Here's a 3 bedroomed flat in Stellenbosch on the market for R1 500 000, with a monthly rent of R6000/month. According to the ad it's the 'best investment'. Considering it's in Stellenbosch I would assume it's a student flat which means one thing: high maintenance costs! Let's look at the yield/payment graph.
Paying for the place in cash gets you a 4.8% ROI with a downpayment over 67% required (over a R1 000 000) to just break even on cash flow. With a 50% downpayment you need a 2.66% capital appreciatin return to not lose any money at all. Take off rates, levies and maintenance and the returns drop even more.
2 comments:
I was a student renter there in 2001-2003.
Firstly, what a shocking photo. don't adjust your sets!
It's not a 'normal' property market(if there is such a thing).There is a lot of demand for student accomodation as the university has consistently grown over the past 10 years. Some people buy a place for a few years whilst their kids are there. All of my contemporaries who did that during my time, made a killing when they sold in 2003-2005.
Another misconception is the high 'maintenance'. A lot of the houses there are.....student proof!Most landlords don't spend a cent on maintaining their places, but will do it up once in a while if they are going to rent to non-students.
For instance, the place I rented with some friends(the one was the owner's son). 4 bedroom duplex right near campus/pubs. Bought in 2000 for R380k, rented at R4k5-R5k5pm. sold in 2004 for R1.2m.
You don't need your graphs to see that's a good option. However it's obvious that it relies on there being a continued undersupply of rental stock for rents and sale prices to remain so high.
I think these people might have already missed the boat.
Thought you guys would find this a good read:
http://www.marketoracle.co.uk/Article9852.html
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