Share Forum - Discuss JSE shares and join the Investor Challenge

Rentals that can be fetched in JHB is significantly higher than CPT, especially if you work in Sandton and want to live in the surrounds...

I was in investment properties for some time and coupled with the market being slow and incurring problem tenants I decided to sell up and use the funds in the stock market where results over the last two years have been steady at best and it got me thinking a few weeks ago of precisely what is being discussed on here in that the equity tied up in your abode(where you live)  you will never see unless you sell and enjoy the proceeds and rent a property to live in. If it's your goal to leave the primary property to your kids then as has been stated previously you'll never enjoy the money!

A mate of mine sold his house a few years ago making a good profit and bought a small new build 2 bed house that he and his wife are more than happy with and now they spend their retirement travelling overseas 2 or 3 times a year and this is my plan so I'm in my early sixties now with no kids and I've decided to put my abode property up for rental it's on the Blouberg beachfront and my partner and I have decided we both want to live on a golf estate so we're going to give it a go and my rental income will cover the golf estate rental therefore my abode property is working for me and if we like the new lifestyle then I'll view the abode prop as an investment and probably sell in a few years when the time is right to fund that retirement lifestyle I dream about!     

Explain to me where you save money renting?

Property Value: 550k
Repayment: appx R5000  @ 9.25%
Interest at the beginning (reducing over time): 4k
Rates, levies etc: R2k
Rent: 6k

So you rent a place worth 550k for argument sake at a rental R6k pm. You, as the tenant, cover my R4k interest and Ill gladly cover the capital component (R1k). The R2k goes to covering the rates and levies. And I get to write off the rental against tax (interest, levy, rates etc). So you are still paying someone else's bond, no matter how you slice and dice it. Buy it, pay it off as fast as possible. I've seen what renting does to younger people vs myself who bought at 25 and drove a Shiti Golf for almost 16years.

Rental yields are much lower than that, you also left out a bunch of expenses. Here is a more realistic example:

Price of prop: R550000
100% bond: R550000
Transfer cost and bond registration fees: R30,651.40 spread over 7 years (average time people keep a property) = R365pm
Selling cost: R30k spread over 7 years = R360pm
Rates and taxes: R600pm
Levies: R600
Repayment (interest portion): R4240pm
Repairs and maintanance (1% per year is the average) = R460pm
Insurance: R100pm
Rent at 8% yield: R3667pm
Vacancy rate of 5%: R183pm
Property management company (10% of rent): R367pm

Cash flow: 3667 - 460 - 4240 - 600 - 600 - 360 - 365 - 183 -100 -367 = -R3608

The tenants are clearly not paying your bond. You are losing money and you are taking on a TON of risk. Ouch. The devil is in the details. If you leave out half the expenses it will bite you later on. Been there got the T-shirt 

Also, the laws in this country are pro-tenant. It can easily take up to two years to evict non-paying tenants.

Rental yields are much lower than that, you also left out a bunch of expenses. Here is a more realistic example:

Price of prop: R550000
100% bond: R550000
Transfer cost and bond registration fees: R30,651.40 spread over 7 years (average time people keep a property) = R365pm
Selling cost: R30k spread over 7 years = R360pm
Rates and taxes: R600pm
Levies: R600
Repayment (interest portion): R4240pm
Repairs and maintanance (1% per year is the average) = R460pm
Insurance: R100pm
Rent at 8% yield: R3667pm
Vacancy rate of 5%: R183pm
Property management company (10% of rent): R367pm

Cash flow: 3667 - 460 - 4240 - 600 - 600 - 360 - 365 - 183 -100 -367 = -R3608

The tenants are clearly not paying your bond. You are losing money and you are taking on a TON of risk. Ouch. The devil is in the details. If you leave out half the expenses it will bite you later on. Been there got the T-shirt 

Also, the laws in this country are pro-tenant. It can easily take up to two years to evict non-paying tenants.

I might have understated what it really could cost (though registration isnt applicable in this case). I had a tenant for two years, who looked well after the place, I rarely had maintenance issues so my expenses didnt get close to what you experienced. When he bought his own place, i sold it because as you said rightly MoneyChief, there is a ton of risk and i'd much rather take my chances with the stock market.