This double story house in Fernwood (in Somerset West, not Newlands) is on the market for a cool R2 400 000 and described as a ‘wonderful investment opportunity’. It rents out for R9 000/month which means with a 100% bond monthly payments are R29844/month and the difference between rental and bond payment is a whopping R-20844. You’d lose close to R250 000 holding onto this while praying for +10% capital appreciation! Here’s the payment and yield graph:
So paying in cash gets you a dismal 4.5% return on investment, less than half you’d get if you just left your money in the bank. You need R1.67 million (a hair under a 70% deposit) just to break even on cash flow and with a 50% downpayment you still need 2.96% capital appreciation to not lose any money. Take off rate, levies (sure to be huge for a house this size in an estate), maintenance and vacancy and that 4.5% ROI starts sliding down
Original Post on Cape Town Property Bubble: Rent Vs Buy: Somerset West – Endless Options To Lose Money
