I know which choice I would make. My 2c.

 

[Pitbull]

Nope, I rented the property out, and after all costs return was 8.1%. As supersunbird said, it only makes sense if you have 100% bond and can get the tenants to effectively finance your capital. Don't forget, your house value may have grown by 8% per annum, but you still need to pay capital gains on the difference, and you still need to pay estate agent commission of at least 3% if you go the agent route.

I think sometimes people neglect some of the hidden costs when considering property as an investment. Given the choice between 7% return, admin-free, and 8% return with higher risk and admin, I know which choice I would make. My 2c.

It's all about knowing what your overheads are and budgeting accordingly when renting out a property. If you use those gains and invest in another property and so on. As an example:

You retire at age 60 and have your own house paid off and get a pension of let's say R8k a month. If you managed your portfolio correctly and grew your property investments you could easily sit with 3 or more properties all paid for when you retire. Those properties have an X value which never decreases just increases. You get income from these 3 properties via rent as well as your pension. On top of that, should you die your properties go into the estate and your kids or whoever can then use those again or invest in other properties.

I can't see anyone going wrong with investing in property and as much property as possible. It will always be a standing asset you can use as surety. You can't put R 1m shares as surety against another home loan as an example.

 

[Jehosefat]

You can't put R 1m shares as surety against another home loan as an example.

Yes you can. Try a different bank if you can't at yours

 

[fastesthamster]

Those properties have an X value which never decreases just increases.

And there's the rub. According to my folks, Hillbrow used to be an attractive place to invest. Your basic assumption is that it is risk free. It isn't, nothing is.

Or, another 2008 GFC hits, and a housing bubble bursts. South Africa came away relatively unscathed, and stricter rules means it probably wouldn't happen here.

Or, another unforeseen crisis hits, and the demand for your property is zero, along with any desire to rent your property.

Then there is the assumption that your properties will go into the estate for your kids to use. Who is footing the 20% estate duty bill? Unless you've structured things so that the houses are owned by a trust, you are going to be screwed here.

As I said, I tracked all costs, and measured the performance of the house investment against stock market indices. Using capital to buy a house isn't the amazing return people think it is, and there are far more headaches associated with it than some might think. Use the bank's capital to buy a house, sell after 5-10 years, and invest the proceeds in stocks. Don't neglect the dividends paid on stocks which also provides income, at a lower tax-rate than your marginal tax rate.

 

[F40]

It's all about knowing what your overheads are and budgeting accordingly when renting out a property. If you use those gains and invest in another property and so on. As an example:

You retire at age 60 and have your own house paid off and get a pension of let's say R8k a month. If you managed your portfolio correctly and grew your property investments you could easily sit with 3 or more properties all paid for when you retire. Those properties have an X value which never decreases just increases. You get income from these 3 properties via rent as well as your pension. On top of that, should you die your properties go into the estate and your kids or whoever can then use those again or invest in other properties.

I can't see anyone going wrong with investing in property and as much property as possible. It will always be a standing asset you can use as surety. You can't put R 1m shares as surety against another home loan as an example.

Know what is a sure sign of someone that has no clue about investing? Anyone who still promotes/believes in buy-to-let residential property as an "investment". Archaic, outdated, unsophisticated. And the prophets who promote this always have the spreadsheet number crunching details ready, as well as the gearing argument. Flawed, flawed, flawed.

 

[supersunbird]

Know what is a sure sign of someone that has no clue about investing? Anyone who still promotes/believes in buy-to-let residential property as an "investment". Archaic, outdated, unsophisticated. And the prophets who promote this always have the spreadsheet number crunching details ready, as well as the gearing argument. Flawed, flawed, flawed.

I bought a buy-to-let property for R490 000 (needed some work) in August 2008. I now owe R400 000 on it, 7 years down the line. The 2 sales in 2014 (thanks property24) in the complex fetched between R800 000 to R850 000. Altogether I have put in just under R100 000 of my own money in over the 7 years and now almost nothing beyond the occasional repairs that I can claim back later. So if I sell it next year and get R400 000 or more out (after whatever taxes and costs) then I'll have grown my investment of R100 000 by 300%.

Now the only Unit Trust that would have given me more than 300% over the past 7 years would have been the Coronation Industrial Fund at 315.39% (/nod to that Marco forum member who loved it) and I would have had to have had R100 000 to start with. The second best fund is the Stanlib Property Income Fund and that would have given me 254.56% over the past 7 years to date. Worst performing Unit Trust I have info from would have given me a -29.33% (OUCH!) over that period, looking at you Stanlib Resources Fund lol.

Now don't be mistaken, it's hard work and a hassle at times. Attending AGM meetings to make sure the complex is properly run. Extra work at e-filing time. Special levies now and then for whatever, to mess with cashflow. Tenants who pay late at times. Ideally you have to stay close to be able to keep a proper eye on it.

I have considered selling a few times, maybe put the money into my RAs and a TFSA if I do, so I keep an eye out on what sales prices are like in the area, if the area is being maintained and not starting to look like its getting run down.

Results may vary and I have been somewhat lucky.

 

[F40]

I bought a buy-to-let property for R490 000 (needed some work) in August 2008. I now owe R400 000 on it, 7 years down the line. The 2 sales in 2014 (thanks property24) in the complex fetched between R800 000 to R850 000. Altogether I have put in just under R100 000 of my own money in over the 7 years and now almost nothing beyond the occasional repairs that I can claim back later. So if I sell it next year and get R400 000 or more out (after whatever taxes and costs) then I'll have grown my investment of R100 000 by 300%.

Now the only Unit Trust that would have given me more than 300% over the past 7 years would have been the Coronation Industrial Fund at 315.39% (/nod to that Marco forum member who loved it) and I would have had to have had R100 000 to start with. The second best fund is the Stanlib Property Income Fund and that would have given me 254.56% over the past 7 years to date. Worst performing Unit Trust I have info from would have given me a -29.33% (OUCH!) over that period, looking at you Stanlib Resources Fund lol.

Now don't be mistaken, it's hard work and a hassle at times. Attending AGM meetings to make sure the complex is properly run. Extra work at e-filing time. Special levies now and then for whatever, to mess with cashflow. Tenants who pay late at times. Ideally you have to stay close to be able to keep a proper eye on it.

I have considered selling a few times, maybe put the money into my RAs and a TFSA if I do, so I keep an eye out on what sales prices are like in the area, if the area is being maintained and not starting to look like its getting run down.

Results may vary and I have been somewhat lucky.

You have successfully convinced yourself that you have done great with residential BTL. Maybe you have maybe you think you will eventually. No skin off my back. Fact remains - it is a terrible investment option.

 

[HavocXphere]

Fact remains - it is a terrible investment option.

Feel free to provide a better one then...