This has to be one of the biggest indicators that the link between rents and property prices are completely out of whack. Here is a 2 bedroomed apartment in Mutual Heights in the Cape Town CBD on the market for R2 395 000. It manages to attain a net rental of R4 200 a month (R6 000 - R1 800 in levies). A 100% bond will cost you R30 655 a month, nearly R26 000 more than what you could rent it for. The difference between the attainable rent and bond payments is greater than five times than the rental itself! You already can see the ROI and payments are going to be dismal so here goes:| Down Payment | Monthly Payment | Cash flow | Annual Income | ROI |
|---|---|---|---|---|
| R0 | R30655.95 | R-26455.95 | R-317471.36 | |
| R239500 | R27590.35 | R-23390.35 | R-280684.22 | -117.20% |
| R479000 | R24524.76 | R-20324.76 | R-243897.09 | -50.92% |
| R718500 | R21459.16 | R-17259.16 | R-207109.95 | -28.83% |
| R958000 | R18393.57 | R-14193.57 | R-170322.81 | -17.78% |
| R1197500 | R15327.97 | R-11127.97 | R-133535.68 | -11.15% |
| R1437000 | R12262.38 | R-8062.38 | R-96748.54 | -6.73% |
| R1676500 | R9196.78 | R-4996.78 | R-59961.41 | -3.58% |
| R1916000 | R6131.19 | R-1931.19 | R-23174.27 | -1.21% |
| R2155500 | R3065.59 | R1134.41 | R13612.86 | 0.63% |
| R2395000 | R0.00 | R4200.00 | R50400.00 | 2.10% |
OUCH! 2.10% return on investment when you buy it for cash and that's before maintenance and vacancy costs. I think this is one of the worst ROIs I've seen before those costs are taken out. Once they are taken into account you'll be lucky to have a ROI above 1.5%. A 90% deposit, about R2 155 000, is needed just to break even on cashflow.
Who in their right mind would pay R30 000 a month when you could rent it for R6 000?
5 comments:
Here's an interesting exercise. Lets assume that in 3 years time the bubble prices will have dropped to normal levels. Lets also assume that rentals increase 10% a year over the next 3 years. If things have returned to normal then sale price should be about 12 times rental - this will mean that this property will be valued at about half what it is now ... OUCH ... not the sort of "investment" people were hoping for!
At it's current asking price this is not even close to being investment. Anyone who buys this as a buy-to-let better be asking for a serious discount off the current price.
Well, if I can rent it for 42000, I would actualy be making a profit, wouldnt I?
Whoops! Thanks for catching that typo.
Have you heard of the concept of "Rent your lifestyle and invest in buy-to-let properties".
I have done the numbers which speak volumes.
I agree - so if you can afford a massive bond payment rather rent the same property and by true buy-to-let properties.
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