Rent Vs Buy - Mututal Heights: R1 500 rent on a R1.4m apartment. Crazy pills!

An anonymous user on this post sent us a link to this listing for a 2 bedroomed apartment in Mutual Heights on the market for R 1 395 000. Rates and levies are R2 520/month, transfer costs are approximately R50 000.

And it's tenanted at R4 000/month. Till April 2012. Which means after expenses (but excluding maintenance) you'll be making R1 480/month. As the submitter said "I feel like I am taking crazy pills!". The difference between the rental and the bond is R11 000/month!! You're going to need a whopping 88% downpayment to have positive cashflow!

Do you even need to see the cashflow yield graph?

Down Payment	Monthly Payment	Cash Flow	Annual Income	ROI	Cap. Appr. Required
R0	R12551.18	R-11071.18	R-132854.13		9.52%
R139500	R11296.06	R-9816.06	R-117792.71	-84.44%	8.44%
R279000	R10040.94	R-8560.94	R-102731.30	-36.82%	7.36%
R418500	R8785.82	R-7305.82	R-87669.89	-20.95%	6.28%
R558000	R7530.71	R-6050.71	R-72608.48	-13.01%	5.20%
R697500	R6275.59	R-4795.59	R-57547.06	-8.25%	4.13%
R837000	R5020.47	R-3540.47	R-42485.65	-5.08%	3.05%
R976500	R3765.35	R-2285.35	R-27424.24	-2.81%	1.97%
R1116000	R2510.24	R-1030.24	R-12362.83	-1.11%	0.89%
R1255500	R1255.12	R224.88	R2698.59	0.21%	-0.19%
R1395000	R-0.00	R1480.00	R17760.00	1.27%	-1.27%

Rent Vs Buy: City Bowl - R1 000 000 Invested = 0% Return

Here's a 3 bedroomed 119m2 apartment in the City Bowl on sale for R2 100 000. That means with a 100% bond you can expect to pay R18 884/month.

It also rents for R9 500/month which also means you can expect to lose at least R9 394/month covering the difference between the rent and the bond payment. Take into account rates, levies and maintenance and you're probably losing well over R10 000 a month.

Let's take a look at the yield and payment graph and table:

Down Payment	Monthly Payment	Cash Flow	Annual Income	ROI	Cap. Appr. Required
R0	R18894.25	R-9394.25	R-112730.94		5.37%
R210000	R17004.82	R-7504.82	R-90057.85	-42.88%	4.29%
R420000	R15115.40	R-5615.40	R-67384.75	-16.04%	3.21%
R630000	R13225.97	R-3725.97	R-44711.66	-7.10%	2.13%
R840000	R11336.55	R-1836.55	R-22038.56	-2.62%	1.05%
R1050000	R9447.12	R52.88	R634.53	0.06%	-0.03%
R1260000	R7557.70	R1942.30	R23307.62	1.85%	-1.11%
R1470000	R5668.27	R3831.73	R45980.72	3.13%	-2.19%
R1680000	R3778.85	R5721.15	R68653.81	4.09%	-3.27%
R1890000	R1889.42	R7610.58	R91326.91	4.83%	-4.35%
R2100000	R-0.00	R9500.00	R114000.00	5.43%	-5.43%

Unless you put down at least a cool million you aren't breaking even on cash flow and paying in cash gets you 5.43% ROI. And that's before expenses are taken into account.

Rent Vs Buy: Tamboerskloof - An 'Asset' Shouldn't Cost You R9K/Month

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.

Rent Vs Buy: Glencairn Heights

Here's a 3 bed/2 bath house in Glencairn Heights currently on the market for R2 100 000.

But why pay R20 000/month in bond payments when the same house is rented out at R7 500 (for another year). The difference between the net rental income (before expenses) is R11 394/month, about 150% of the rental itself. You need a 60% deposit to break even on cash flow and your max ROI is 4.29%. Take off rates, taxes, maintenance and the numbers get even worse.

