Having moved back to South Africa recently, my Gast was Flabbered as to how little South
Africans UNDERSTAND money. Seriously. Nothing. Fuck all. I realise it sounds
crass, however the understanding money will have a profound impact on your long
term financial health.
House (estate agents love using the word "home") buying, an emotive subject, especially for the female of the species. To buy, or not to buy? Speak to the agents, and they will tell you it's an "investment", and this is where my hair really starts to grow!!!!So let's define an investment:
"An investment is an asset or item acquired with the goal of generating income or appreciation. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will later be sold at a higher price for a profit."
Here is the link
https://www.investopedia.com/terms/i/investment.asp
As with any investment, let me run some numbers:
House Price: R2,000,000-00
Deposit: R1,000,000-00 (I am being very generous with this, but bare with me, I will get back to this later)
Mortgage: R1,000,000-00
Interest Rate: 10% (the prime lending rate as of 27rd July 2019 - that is an interest rate of elephantine proportions in case you are wondering, and something people do not fully appreciate as to how damaging it is to your long term (w)health)
Repayment period: 20 Years
Monthly Payment: R9,650-00 (this excludes homeowners insurance!!!)
Now here come the ugly bits:
Total interest paid: R1,316,051-00!!!!!!
Transfer Cost: R94,835-00
Bond setup cost: R29,950-00
Levy: R2,000-00 p/m
Tax: R1,500-00 p/m
Insurance: R500-00 p/m
Total monthly cost of "ownership": R13,650-00.
Now bear in mind you have had to put down a R1mil deposit to achieve this monthly payment. Money which you could have stuffed into a simple 32 day notice account, earning about 6.5% will make YOU R2,656,446-00 in INTEREST over 20 years!!!!Ouch (or is it eish?)!!!!!!
I am going to clang the calculator some more:
Let us assume you will stay in the house for 6 years. The set up cost would be R124,785-00 (Transfer cost plus the bond set up cost)and divide it by 72, which will add another R1,733-00 per month that you can add to your monthly cost.
Total monthly cost so far: R15,383-00, and I have not even considered estate agents commission running at approximately 6% of the sale value (if you sold the house for what you bought it for, that would cost you ANOTHER R120,000-00 for a R2mil property!!!!!!!)
I can feel the cogs spinning away....ah, however the argument will inevitably lead the to following, "well, at least I am paying the house off while living in it, and not tossing the money into a Landlords pockets!!!!!" WRONG!!!!!!
In those 72 months you will have paid a whopping R565,613-00 interest and only reduced your bond by a mere R129, 201-00!!!!! You will only have just covered the estate agents commission!!!! There are only so many Exclamation marks I can use without being sued for copyright infringement!!!!!!!
I haven't factored in maintenance and other unexpected costs yet, so that meager R9,201-00 "profit" will vanish with a simple geyser replacement..........
Oh, the vast majority of people don't have R1mil for a deposit. The numbers are even worse for a 100% bond........
So much for an investment. The only people making any money, is the bank, the estate agent and pretty much everyone other you!!!
To mis-quote John Lennon, "Give renting a chance"
Next time: Investing, it's simpler, and more profitable than you realise.
House (estate agents love using the word "home") buying, an emotive subject, especially for the female of the species. To buy, or not to buy? Speak to the agents, and they will tell you it's an "investment", and this is where my hair really starts to grow!!!!So let's define an investment:
"An investment is an asset or item acquired with the goal of generating income or appreciation. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will later be sold at a higher price for a profit."
Here is the link
https://www.investopedia.com/terms/i/investment.asp
As with any investment, let me run some numbers:
House Price: R2,000,000-00
Deposit: R1,000,000-00 (I am being very generous with this, but bare with me, I will get back to this later)
Mortgage: R1,000,000-00
Interest Rate: 10% (the prime lending rate as of 27rd July 2019 - that is an interest rate of elephantine proportions in case you are wondering, and something people do not fully appreciate as to how damaging it is to your long term (w)health)
Repayment period: 20 Years
Monthly Payment: R9,650-00 (this excludes homeowners insurance!!!)
Now here come the ugly bits:
Total interest paid: R1,316,051-00!!!!!!
Transfer Cost: R94,835-00
Bond setup cost: R29,950-00
Levy: R2,000-00 p/m
Tax: R1,500-00 p/m
Insurance: R500-00 p/m
Total monthly cost of "ownership": R13,650-00.
Now bear in mind you have had to put down a R1mil deposit to achieve this monthly payment. Money which you could have stuffed into a simple 32 day notice account, earning about 6.5% will make YOU R2,656,446-00 in INTEREST over 20 years!!!!Ouch (or is it eish?)!!!!!!
I am going to clang the calculator some more:
Let us assume you will stay in the house for 6 years. The set up cost would be R124,785-00 (Transfer cost plus the bond set up cost)and divide it by 72, which will add another R1,733-00 per month that you can add to your monthly cost.
Total monthly cost so far: R15,383-00, and I have not even considered estate agents commission running at approximately 6% of the sale value (if you sold the house for what you bought it for, that would cost you ANOTHER R120,000-00 for a R2mil property!!!!!!!)
I can feel the cogs spinning away....ah, however the argument will inevitably lead the to following, "well, at least I am paying the house off while living in it, and not tossing the money into a Landlords pockets!!!!!" WRONG!!!!!!
In those 72 months you will have paid a whopping R565,613-00 interest and only reduced your bond by a mere R129, 201-00!!!!! You will only have just covered the estate agents commission!!!! There are only so many Exclamation marks I can use without being sued for copyright infringement!!!!!!!
I haven't factored in maintenance and other unexpected costs yet, so that meager R9,201-00 "profit" will vanish with a simple geyser replacement..........
Oh, the vast majority of people don't have R1mil for a deposit. The numbers are even worse for a 100% bond........
So much for an investment. The only people making any money, is the bank, the estate agent and pretty much everyone other you!!!
To mis-quote John Lennon, "Give renting a chance"
Next time: Investing, it's simpler, and more profitable than you realise.
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