Patrick this is a very interesting picture and once again a very well written article.
I do believe though that each property yields different results based on it's state, whether it has a pool, is plastered or face brick, has a cottage for additional income, garden size, security requirements, municipality it's in and average growth for the area you purchased in etc. etc. There are just too many variables, and people need to understand that before jumping feet first when buying a primary residence. Primary residence purchases are always emotional buys and that's the biggest problem.
Now I understand what you're saying about the rent vs buy argument, and please don't take a offence to this, however I think your house was a bad buy from the on set and yes you cannot compare the performance of your primary residence to the stock market as you'll always need a roof over your head. Yes, hindsight is a b#@&*, and I guess back then when you bought it you weren't as educated as you are now, myself included. No better way to learn than through the University of life I guess.
My opinion is it's always going to be better owning your own house outright vs renting and paying it down as quickly as possible if you're not in a position to pay cash, and if you don't buy a money pit. If you look at it purely from a cash flow perspective this will always win over renting long term as I'm sure that had you rented the same type of house you bought the rent would've been about .8% of the purchase price. Then into that calculation which you didn't seem to factor in is annual rental increases of between 4-10% p/a. Calculate that over 20 years and you would've spent tons more renting vs buying your house. At R7000 rent pm back then you would've probably only being able to rent a 2 bed 1 bath townhouse in your area, and would probably be paying R10k pm now rent for the very same townhouse.
The common mistake people make is buying too much house than they need, hence they end up spending way more than they should long term.
I was in a very similar boat to you, except, back in 2010 I never had the 1.45mil that was paid for our house. We bought in Aug 2010. With that, a 10% dep was required and roughly 90k for costs, totaling 235k initial upfront costs. So I had to get a bond. However, we paid it off in June last year. What helped me was that I ended up renting out the place I initially purchased which had also increased in value over time, as well as another rental investment. Both these places increased in value as well as the rents charged. I was profiting every month and SARS was very happy with me. I ended up refinancing both these places for an additional 550k and using those funds towards paying down the primary residence bond. This was free money because the tenants service those bonds every month not me, and SARS ain't so happy with me anymore as I break even every month. To top that there is still equity in those properties, so if I ever had to sell them I would still come out on top. Simply put, on average and I don't have all the real figures in front of me, but we averaged paying 25k or more p/m to get there. Yes, if we had the full asking price up front and paid for the house outright I would've saved a lot more in interest. Doing the same calculation as you and had I had the full asking price and just stayed put in the place I was staying in and pumped it into STXIND instead I would also be worth over 4mil now. Problem is there was no way I was staying put. Having said that, I set out to look for a place with additional income, ie. with a cottage which offset some of the monthly costs of footing the entire bill myself.
So in my situation, I had to do a different scenario calculation comparison because I didn't have the full asking price in cash. Had I not paid the house off, and instead paid the avg bond payment of 12k pm and invested the balance of 13k pm into STXIND it would've yielded me roughly the same results as just pumping all my surplus into the bond and paying off over that time period. The STXIND investment would be currently sitting on around 1.7mil and the outstanding bond amount owing would still roughly be what it was as when I first bought it. I would've then needed to sell the STXIND investment, pay Tax on the profits and settle the bond. All this with the added risk of the market taking a dive and not being able to settle the bond. So I went for 1st prize which was a pretty solid bet. Now, me and my family will always have a roof over our head without needing to pay a bond, so sleep easier at night, and start growing the stock portfolio with surplus funds every month.
Bottom line whether it's renting or buying a primary residence it's always going to feel like a grudge purchase, just like insurance. It's one of those necessary evils, except, that if it's your own and not rented you at least have some control over it by being able to improve your cash flow by paying extra off, and guess what if you find your self needing cash, you take it out the access bond. Renting you have no control accept to keep downsizing and ultimately moving to worser area's over time, of which I find very rare that people will do. Probably exactly the opposite and ultimately end up spending more on rent to live in a nicer place.
Would I purchase another investment property now, probably not, because it requires quite a bit more effort than investing in the stock market while holding down a day job to ensure you place the right tenants. I have this down to a T now I might have you know, but it's work, anymore properties and cracks would start to show with holding down a day job. The only thing that really still keeps me interested in property and rental properties that is, is the power of leverage. The trade-off is the amount of work required to manage them properly vs investing in stocks which is capital intensive without the advantage of leverage that you have with a bonded property investment over time. Now the other catch with this is what would your strategy be? Capital growth or income. If we start looking at it from another angle, from a cashflow perspective investing in rental property vs stock market rental property will win. I'm now talking purchasing rental properties cash vs investing in the stock market. I've calculated that with using the 4% safe withdrawal method on your stock portfolio you'd need about an 8mil portfolio to yield roughly the same income a 4 mil rental property portfolio will yield. But you would need time to manage this. I wouldn't recommend this strategy until you're in a position to give up your day job and focus on the portfolio yourself. So, perhaps the strategy for us day jobbers should be to focus on capital growth in the stock market until you reach some critical mass point where you can convert some of that capital into cash purchased properties later on to provide your required monthly income, because ultimately it's income that keeps us going.
Food for thought