Here's the yield graph:

Rent Vs Buy: Cape Town CBD

Here's a 1 bed apartment for sale in Long Street on the market for R1 195 000. It's tenanted till January 2011 at R4500/month. Rates and levies total R1441/month leaving a net rental of R3059/month. A 100% bond will require a monthly repayment of R11532/month meaning that the monthly shortfall is R8473/month, nearly 3 times the net rental! Here's the yield graph:

Down Payment	Monthly Payment	Cash Flow	Annual Income	ROI	Cap. Appr. Required
R0	R11532.01	R-8473.01	R-101676.10		8.51%
R119500	R10378.81	R-7319.81	R-87837.69	-73.50%	7.35%
R239000	R9225.61	R-6166.61	R-73999.28	-30.96%	6.19%
R358500	R8072.41	R-5013.41	R-60160.87	-16.78%	5.03%
R478000	R6919.21	R-3860.21	R-46322.46	-9.69%	3.88%
R597500	R5766.00	R-2707.00	R-32484.05	-5.44%	2.72%
R717000	R4612.80	R-1553.80	R-18645.64	-2.60%	1.56%
R836500	R3459.60	R-400.60	R-4807.23	-0.57%	0.40%
R956000	R2306.40	R752.60	R9031.18	0.94%	-0.76%
R1075500	R1153.20	R1905.80	R22869.59	2.13%	-1.91%
R1195000	R0.00	R3059.00	R36708.00	3.07%	-3.07%

Just to break even on cashflow will require a deposit of R878 000, over 70% of the selling price and paying full price in cash will get you a return on investment of 3%.

Rent Vs Buy: Green Point - R1.17m = 0% return

Here's a 2 bed apartment in Green Point on the market for R1 900 000 which attains a monthly gross rental of R7 200. The flat is 62m^2 so R1 900 000 means the cost per m^2 is over R30 000/m^2 so this is in no way a value for money buy.

With a 100% bond the monthly payments are currently R18969/month which means the difference between that and the rental is R-11769 which is over 160% of the gross rental itself!

The bond costs alone are R139 000 which is over 18 months (one and a half years) of rent. Subtract rates/levies, maintenance and vacancy costs and the net rental income is probably closer to R6000 if not lower. Here's the yield graph:



To break even on cashflow with the gross rental requires a deposit of just over 62% of R1.17 million. Even with a 50% deposit you need capital appreciation of 1.44% to not lose any money. Paying for the entire property in cash nets you a return on investment of 4.55%. I think there are transaction accounts out there paying equivalent interest than that.

This block looked familiar and so I went diving off into the archives and found that in January 2008 the rental for a 2 bed apartment in this block was R7 000. In Jan 2010 it's R7 200. That's an annual rental increase of 2.8%, well below inflation. However the asking price in 2008 was only R1 250 000. Me thinks someone needs to sell at R1.9m to avoid losing any money (and hopefully make a profit) from paying in to cover the bond for the past few years. Specuvesting at it's finest.

Rent Vs Buy: The Orangerie

Finally! After watching it being constructed The Orangerie in Orange Street is finished! Out of the way welfare pensioners (a CPOA old age home was demolished to make way for it)! We need some shoddily built overpriced apartments.

Anyway so we haven't had a Rent Vs Buy analysis in a while so why not today. Here's a 2bed/2bath apartment on the market for R2 975 000.That means on a 100% bond you will be paying R29 701/month. Or you can rent the exact same apartment for R11 750 (that's gross not net). Now to be clear I would never advocate anyone rent a 2 bed apartment for R11 000+/month but that's just what the asking rate is at the moment for this joint (and that's if they achieve it). The difference between the bond and the rental is R17 951/month meaning that after year one you'll have lost R215 000. And it gets worse, the transfer duty on this property is over R230 000, which means you could rent this place for two years and be in the exact financial position as someone who bought it, except they will have paid in over R600 000 in bond payments in that time. Will capital appreciation make up the difference in two years?

