Homeloans as an investment

(Residential) CAPE TOWN (November 05) - People wondering what do with their money as the world’s financial markets suffer wild swings should look to the certain returns to be had in their home loans advises bond originator, ooba.

Jenny Rushin, provincial sales manager at ooba, says that an investment into a bond gives a certain rate of return equal to your home loan rate.

“People are full of fear right now and wondering what they should do with their money - but one of the best options is right under our noses.

“If for example you have a R1m home loan at a rate of 14% (one and half percent below prime), on each extra rand you put into that bond you are effectively earning 14% on that money.

“And earning a certain 14% on your money is an excellent return and of course putting that bit extra into the bond brings you closer to becoming bond free. Numerous studies have shown that putting extra cash into your bond is consistently one of the best performing investments.”

Rushin points out the high interest rates in Souht Africa, while uncomfortable for home owners, does underscore the investment case for investing in a home loan given the massive interest savings benefits.

“Taking the example above, a home owner would have to pay R12 440 on a R1m bond at the moment had he borrowed at 14%. Putting R1 000 extra into his bond each month means an interest saving of R635 750,14 and drops the repayment period to 14,58 years assuming it was a standard 20 year home loan to start with.”

To illustrate just how much of an interest savings that can be achieved in a high interest rate environment, compare that to borrowing R1m at 10%. In this lower interest rate scenario, the monthly repayments are R9 650 a month on a 20 year loan.

“Let’s say a home owner decides to put R1 000 a month extra into his, or her, home loan in this environment; the interest saving is now R359 494,09 or R277 256,05 less than the high rate environment. The extra investment reduced the time taken to pay off the home loan to 15,33 years.”

Rushin also says that even in these tough times, each little bit extra invested into a home loan is worthwhile.

“Just skipping a few pricey coffees here and there means you could invest an extra R100 a month into a bond. On a R1m bond financed at 14% over 20 years, that means a saving of R99 536,43.

Real Estate Investment is not for sissies!

After a difficult week, I now need to write a blog which I promised will always be positive. I have decided to list all the difficult things that happened and turn them into a positive.

This week I started the process of selling a property which cost me dearly, fortunately I learnt a number of lessons in this process. Firstly, I bought an investment property for an emotional and not a business reason. Secondly, I went into a partnership trusting someones word and not doing it legally.

Two years ago a partner and I bought a beautiful old Victorian style house which had been badly neglected, the idea being to turn it into a guest house which would hopefully pay it's own bond and other costs and after a year or two start making a small profit. The agreement was that I would invest a substantial amount to bankroll the renovations and my partner would extend the bond on one of his other properties to pay his half of the renovations. Well I should have insisted that we open an account in which we both deposit our share of the renovation up front, but I trusted him to live up to his word. Renovations started by breaking the house and making it totally inhabitable, soon after this was accomplished my cash ran out and everything stopped, I was asked to bankroll the renovations further because of his current (over)exposure the bank was not prepared to loan him anything else. Well, fortunately I started to see the writing on the wall and was not prepared to spend anymore. He has now finally offered to "buy" me out, which really means he commits to pay the bond and will pay me about 25% of my initial investment back in 12 months time. The biggest positive outcome from this mess was that I decided to move to RE/MAX in the middle of this mess!

Many other people burn their fingers while investing in property and I found this story fascinating Real Estate Investing Is Easy Right?? In short this guy buys a property as an investment that he renovates and then tries borrow against the new value only to then find out that a portion of his dwelling in on his neighbour's property.

Yet another sale of mine was rejected by the banks this week. I felt so sorry for the buyers, they are so keen to get away from their current living conditions. They are living in a hostel and although they have a large living area they are surrounded by many other people. They have sent their daughter away to live with her grandmother in fear that she might be raped in these overcrowded conditions. They were going to buy the property in partnership with another couple and this way they qualified but the other couple had some bad payments. Looking at the big picture this was probably better in the long run, if the partner was a bad payer he could have gotten them in deep financial trouble in future.

Sad new was the death of Mama Africa - Miriam Makeba. She was another example of the miracle of South Africa. She was treated very badly by the previous government, but when democracy came to South Africa she came home with happiness and not bitterness and hate.

Well at least I ended the week on a good note - I was invited to go and see Beauty and the Beast and really enjoyed it.

The seven do’s of healthy lawns…

• Mowing
  at least once a week is essential for a beautiful lawn, and if possible twice weekly during summer. Judge the necessary cutting height according to how fast the next mowing is needed, but don’t end up cutting into brown stems due to too short settings. The clippings can be used to sprinkle over the lawn, and so feeding it. (Grass clippings make are also good for mulching elsewhere in your garden).

• Watering
  is of course vital and should be done at least once two-weekly. This will not only keep you grass green, but also repel insects like crickets and ants, for they prefer drier environments.

• Aerating
  for better water drainage and enabling oxygen to reach the roots. Lawn aeration involves the removal of small soil plugs or cores out of the lawn. Although hand aerators are available, most aeration is done mechanically with a machine having hollow tines or spoons mounted on a disk or drum. Known as a core aerator, it extracts 1.5 to 2 cm diameter cores of soil and deposits them on your lawn. Aeration holes are typically 3-15 cm deep and 5-15 cm apart. Other types of aerators push solid spikes or tines into the soil without removing a plug (spiking). These are not as effective because they can contribute to compaction. Core aeration is a recommended lawn care practice on compacted, heavily used turf and to control thatch buildup.

