In the previous entry I stated that rent/bond ratios in Stellenbosch are bad but they're not as bad as some that you would find in Cape Town itself. Reader BG was quick to email and point me to this ad for a 4 bedroomed house in Stellenbosch selling for R2 685 000 and that rents for R6 000. Ouch. This is going to get ugly.On a 100% bond the difference between the bond and the rent is 4.7 times the bond. Here's the payments and return on investment you can expect.
| Down Payment | Monthly Payment | Cash flow | Annual Income | ROI |
|---|---|---|---|---|
| R0 | R34367.94 | R-28367.94 | R-340415.28 | |
| R268500 | R30931.15 | R-24931.15 | R-299173.75 | -111.42% |
| R537000 | R27494.35 | R-21494.35 | R-257932.22 | -48.03% |
| R805500 | R24057.56 | R-18057.56 | R-216690.70 | -26.90% |
| R1074000 | R20620.76 | R-14620.76 | R-175449.17 | -16.34% |
| R1342500 | R17183.97 | R-11183.97 | R-134207.64 | -10.00% |
| R1611000 | R13747.18 | R-7747.18 | R-92966.11 | -5.77% |
| R1879500 | R10310.38 | R-4310.38 | R-51724.58 | -2.75% |
| R2148000 | R6873.59 | R-873.59 | R-10483.06 | -0.49% |
| R2416500 | R3436.79 | R2563.21 | R30758.47 | 1.27% |
| R2685000 | R0.00 | R6000.00 | R72000.00 | 2.68% |
90% dowpayment required to break even on cashflow and if you pay full price you can expect a dismal 2.68% ROI, a whopping 6% below inflation. In fact in reality once rates, maintenance and vacancy costs are taken into account you can expect that 2.68% yield to fall below 2% if not further.
And then there's this little snippet from the ad: "This oldish house situated on a large lot is a renovators dream". So you're going to have to pour even more money into it over and above the asking price.
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