Here's a house in Gardens in Cape Town. You can buy it for R2 500 000 (R29 289 a month with our soon to be 13% interest rate), or you can rent it for R12 5000, nearly R17 5000 cheaper than buying a month. If you were to buy it as an 'investment' property here's your return on income.| Down Payment | Monthly Cash Flow | ROI |
|---|---|---|
| R100000 | R-15267 | -183% |
| R400000 | R-11859 | -36% |
| R700000 | R-8451 | -14% |
| R1000000 | R-5042 | -6% |
| R1300000 | R-1634 | -2% |
| R1600000 | R1775 | 1% |
| R1900000 | R5183 | 3% |
| R2200000 | R8592 | 5% |
| R2500000 | R12000 | 6% |
You'd have to put down a massive R1 400 000 to break even and the entire cost of the property to make 6% a year ROI. Not exactly scintillating returns is it?
2 comments:
Add 10% buying costs, plus rates and 10% rental agency fee and your ROI for full purchase is about 4.2%. Two years of this profit would be needed for selling costs. If prices drop which is extremely likely in the next few years, your so called 'investment' becomes a money pit.
See http://flippersintrouble.blogspot.com/ to get a taste of where we are heading - houses in the US west coast are already selling at 30% less than last years purchase price and the crash is only just starting. More and more indicators point to the US heading for a recession and possibly even a depression in the next year.
In the UK 25% of all bonds are interest only! House prices to salaries are at record highs. The banks are being warned to be prepared for a possible 40% house price crash - the ex economics editor of the Times predicts a 50% crash ...
Meanwhile SA prices in the last 10 years have escalated much higher than any where else in the world - our income / house price ratios are the highest in the world - I am increasingly of the belief that we will see prices drop 30 -50% in the next few years ... these are very uncertain times - there are financial bubbles all round the world in a whole range of investment arenas and it looks like they are all going to implode in quick succession.
I am reading this, visiting from the future...March 09. Flipping amazing. How could a whole country-scratch that-an entire planet be so stupid and create this ridiculous bubble. Look at the ROI figures!!!!!!!!! Its simple math!!!!!!! These goddamn greedy filthy banks should be left for dead.
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