How does buying a house become affordable?

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mr_norris

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This is a sort of open ended question here. Something that's really been puzzling me for a few years now is how on earth does one get to a stage where buying a house becomes affordable?

I'm going to generalize / assume here (I'm rather ignorant on this topic, as it feels way out of my reach, so I haven't bothered investigating).

- Average decent house (3 bedrooms[ish], safe area, garage) costs a million.
- Repayments will most likely be 10k a month, give or take. I've heard, but stand corrected, that you're looking at a grand a month per 100k.
- To get a homeloan based on the 10k a month, you'll need to earn at least 30 grand a month (based on the repayments being a third of your salary - again, I could be wrong).

The above is just an example. Obviously the first step is to lower my expectations if I were in the market for something now.

I'm really just curious about it all.

I wish I was earning what I earn now back in 1999 / 2000 (when I was still in school :P). I remember my parents buying a house for R180 000. Now that would be affordable :P
 
Most people seem to manage by having dual incomes...or earning a sizable amount.

Also...that 1 bar estimate looks a bit low imo. For a nice area 1.5 seems more reasonable.

>>I remember my parents buying a house for...

I hear you. When I heard my parent's numbers my first thought was...thats about how much deposit I need.

Also remember all the surrounding costs. Think like an extra 70k down immediately.
 
HavocXphere said:
Most people seem to manage by having dual incomes...or earning a sizable amount.

Also...that 1 bar estimate looks a bit low imo. For a nice area 1.5 seems more reasonable.

>>I remember my parents buying a house for...

I hear you. When I heard my parent's numbers my first thought was...thats about how much deposit I need.

Also remember all the surrounding costs. Think like an extra 70k down immediately.
Click to expand...

Yeah for sure.

It feels like as we grow our salaries, bad inflation shafts us, so it's a never ending game of catch up.
 
You simply have to knuckle down and save for a deposit. It's easier said than done when you have plenty of responsibilities such as kids, a car (something that most people actually can't afford) and whatever else you may have.

The wife and I initially stayed in this 30m2 place in an apartment building. It was terribly cramped but we got it for free, utilities included, thanks to her job. We stayed there for a bit over a year, living a pretty frugal lifestyle and saving probably around 70% of our salaries.

We ended up buying a fairly nice town house in a decent area, putting down a 30% deposit and we'll probably be done paying this place in 2 years, at which point we'll either consider immigration or moving to a larger home on a bigger property in preparation for kids.

You need to know what you can afford and be willing to delay that satisfaction. It's terribly tempting to go buy a place worth 2.5m or 3m in one of the nicer areas but purely from an interest point of view, it makes things way more expensive.
 
Keep in mind that when you consider 13/14 years ago i.e. 1999 / 2000 you are dealing with the depreciation of currency. I have a family member who bought a house for R200 000 back in 1999 which is now worth over R2 mil (10x more)! :)

The short answer to your question is it doesn't (unless a wealthy relative leaves you an inheritance). You need to do exhaustive planning, barter with the estate agent and banks to secure the best price and interest rate and eat samp and beans if you can't afford better food while paying it off.

The number one key though is to cut back on lifestyle and push into savings. Simple things like a car pool, or cancelling your cellphone contract and keeping the same phone for a year or two before buying another one (or taking a new contract). Check the Get rich slowly blog for information on how to do this. An example he mentions is rather using the library than buying every book you want.

Now, the big question should be: is it worth it? There are many opinions on this but personally I would say yes. The value of property grows faster than the depreciation of currency and at present the interest rate is very agreeable. We bought a three bedroom place in a secure area for two thirds of your expected total, but it took a lot of shopping around!

The other killer is transfer duties. If the house is newly built (no previous owner) and you buy from the contractor you do not need to pay these fees. Our transfer duties was about an additional 6% extra on top of the buying price. This amount is usually NOT covered by the bond so you need to pay it cash (which can really ruin your day). If you have any further questions let me know.
 
you can get a decent house for well under a million if you go for an older but still decent area. MY boets place cost 700,000, and that has 3 bedrooms, 1.5 bathrooms (newly renovated), lounge, dining room, nice garden/entertainment area, pool, garage and carport, kitchen and scullery. And my aunt couldn't sell her 3 bedroom with a flat for over about 650,000. It's a buyers market at the moment.
Another way is to buy a messed up house on auction and fix it up, just make sure the tenants are out, and that the electricity and water bill is up to date.
 
Start small and trade up. When I left school in 99 I purchased a 1 bed flat to rent out while staying at home. I could only just qualify for the bond because my income was so small and I was new in my job, but because I lived at home they were willing to give it to me. I think it was 400k. I had a 40k deposit from a car accident claim I settled with. I lived it home, stuck it out without spending to much money, took a night job as well and payed it off in 4 years. 14 years later I have traded up 7 times and still own that original flat. Was there sacrifice, yes, but as I look around at all my friends who are battling to make ends meet, I am glad I sacrificed then to be able to have now.
 
Interesting comments. I think I'll aim a bit lower and make more of an effort to save up / invest until I can afford both the monthly repayments and the deposit.

One day :D
 
My parents bought a house cash, in the 70's. My father was a carpenter (basically a labourer) and my mother didn't work. The house was renovated by him and the rest of us helped. It took more than a year.

When I had to buy I house, I just couldn't afford it (with a joint income). Eventually my parents gave me a low interest loan that we paid off in 20 years and we got a loan from the company I worked for. The first year we lived on fish cakes and scavenged for empty bottles for extra cash.

