Rent Vs Buy: Wembley Square

Now I'm not one to spend R12 000 a month on rent. That being said it's a lot better than paying R27 000 a month on mortage. So here's a 3 bedroomed flat in Wembley Square that you can either rent for R12 000 a month, or buy for R2 650 000. What's the ROI on that? Glad you asked:

Down Payment	Monthly Cash Flow	ROI
R265000	R-15097	-68%
R530000	R-12086	-27%
R795000	R-9075	-14%
R1060000	R-6065	-7%
R1325000	R-3054	-3%
R1590000	R-43	0%
R1855000	R2968	2%
R2120000	R5978	3%
R2385000	R8989	5%
R2650000	R12000	5%

You need to put massive R1 600 000 just to not lose any money. If you put down less than a cool million not even capital appreciation (estimated at 6%-8% by banks) is going to save you.

Western Cape IOL Index

Bargain Of The Month

Did anyone else see this ad in the Argus classified?

CLIFTON Direct on first beach, 3 roomed apartment & patio. Avail 1 March. R5 200 p/m.

A flat on 1st beach Clifton for just over R5 000 a month? That's madness!

Western Cape IOL Index

Incentives... for renting?!?

These days in the US you can't sell a house without throwing in a whole bunch of 'incentives' (which are used to avoid dropping the house price). I haven't seen much incentives on house sales in Cape Town, but for some reason today I found this ad with an incentive... for renting:

The monthly rental includes R100 voucher towards any treatment at the spa, you get R100 voucher every month!

Strange.

Investment Properties That Aren't: Wembley Square

Reader FS sent us this 1 bedroomed apartment in Wembley Square with an asking price of R950 000 (although that's negotiable). It's not mentioned in the ad but FS claims it rents out for R3500 a month with a R750 monthly levy bringing you a net income of R2750. What's your ROI?

Down Payment	Monthly Cash Flow	ROI
R95000	R-7267	-92%
R190000	R-6154	-39%
R285000	R-5041	-21%
R380000	R-3928	-12%
R475000	R-2815	-7%
R570000	R-1702	-4%
R665000	R-589	-1%
R760000	R524	1%
R855000	R1637	2%
R950000	R2750	3%

3% max ROI? No wonder he's selling.

Investment Properties That Arent: City Bowl

Here's a bachelor apartment in the City Bowl with an asking price of R490 000 and attaining a rental of a whopping R2500 a month. Here's the ROI

Down Payment	Monthly Cash Flow	ROI
R70000	R-2421	-41%
R140000	R-1601	-14%
R210000	R-780	-4%
R280000	R40	0%
R350000	R860	3%
R420000	R1680	5%
R490000	R2500	6%

Unless you can put down R280 000 (nearly 60%!) as a downpayment you're not even breaking even.

Western Cape IOL Index

Investment Properties That Aren't: Gardens

Another "investment opportunity" in Gardens. A 2 bedroomed flat on sale for R899 000 and tenated for R4000 a month. Here's your ROI:

Down Payment	Monthly Cash Flow	ROI
R100000	R-5373	-64%
R200000	R-4201	-25%
R300000	R-3029	-12%
R400000	R-1858	-6%
R500000	R-686	-2%
R600000	R485	1%
R700000	R1657	3%
R800000	R2828	4%
R900000	R4000	5%

1% annual return on investment with a 66% (R600 000) downpayment? And that's before levies, taxes and maintenance. 5% rental return if you buy the place outright. With that kind of return you'd be crazy not to buy!

Investment Properties That Aren't: The Waterfront

It's quite rare to find a property in the Waterfront that's both for sale and if need be for rent but the Cape Town property market has yet to disappoint. Now usually the folks who can afford to buy in the Waterfront don't worry about rental returns and all that money stuff us peasants have to keep in mind but even in this area the rent/bond payment ratio is still out of whack.

Here's a 2 bedroomed apartment at the Waterfront (described as an "Established lettings business") going for R8 500 000 (although that price seems a bit high to me) but it's also available for rent at R30 000 a month. If our intrepid investor came along and bought the place for the asking price here's your ROI:

Down Payment	Monthly Cash Flow	ROI
R1000000	R-57868	-69%
R2000000	R-46152	-28%
R3000000	R-34437	-14%
R4000000	R-22721	-7%
R5000000	R-11005	-3%
R6000000	R711	0%
R7000000	R12426	2%
R8000000	R24142	4%

Barely breaking even with a whopping R6m downpayment and 4% interest ROI after buying the place in cash? If you've got that kind of many to spend then you've also got investment vechiles that get better returns. But let's say you manage to negotiate a whopping 30% discount and buy the place for an even R6 000 000, then your ROI is:

Down Payment	Monthly Cash Flow	ROI
R1000000	R-28579	-34%
R2000000	R-16863	-10%
R3000000	R-5147	-2%
R4000000	R6568	2%
R5000000	R18284	4%
R6000000	R30000	6%

6% return? That's only 3% less than a fixed deposit! And get this, the place has a daily rental of R1500 but even if it was 100% occupied for an entire year and you bought the place at R6m you would still only be making 9% ROI a year. I'll take two!

Western Cape IOL Index

Rent Vs Buy: De Waterkant (Again!)

We've focused a lot on the De Waterkant area of Cape Town in the past because it is one of the prime areas where the rent vs. bond payment ratio is completely out of whack. Take the following example. Let's say you want find a 2 bedroomed place in De Waterkant. Here's a rental ad from today's paper:

DE WATERKANT/Loader Street. Double storey comprising 2 b/rms, bath/rm (upstairs), Lounge, diningrm (d/stairs). 1 Feb, R4 500pm %

But how much will it cost to buy something equivalent. Well here's a 2 bedroom/1 bathroom De Waterkant property going for R 2 590 000, although I'm unsure if it's a flat or apartment. Here's something closer to what we have, a 2 bed/1 bath house on Loader street (same street as the rental property) and it's a steal at an asking price of only R3 200 000.

Now if we take an average price of R2 900 000 for a 2 bedroom house(cottage is more the word really) you'll be paying a whopping R33 975 a month with no downpayment and R30 460, R29 100, R12 019 a month with a R300 000, R600 000 and R1 950 000 downpayment respectively.

At most renting will save you a whopping R29 475 a month and with a massive 50% downpayment renting will still be R7 519 cheaper a month. That's madness!