Bond payments fully covered

LARGE, EXPENSIVE CAPE HOMES BOUGHT PRIOR TO 2004 ARE NOW BRINGING IN IMPRESSIVE RENTAL RETURNS

A surprising number of Greeff Properties clients are opting now to rent out their homes rather than to put them on the market and the reasons for this, says Mike Greeff, Chief Executive of Greeff Properties, are not difficult to understand.

“Anyone who bought a home prior to 2003/4,” said Greeff, “would have seen at least a 125% appreciation in value to date and as the rents are by and large calculated on today’s values, it is now possible for a landlord who has owned his home for five years or more actually to cover or almost cover his monthly bond repayments.”

Quoting a typical example, Greeff said that a home owner who had bought a home in Constantia for ±plus R2 million in 2003 had seen his home appreciate in value to R4,5 million by the end of last year. (The increases this year, said Greeff, “as we all know” have been far slower than before.)

Originally, said Greeff, the owner had been paying 12,5% interest on a 95% bond (these were readily available in 2003) and now is paying 13%, i.e. roughly R22,000 per month.

This, said Greeff, is about R3,000 more than the original payments but in the meantime the rental has risen from ± R12,000 per month to R23,000 per month - a very welcome increase for those owners who are trying to cover as much of their bond repayments as possible.

“With fewer people buying large Constantia, Bishopscourt and Upper Kenilworth homes,” said Greeff, “rental properties valued at above R3 million are in demand. A R4 million plus home with three or four bedrooms is being rented at between R22,000 to R25,000 per month, while similar older homes are still getting rentals of R18,000 to R20,000 per month. These are very good returns, even in today’s depressed market.”

Surprisingly, said Greeff, there are still certain investors buying expensive Constantia and Bishopscourt homes to rent out, even though the rental may well cover only 40% of their bond repayments. The belief here, he says, is that the capital appreciation will be substantial in the next five years. This arrangement, he added, can make especially good sense if the owner is earning a large salary or has other rental properties on which he is showing a profit. In such a case the income can be offset against the interest paid on the newer investment.”

Article from: www.greeff.co.za