This past weekend there was an an ad in the property section for a house in Rosebank that read:
Great Investment! Rental income of R4000 a month. Only R799 000.Now that sounds pretty good until you actually do the math. Below is a table showing the cash flow you would have and the annual return on investment for different down payment amounts assuming 10.5% interest and a 20 year payment period.
|Down Payment||Monthly Cash Flow||ROI|
So you need R400 000 just to break even (ie make no money) and the full property price to get 6% return which is what you'll get in a fixed deposit at a bank. And to make things worse the above does not take into account rates, insurance, maintenance and vacnacy so your returns would be even less.