property purchase advice

[Micdew]

Since property is so expensive me and my wife is having an argument on what is the best option. We are currently hiring a 2 bedroom town house, have 1 child and planning to have another. What would be the best option.

1. Rent a 3 bedroom house and then buy a small flat we can rent out for 5 years and use it as a deposit to get a bigger property or

2. Buy a two bedroom place and make a sacrifice and use that as a deposit for a bigger place latter on.

 

[Nokkie]

Since property is so expensive me and my wife is having an argument on what is the best option. We are currently hiring a 2 bedroom town house, have 1 child and planning to have another. What would be the best option.

1. Rent a 3 bedroom house and then buy a small flat we can rent out for 5 years and use it as a deposit to get a bigger property or

2. Buy a two bedroom place and make a sacrifice and use that as a deposit for a bigger place latter on.

It's really simple, I don't like to waist money on renting for so long, so rather buy if you can and then you have an asset which turns into a networth.

Just remember that when you pay rent for 5 years you giving it away to another person who is investing that money... rather invest in yourself...

 

[Hamster]

/in before fight

It's really simple, I don't like to waist money on renting for so long, so rather buy if you can and then you have an asset which turns into a networth.

Just remember that when you pay rent for 5 years you giving it away to another person who is investing that money... rather invest in yourself...

We've had this conversation on MyBB before. Unless you have a huge deposit, the buying vs. renting decision depends on area etc.

Example: here in Douglasdale you can rent a townhouse for R8k pm where if I was to buy it I would be paying R12k bond + R1.5k levies + R400 (IIRC) rates and taxes and then we're not even talking about interior maintenance etc. Now by renting I get to invest that R5k myself and I don't have debt (and interest on that debt).

I suppose I could use that R5k and pay the house of sooner, not sure how that would compare.

Now I do believe the opposite might be true for Cape Town.

You also have to consider that a property as an asset might be difficult to sell and that the money is stuck in it (access bonds and extra loans against it can solve this but that is counter productive).

Anyway, just so that OP knows there is another side to it.

 

[Nokkie]

...

 

[bokka1]

Get into the market as quick as possible.

 

[Goliath]

/in before fight



We've had this conversation on MyBB before. Unless you have a huge deposit, the buying vs. renting decision depends on area etc.

Example: here in Douglasdale you can rent a townhouse for R8k pm where if I was to buy it I would be paying R12k bond + R1.5k levies + R400 (IIRC) rates and taxes and then we're not even talking about interior maintenance etc. Now by renting I get to invest that R5k myself and I don't have debt (and interest on that debt).

I suppose I could use that R5k and pay the house of sooner, not sure how that would compare.

Now I do believe the opposite might be true for Cape Town.

You also have to consider that a property as an asset might be difficult to sell and that the money is stuck in it (access bonds and extra loans against it can solve this but that is counter productive).

Anyway, just so that OP knows there is another side to it.

What he said! Depends on where you buy etc.. I personally think you need an apartment or 2 to rent out for investment (like in Stellenbosch etc) and then rent a nice place but it's difficult! :erm:

 

[HavocXphere]

/in before fight



We've had this conversation on MyBB before. Unless you have a huge deposit, the buying vs. renting decision depends on area etc.

Example: here in Douglasdale you can rent a townhouse for R8k pm where if I was to buy it I would be paying R12k bond + R1.5k levies + R400 (IIRC) rates and taxes and then we're not even talking about interior maintenance etc. Now by renting I get to invest that R5k myself and I don't have debt (and interest on that debt).

I suppose I could use that R5k and pay the house of sooner, not sure how that would compare.

Now I do believe the opposite might be true for Cape Town.

You also have to consider that a property as an asset might be difficult to sell and that the money is stuck in it (access bonds and extra loans against it can solve this but that is counter productive).

Anyway, just so that OP knows there is another side to it.

Right. In the interest of completeness though, the two main counterpoints:
1) that Rand expense vs Rand expense does not factor in the (assumed) gains in house price
2) it doesn't factor in the favourable effect of inflation on the loan amount...the sooner you lock down the purchase price the better

Not saying either side is right...just for completeness.

I still maintain that buy/rent is largely also a lifestyle choice. Buying means you're pretty much committed to staying put for a decent amount of time

 

[Nokkie]

Right. In the interest of completeness though, the two main counterpoints:
1) that Rand expense vs Rand expense does not factor in the (assumed) gains in house price
2) it doesn't factor in the favourable effect of inflation on the loan amount...the sooner you lock down the purchase price the better

Not saying either side is right...just for completeness.

I still maintain that buy/rent is largely also a lifestyle choice. Buying means you're pretty much committed to staying put for a decent amount of time

like if you are willing to live there for 10 years at least...

 

[Pitbull]

/in before fight



We've had this conversation on MyBB before. Unless you have a huge deposit, the buying vs. renting decision depends on area etc.

Example: here in Douglasdale you can rent a townhouse for R8k pm where if I was to buy it I would be paying R12k bond + R1.5k levies + R400 (IIRC) rates and taxes and then we're not even talking about interior maintenance etc. Now by renting I get to invest that R5k myself and I don't have debt (and interest on that debt).

I suppose I could use that R5k and pay the house of sooner, not sure how that would compare.

Now I do believe the opposite might be true for Cape Town.

You also have to consider that a property as an asset might be difficult to sell and that the money is stuck in it (access bonds and extra loans against it can solve this but that is counter productive).

Anyway, just so that OP knows there is another side to it.