I think we set our standards to high, then. If I had to do it again, I would start smaller (apartment).
 
You don't start with three bedrooms two bathrooms and a double garage, that's how.

So you don't spend a million rand even if you can afford it.

Instead you buy something at 15% less than what the bank will allow you to afford (the 30% of salary rule) but then you immediately set the installment to what they would have been had you taken the loan the bank wanted to give you.

You also ignore every increase you get and put it into your house instead until you are paying 150% of the required installment then you invest it elsewhere.

That way you pay the house off in <10 years and use the next 10 to buy the big house that you really wanted, but afford it quite comfortably because you didn't overshoot in the first place.

So yes lower your expectations, but also work cleverly with your money.

Unlike what our parents would have us believe paying a house off for 20 years just to own property is not really all that sensible and investment.

You can of course have an apartment as well for much less money. And having a dual income household obviously makes things easier, but don't then go and buy bigger just because there more money. Plan for worst case scenario and rather buy a cheaper property and pay it off faster instead of going large and long term.
 
Just remember: your payments don't increase and they become worth less with time. I.e. it's tough at the beginning but becomes relatively cheaper.
 
House you describing moat probably be around 1.5 bar.

And ja then you still need about 100 k for transfer, rates and elec deposits etc... And thats all cash when you sign . And then if there is painting and renovation its more cash up front. Me and my wife bought a small run down 2 bed ine bath duplex in decent area.. Payed extra evry month and after about 2 year sold for a profit after fixing it up over the 2 years , now bought a bigger free standing 3 bed 2 bath with garage etc.. Which we also plan on selling in about 4 or 5 years to buy out dream home. Moral of the story start small, but start. Ever months rent is a months payment that you could have paid off on your iwn place.

Buy very small en life a bit cramped for 2 to 5 years and you will be set
 
I agree with what Jacques said, start as small as you can. Where I disagree is to sell. Start small in a good area, pay off and rent it out. Get slightly bigger, and repeat the process. Let your previous asset fund your newer one.
 
My parents were given there place by my grandmother on my mothers side. Which they were really lucky about because my grandmother lives in England and the I'm guessing it must have been cheaper I think she bought it 1998 for about 300k and its woth about 3 mill now. It's in Rondebosch right by UCT so the value will keep on going up. I really can't imagine how I will be able to afford a house as nice as the one my parents currently live in in the future guess they were just really lucky. I always think that you shouldn't buy anything you can't afford but it is understandable to get a housing loan when you have kids and need a bigger place etc.
 
Brenden_E said:
I agree with what Jacques said, start as small as you can. Where I disagree is to sell. Start small in a good area, pay off and rent it out. Get slightly bigger, and repeat the process. Let your previous asset fund your newer one.
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Yes that is 1st prize.. We wanted to do that...
 
SauRoNZA said:
You don't start with three bedrooms two bathrooms and a double garage, that's how.

So you don't spend a million rand even if you can afford it.

Instead you buy something at 15% less than what the bank will allow you to afford (the 30% of salary rule) but then you immediately set the installment to what they would have been had you taken the loan the bank wanted to give you.

You also ignore every increase you get and put it into your house instead until you are paying 150% of the required installment then you invest it elsewhere.

That way you pay the house off in <10 years and use the next 10 to buy the big house that you really wanted, but afford it quite comfortably because you didn't overshoot in the first place.

So yes lower your expectations, but also work cleverly with your money.

Unlike what our parents would have us believe paying a house off for 20 years just to own property is not really all that sensible and investment.

You can of course have an apartment as well for much less money. And having a dual income household obviously makes things easier, but don't then go and buy bigger just because there more money. Plan for worst case scenario and rather buy a cheaper property and pay it off faster instead of going large and long term.
Click to expand...

Great advice, and I completely agree. My goal wasn't to start with a 3 bedroom house though. Was more of an example.

My expectations at the moment is really just a place with a kitchen. I'm rolling with something I wouldn't even call a kitchenette at the moment, and it's awful. It's also rented, so it's not an investment. It just keeps me closer to work :P

Long term, I'd like the space for my parents to live in, as well as me.

biometrics said:
Just remember: your payments don't increase and they become worth less with time. I.e. it's tough at the beginning but becomes relatively cheaper.
Click to expand...

Yeah, that's the logic I used when trying to justify the repayments on my car LOL. Had such car trouble these last 5 years, so I bit the bullet and "bought" new. Almost a year down the line I'm regretting the money I could have saved, should I have gone cheaper.

But I've had no car problems. So I've got that going for me :P

JacquesZA said:
House you describing moat probably be around 1.5 bar.

And ja then you still need about 100 k for transfer, rates and elec deposits etc... And thats all cash when you sign . And then if there is painting and renovation its more cash up front. Me and my wife bought a small run down 2 bed ine bath duplex in decent area.. Payed extra evry month and after about 2 year sold for a profit after fixing it up over the 2 years , now bought a bigger free standing 3 bed 2 bath with garage etc.. Which we also plan on selling in about 4 or 5 years to buy out dream home. Moral of the story start small, but start. Ever months rent is a months payment that you could have paid off on your iwn place.

Buy very small en life a bit cramped for 2 to 5 years and you will be set
Click to expand...

My valuation was more of a rough estimate :P I'm comfortable with a small place, so I don't think I'll have any trouble there.
 
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