I'd just like to add a final thought here: For close to 3 bar I'd like a decent kitchen, not a 'kitchen nook' in the middle of the dining/living area or whatever name developers call it.

Here's the yield graph:



So a deposit of R1 800 000 is needed to break even on cash flow. Paying for the whole place in cash gets you 4.74% ROI and that's before levies (which won't be cheap for this place), maintenance and vacancy costs.

Anyone got more info on the Orangerie? Is it a ghost town? Let me know at capetownbubble@gmail.com

Rent Vs Buy: Bloubergstrand - Invest R1.8m, Make R0.

This 2 bed/2 bath apartment in Blouberg is on the market for R2 650 000. That means with a 100% bond you will currently be paying R27352/month to cover the bond. Or you could rent it for R8 000/month, which means that the difference between rental and bond payment is R19352/month, nearly 2.5 times more than the rental income itself! Here is the dismal Payment and Yield graph.

Right, so paying for the place in full nets you a massive 3.62% return on investment, and to break even on cash flow you need to plonk down over R1 800 000 (a 70% downpayment). Putting down a 50% downpayment of R1 325 000 will still lose you over R60 000/year. Once you take into account rates, levies, maintenance and vacancy costs and the returns will be even lower.

Rent Vs Buy: Stellenbosch

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.

Rent Vs Buy: Somerset West - Endless Options To Lose Money

This double story house in Fernwood (in Somerset West, not Newlands) is on the market for a cool R2 400 000 and described as a 'wonderful investment opportunity'. It rents out for R9 000/month which means with a 100% bond monthly payments are R29844/month and the difference between rental and bond payment is a whopping R-20844. You'd lose close to R250 000 holding onto this while praying for +10% capital appreciation! Here's the payment and yield graph:

So paying in cash gets you a dismal 4.5% return on investment, less than half you'd get if you just left your money in the bank. You need R1.67 million (a hair under a 70% deposit) just to break even on cash flow and with a 50% downpayment you still need 2.96% capital appreciation to not lose any money. Take off rate, levies (sure to be huge for a house this size in an estate), maintenance and vacancy and that 4.5% ROI starts sliding down

Rent Vs Buy: Sea Point - Quiet Road = Silent Profit

Here's a 2 bed apartment in Sea Point in a 'quiet road' (does such a thing exist in Sea Point?) on the market for R980 000. It achieves a gross rental of R3 900/month. With a purchase price of R980 000, monthly payment on a 100% bond will be R12543/month and the difference between rental and bond payment is R8643, well over twice the gross rental (and the net rental income would probably be closer to 2.5 times if note more). Here's the income/yield graph:

Buying in cash you max ROI is 4.78%, about 5%-6% then leaving your money in the bank. With a 50% downpayment you still need 2.8% capital appreciation to not lose any money and you'll only be cash flow positive with a 68% downpayment (over R675 000!). Add in expenses like rates, maintenance and vacancy and the results are even worse

Rent Vs Buy: Gordon's Bay Never Disappoints

Staying in the Helderberg-ish area let's have a look at this 2 bed flat in Gordon's Bay. It's on the market for R629 000 and has a current gross rental of R2 400/month. Taking into account the levy of R432/month leaves you with a net rental income of R1 968. So on a purchase price of R629000 with monthly payment on a 100% bond of R8051/month the difference between rental and bond payment is R-6083, over three times the net rental income! Let's take a look at the no doubt terrible yield graph:

Ouch. A 3.95% ROI if you pay in cash and a whopping 75% downpayment required to be cash flow positive. Even with a 50% deposit you still need 4% capital appreciation to not lose any money at all. Take away other costs like taxes, maintenance and vacancy and the results get even worse

Suprise! Worst Investment In Hout Bay Still On The Market

The worst investment in Hout Bay is still for sale! We last saw it back in October 2008 and the asking price of R6 000 000 still hasn't changed. And with the rent locked in at R28 500 for five years (seriously what idiot land lord negotiated that lease agreement), unless you put down over R3.8 million as a deposit, you'll only be losing a couple hundred thousand a year.