Move to an area where your bond will be R 8k and still save R 5k

I still don't get this reasoning

 

[Nokkie]

Move to an area where your bond will be R 8k and still save R 5k

I still don't get this reasoning

I agree

 

[Hamster]

Move to an area where your bond will be R 8k and still save R 5k

I still don't get this reasoning

So you want me to move to a crappier area and buy a house that doesn't fit with my standard of living? I like living here and renting suits me. Also, traffic.

Besides, by this logic I can move to the same crappy area and rent for R4-5k

 

[Pitbull]

So you want me to move to a crappier area and buy a house that doesn't fit with my standard of living? I like living here and renting suits me. Also, traffic.

Besides, by this logic I can move to the same crappy area and rent for R4-5k

Not at all. Maybe you living above your living standard if you rent a house instead of buying?

Don't get me wrong, your rent is cheaper because people bought years back as house prices was cheaper. The more you put it off the more it will cost you later. Remember that place you're renting for R 8k a month, even with the levies and things being paid by the owner from that, he's still making a profit.

Telling someone to rent in a better area as opposed to buying in an area he can afford I think is stupid advice. That is my personal opinion and does not reflect on your advice at all. I just think it's ridiculous to rent and pay someone else's bond instead of your own. At some point in your life you will need to buy. Where you going to stay when you retire? You going to buy a house from your pension and be farked at old ages? The sooner you buy the quicker you get in a routine and the sooner you start moving forward in life.

I have used this example before and I'll do it again. Let's say you can buy a house now for R 800k. Your repayment will be R 8k (example). So you will be paying R 8k a month for 20 years. Now take that same property in 5 years. Now it's selling for R 1.2m. You take a loan then and you pay R 12k per month. This is for the same property, It's now going to cost you R 12k to stay there where it would have cost you R 8k if you bought it 5 years ago.

that is the reason you pay R 8k per month rent and not R 12k bond. The owner was the smart one and bought it years ago.

 

[Hamster]

I get what you are saying, but consider the fact that the money you have extra renting instead of buying is growing and that it can be used as a deposit later on. That money is not in a 7% fixed deposit btw - it's in aggressive ETFs.



IMO, if you cant afford at least 1.5 times your bond you shouldn't be buying that specific property. All you'll be doing is making the bank rich instead of your landlord.

 

[Lupus]

You're also forgetting to factor in the 10% yearly increase renting normally has, so you're renting now for 8k a month but in five years you're paying 12k with nothing to show for it, while the guy who bought it has steadily being paying and still only pays 12k while if you had to purchase the same place would then need to fork out 17k.
Renting is great for short term to get ducks in a row but any longer than two years you're shooting yourself in the foot.

 

[TheGuy]

Renting can actually be beneficial. I'm renting in an area that I will never be able to afford to buy in. So I bought in another area and renting out that property. My rent I'm paying is less than my tenants are paying. This means I'm scoring every month and I get to live in a nice area

 

[Hamster]

I've been renting for 7+ years, the 10% increase happens the first year, maybe. Mine last rental increase was about 4%. But this is Joburg.

Again, if this was cape town it would probably be a completely different story.

 

[Lupus]

7 years you could've paid off a fair chunk of a bond by now and would probably be able to sell for quite a bit more than the original price.
Also it's rare even in Jhb for rent not to increase 10% annually, so you're lucky and using your example isn't a good idea.

 

[Hamster]

7 years you could've paid off a fair chunk of a bond by now and would probably be able to sell for quite a bit more than the original price.
Also it's rare even in Jhb for rent not to increase 10% annually, so you're lucky and using your example isn't a good idea.

If you say so. There are a lot of places available for rent and there is a cap to what people are willing to pay. A good tenant is better than the extra rent. If I move out and his place is empty for just one month he'll have to wait almost 10 months to recover the cost.

Btw, if I had bought I wouldn't have been able to move around like I did. My salary wouldn't be what it is and I would be worse of (this I why tenting suits me better).

 

[CamiKaze]

So you want me to move to a crappier area and buy a house that doesn't fit with my standard of living? I like living here and renting suits me. Also, traffic.

Besides, by this logic I can move to the same crappy area and rent for R4-5k

But it's not like you are planning to live there forever.

As mentioned before, it is an investment that you can sell later, which can also be used as a huge deposit on your next house.

Maybe you high standard of living will help improve the "crappier" place to such a point where you can sell it for much more and attract buyers quicker than other property in the same area.

 

[Stefanmuller]

It is not a clear cut answer. It depends on the stage of your life, area etc.

In Durbanville (and surrounds, as these days what is advertised as Durbanville isnt really Durbanville) a three bed townhouse goes for R1,5m. If you look around a bit you can rent this for R9 000k. The bond payments plus rates and levies will set you back R15k maybe even more considering the rate you will get as a first time buyer. Also excludes maintenance costs. Now, apart from the fact that I can go and invest the surplis R6k when I choose to rent (or use on other things like creche fees, medical etc) if I choose to buy and fork out R15k, I will be paying practically only interest for the first 5 years at least. If interest rates goes up, so does my bond. Eitherway the first 5 years whether renting or buying is going down the drain as interest. Yes, the value of the property is going up, maybe at 8% growth being optimistic, but that does not nearly match the almost 60% you saved each year on you cash flow even if you did not invest the surplus.

For me, expecting significantly higher salary earnings within the next 3 to 5 years, renting for the next 3 years or so makes sense.

The argument of buying vs renting holds more truth in favour of buying when you look at a two bed flat where the difference in rent and bond payment is small.

Also, the rent for a property is not determined on what the owner paid for it when he bought it. It is determined by the market. Because there will always be people in the same complex renting out who just bought the property at todays price.