I have just bought a property in Princess Beach Hout Bay, three bedrooms two bathrooms, garage,garden etc etc, 114 square metres. Price 1.18 mil. Rental return 7 500 a month. Subtract levy,maintenace etc 6 000 zar a month. Good or bad buy?
R1.18 million divided by R72 000 = 6.25% return....eina
That kind of nett return was being achieved in the so called boom times of the market.
As a active property investor and flipper, I dont touch property that doesnt give me at least 11% nett return. This can be achieved by buying at insolvent, deceased, distressed and repossessed auctions.
And since you bought through a traditional sale, you should have offered at least 40% leass than asking price and negotiated from there. Plus, Hout Bay prices have crashed due to alot of stock on the market and the fact that its becoming a dangerous place to live.
Lets say you bought with cash in hand - 1.3 m including buying costs. Had you put that in the bank and gained 11% interest, you earn 140,000 a year.
Put the cash into the house and you only earn 72000 a year.
Plus you will probably lose equity as it falls in value over the next few years.
So the bank option would have been a better return.
Lets see what happens If you borrowed the money - with 13% interest it costs you 14000 a month. You earn 6000 in rent if you are lucky (no voids). So you lose 8000 a month. That is before any depreciation. A great way to go bankrupt.
Lets say now that you are actually living in the house. Well if you had you cash in the bank and then spent that interest money on rent, it will cost you 90,000 a year, saving you 50,000 a year compared to buying.
So in 3 years time you would have 1.45m in the bank, your house could be bought for 900,000, lets say 0.95m with buying costs. That leaves you with 500,000 in the bank.
By buying now instead of in 3 years time, you have flushed that 500,000 down the toilet.
Sorry Boet, but you just bought yourself a "Nightmare on Elm Street" - you are certainly going to lose at least R400k within the next year or two - what possessed you to spend that kind of money when, from your question, you obviously were not sure of what you were doing?
Fy way of parallel example, there is no way I would go and dropn R1.18 million into the stock market on a share I had not researched, even LESS so if I had borrowed the money in the first place - now you have done that on a property that you KNOW is underwater from the word go?
No sorry boet, I don't understand people like you, and you have my fullest sympathy.
Good luck for the future - I have the feeling you're going to need it.
The above just shows how much insanity is left in the market...do people actually read newspapers or watch the news, perhaps look at a few property websites and alternative media...and then just take a look around them?
And for those calling a bottom heres some news from the States...
When Yale professor Robert Shiller stopped by recently to discuss Obama's housing fix, I also asked him about the housing market in general.
Specifically, where are we in this historic price collapse? Finally nearing the bottom?
Not a chance, said professor Shiller--unless the government finds some way to miraculously levitate prices again.
Despite the 25 percent nationwide decline since the 2007 peak, U.S. house prices have still only fallen halfway to fair value. So whatever you think of Obama's plan, don't count on a quick housing-market turnaround.
Said some interesting things for those still in denial... "Another piece of evidence that suggests it was a bubble... The valuation of assets went up rather than the earnings stream"
12 comments:
Quick question
I have just bought a property in Princess Beach Hout Bay, three bedrooms two bathrooms, garage,garden etc etc, 114 square metres. Price 1.18 mil. Rental return 7 500 a month. Subtract levy,maintenace etc 6 000 zar a month. Good or bad buy?
You are kidding, right?
Use the buy-to-let framework published by the web master and it's very easy to see you're underwater from the get-go
Please tell me you're joking!
HoutBay is becoming too dangerous, too many crimes with the 2 townships of handberg and IY. people are often attacked and robbed on the beach
Thats a attrocious buy..sorry to say.
R6000 nett rental x 12 months = R72 000
R1.18 million divided by R72 000 = 6.25% return....eina
That kind of nett return was being achieved in the so called boom times of the market.
As a active property investor and flipper, I dont touch property that doesnt give me at least 11% nett return. This can be achieved by buying at insolvent, deceased, distressed and repossessed auctions.
And since you bought through a traditional sale, you should have offered at least 40% leass than asking price and negotiated from there. Plus, Hout Bay prices have crashed due to alot of stock on the market and the fact that its becoming a dangerous place to live.
how does R1.18M divided by R72000 gives a result of 6.25?
Grant, Grant, Grant! Dude! I'm afraid they saw you coming, with a huge bullseye on your forehead.
As an uber-bear I think that doing sums with rental return and appreciation etc is just rearranging deckchairs on the Titanic.
The bigger picture here is that you just paid R1.18 million for something that is going to be worth between 700k and 800k in a year or two.
My condolences.
For Grant
Lets say you bought with cash in hand - 1.3 m including buying costs. Had you put that in the bank and gained 11% interest, you earn 140,000 a year.
Put the cash into the house and you only earn 72000 a year.
Plus you will probably lose equity as it falls in value over the next few years.
So the bank option would have been a better return.
Lets see what happens If you borrowed the money - with 13% interest it costs you 14000 a month. You earn 6000 in rent if you are lucky (no voids). So you lose 8000 a month. That is before any depreciation. A great way to go bankrupt.
Lets say now that you are actually living in the house. Well if you had you cash in the bank and then spent that interest money on rent, it will cost you 90,000 a year, saving you 50,000 a year compared to buying.
So in 3 years time you would have 1.45m in the bank, your house could be bought for 900,000, lets say 0.95m with buying costs. That leaves you with 500,000 in the bank.
By buying now instead of in 3 years time, you have flushed that 500,000 down the toilet.
So"bad buy" it is.
Grant
Sorry Boet, but you just bought yourself a "Nightmare on Elm Street" - you are certainly going to lose at least R400k within the next year or two - what possessed you to spend that kind of money when, from your question, you obviously were not sure of what you were doing?
Fy way of parallel example, there is no way I would go and dropn R1.18 million into the stock market on a share I had not researched, even LESS so if I had borrowed the money in the first place - now you have done that on a property that you KNOW is underwater from the word go?
No sorry boet, I don't understand people like you, and you have my fullest sympathy.
Good luck for the future - I have the feeling you're going to need it.
The above just shows how much insanity is left in the market...do people actually read newspapers or watch the news, perhaps look at a few property websites and alternative media...and then just take a look around them?
And for those calling a bottom heres some news from the States...
When Yale professor Robert Shiller stopped by recently to discuss Obama's housing fix, I also asked him about the housing market in general.
Specifically, where are we in this historic price collapse? Finally nearing the bottom?
Not a chance, said professor Shiller--unless the government finds some way to miraculously levitate prices again.
Despite the 25 percent nationwide decline since the 2007 peak, U.S. house prices have still only fallen halfway to fair value. So whatever you think of Obama's plan, don't count on a quick housing-market turnaround.
http://finance.yahoo.com/tech-ticker/article/190712/Shiller-House-Prices-Still-Way-Too-High?tickers=^gspc,^dji,hd,kbh,tol,ctx,xhb
Said some interesting things for those still in denial...
"Another piece of evidence that suggests it was a bubble...
The valuation of assets went up rather than the earnings stream"
Who's the anonymous mampara who asked 'how does R1.18M divided by R72000 gives a result of 6.25?'.
The annual rental return is 6.255 if you buy for R1.18 million and recieve R72 000 per annum.
no wonder estate agents are still selling way overpriced property as there are still palookas who cannot do the sums....WTf!!!!
Using this formula:
(amount ÷ total) × 100 = percentage
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