Rent Vs Buy: Sea Point

Here's a bachelor flat in Sea Point on the market for R795 000, with a gross rental income of R3200. With a 100% bond your monthly payment is R10468/month, with the difference between that and the rental income being R7 268 - more than 2.27 times the rental itself! Here's the payment and yield graph:

Pay for the place in cash and you can expect a 4.83% return on investment. About 7% below what your money would earn sitting in the bank. Just to get cash flow positive you need to put down R551 984m a hair under 70%, as deposit. Put down 50% deposit and you still need over 3% capital appreciation to not lose any money at all. Take of rates, levies, maintenance and vacancy costs and the returns drop even more.

Rent Vs Buy: Rondebosch

Purchase price: R680 000. 100% bond: R9 206/month.
Rental: R3 200/month before rates, maintenance and vacancy.

62.24% (R443 642) deposit required to break even on cash flow. 5.65% ROI when paying in cash. 2.48% capital appreciation required with 50% deposit.

Rent Vs Buy: Malmesbury

We usually don't go this far out of Cape Town but here's a house for sale in Malmesbury, or rather as it says in the ad 22km behind Malmesbury and 6km inland, with an asking price of R990 000. With a 100% bond you'd be paying just over R13 400/month. Or you could rent it for R3 300 a month, just over 3 times the monthly difference (R10 103) between the rental and bond price. Here's the yield and payment graph.

That's pretty bad. A 75% downpayment to break even on cash flow and a just over 4% ROI if you buy in cash. But ignore that because the price of property 100km from Cape Town and 6km from the coast are just set to skyrocket right?

Rent Vs Buy: Sea Point Quickie

1 bed flat, R750 000 asking price, R3500 monthly rent.

Rent Vs Buy: Tyger Valley - Great Expectations

Here's an ad for a 2 bed apartment in Tyger Valley on the market for R1 300 000, or alternately you can rent it out for R10 000/month. But why rent it out for R10 000/month when you can rent an apartment in the same building for 68% less at R4 200/month?

So if you bought the place at R1 300 000 only to find your rental income isn't quite what the owner promised what can you expect? Well if you consider that with a 100% bond the difference between the bond payment and the rent is 3.2 times the monthly rental (R13 400/month) then you know it's going to be pretty bad.

Plonking down R1.3 million gets you a ROI of 3.88% which is about 8% below inflation. To be cash flow positive you have to put down just under R990 000 (a 76.14% downpayment).

Rent Vs Buy: Blouberg - A Loser All The Way

Here's possibly the worst 'investment' I've ever seen advertised in Blouberg. A 2 bed/2 bath apartment on sale for R1 250 000,a 'winner all the way' and 'IDEAL FOR INVESTORS', but which rents for... wait for it... R3 500/month. To put that in perspective the payments on a 100% bond is R16 923/month which means it would be 4.8 times cheaper to rent the place than buy it. The difference between the bond and the rental is R13 423/month alone, and if you were diligent and saved that money you'd be sitting with over R160 000 in your bank account at the end of the year.

The yield graph is as to be expected, horrendous:


So just to break even on cash flow you need a 79% downpayment, over R990 000. Paying for the place in cash get you a 3.36% return on investment. I think there are transactional accounts that earn more interest than that.

Rent Vs Buy: Royal Ascot

Here's a 2 bed/2 bath apartment for sale in Royal Ascot(Milnerton) on sale for R1 195 000 with a current rental of R5 500/month fixed for the next year. With a 100% bond the monthly payments are R16 178/month leaving you with a shortfall of over R10 000/month. Here's the payment and yield graph.



Buying in cash gets a return on investment of 5.52%, less than half of inflation. A 66.01% (over R780 000) deposit is needed to be cash flow positive with 2.6% capital appreciation required to not lose any money even with a 50% dowpayment.