So you're thinking of buying an investment property? How about this 3 bed apartment in sunny Tamboerskloof on the market for a mere R1 690 000 and luckily it's renting for R7 000/month till November 2011. Or rather it's renting for R7 000/month gross, take away rates and levies of R1100/month the net rental income is R5 900/month.Now with a purchase price R1 690 000 your monthly payment on a 100% bond is R15 205/month (and that's with 30 year record low interest rates) and the difference between rental and bond payment is R9305/month, over 1.5 times the net rental. Added to that the transfer costs are R120 000, nearly 2 years (20 months to be exact) of net rental income!!!
Here's the yield and cash flow graphs:
Right so if you put down the entire R1.69 million you can look forward to a max ROI of 4.19%, a ROI you'd get if you dumped all your money into a transmission account. To break even on cashflow a deposit of over a R1 000 000 is needed. Even putting down a hefty 50% deposit still requires 1.21% capital appreciation to not lose any money.
5 comments:
A few snippets from an article in the M&G.
Knysna on the rocks
For sale signs have become fixtures. Many are dilapidated and faded with age. Sellers try to refuse the low prices buyers offer for as long as possible. Many buyers can't obtain credit to fund their purchases. "A luxury three-bedroom house recently sold for R1,5-million, in an upmarket suburb where empty stands commanded R1-million not two years ago," says Stewart.
"Rental space has never been so readily available," he says. "Landlords are negotiating rentals at less than last year's rents. Certainly no increases are being achieved, since many businesses are just hanging on. The only increases I've seen are salary increases for municipal employees. Property sales have virtually come to a standstill, because companies are reluctant to invest in property where the rental stream is not guaranteed, while the holding costs escalate annually."
http://www.mg.co.za/article/2010-12-23-knysna-on-the-rocks
Holiday homes will always be tough to sell in a stagnant real estate market. And usually because they're a discretionary purchase when they need to be sold they need to be sold fast.
Agreed.
Whats interesting about the article is its all about property. All the unemployed mentioned, except the focus of the article, are in property; builders, bricklayers, tilers etc, and the woes are all property related.
Manufacturing, mining, farming etc are the bedrock of an economy, not building, renovating, selling or renting houses. Might look good for a while in the GDP but its just air. Houses are unproductive and useless in an economy, no matter how big or fancy; something Knysna and surrounds is busy learning.
Why would the transfer costs be R 120 000?
this renting house is beautiful.
Seattle Real Estate
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