• Fertilising
  betters your chance of a weed- and disease free lawn, but note that grass treated with compost is quite prone to fungal diseases. It is therefor important to only use chemical fertilisers, like L:A:N for green leaf growth and 2:3:2 for lawn matting. Tip: to rid your lawn of moles, use Ammonium Sulphate in the place of L:A:N, making it too acidic for the earthworms that moles area after. The worms will move and the moles will follow!

• Thatch removal
  entails the cutting of your lawn so short that no green growth, but only brown areas are visible. After mowing, rake the clippings up rough enough for stolons to loosen and snap. Follow immediately with top dressing.

• Top dressing
  is an effort well worth doing. Start off in spring by sprinkle 60g of both Superphosphate and 2:3:2 p/m² over the entire lawn. Spread clean, weed-free sand over and level by dragging a bar across. Repeat until grass is showing only just through the sand. Sprinkle 60g of 2:3:2 p/m² again over entire lawn, followed by a thorough watering. Water once weekly.

• Edging
  every six weeks with a spade, shears or tool of your choice for a neatly edged lawn.

Source: Gardening Eden

What's on at the Botanical Garden

Malcolm Road, Poortview, Roodepoort

PO Box 2194, Wilropark, 1731
Email: SisuluGarden@sanbi.org
Tel: +27 11 958 1750
Fax: +27 11 958 1752

Fun Frog Walk - 22 November

By Ella Janse van Vuuren (FGASA)

Popular family outing. Children welcome.

Few spaces left. Booking essential as numbers are limited

Please meet at the Main entrance to the Walter Sisulu National Botanical Garden at 17h45.

Tswaing Meteorite Impact Crater - 29 November

Prof Nick Grobbler – Geology of the area
Prof George Bredenkamp – ecology
Mart Kotze – Birds

A 3 in 1 outing. You will not only learn about the crater and the geology, but will also learn about the trees and the birds. Bring binoculars.

Booking essential as numbers are limited.
R50 – members, R65 non members, Children under 12 half price.
Meet at the Crater at 08h30.

ART IN THE GARDEN - 30 November

Come along and browse a wide range of artwork available for sale in a stunning outdoor setting. A percentage of sales go to the Botanical Society's Garden Development Fund. Art in the Garden takes place on the last Sunday of each month and on selected concert dates.

Bird Identification Walk - 6 December
By Ella Janse Van Vuuren

Over 200 bird species have been recorded at the Walter Sisulu National Botanical Garden. Bring binoculars.

Booking essential as numbers are limited.
Meet at the entrance of the main entrance of the Walter Sisulu National Botanical Garden at 06h00.

Pick n Pay presents
Christmas Carols by Candlelight

Sat & Sun 6 &7 Dec 2008

17h00
Light entertainment associated with the festive season

18h00
The Duo: Riaan Swanepoel and Sylvia Blangwe
With Children's Choir to lead young members of the audience into songs for Christmas

19h00
Arrival of Santa Claus
Distribution of sweets throughout the audience, especially for the children

19h30
Welsh Male Voice Choir of SA
Carols by Candlelight and popular Choral music from around the world

Admission fees :Adult R35, Senior Citizens R25
Students R20, Scholars R10, Under Six – Free

(No booking required – pay at the entrance)
For more information contact 011 958 1750 or sisulugarden@sanbi.org

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All bookings and enquiries for Botanical Society events should be directed to Karen: 011-958 0529 between 8 am and 1 pm.
botsoc@sisulugarden.co.za

Mortgage Originators - My Opinion

In an industry where there are so many accusations, dishonesty, lies and bad press, I decided that I would never get dragged down into the dark depths of unethical practices.

I had worked in the financial sector for most of my life and during this time I was involved in the IT sector for at least ten years. One of the biggest No No's of this industry is Kickbacks. It happens every once in a while that an IT infrastructure decision is based on the overseas trip "earned" by the IT specialist from the supplier. I personally was propositioned directly once in my IT career and was truly shocked that these people even mentioned something like this.

So when I announced to my then colleagues that I had decided to leave the "safe" world of corporate life to go into Real Estate into a very small agency, one of them asked his mom (a mortgage originator) to call me. Well, I was freaked out and insulted by her call because she congratulated me on my decision and then went ahead to promise me a Kickback on every buyer I sent her way. I then decided that I would never ask my clients to use a mortgage originator and would only offer it to them if they seemed to be at a loss. This was one of the worst decisions I have made to date!

What I have learnt since that very naive day is that the mortgage originator plays a crucial role in this process. The mortgage originator is a specialist who consults with and helps the buyer to get their financing. Remember the estate agent is usually committed to the seller and not the buyer as the seller pays my commission.

In my opinion if the buyer reveals his financial position to me I feel that the relationship between us then becomes much more intimate and my loyalties start being split. I prefer to refer buyers to an originator whom I trust fully and then I liaise between them to see that the process is moving towards a conclusion.

By not doing this I have no real idea of where the process is and if there are any stumbling blocks which are not being communicated properly between the buyer and the bank. What often happens is that the relationship between the agent and the buyer can become strained because the buyer does not like the agent asking personal questions and the banks are not allowed to discuss their clients with the agent.

As a forward thinking agent I know that the buyer is crucial to my business because I want to become their preferred agent in the future.

As for the banks I do believe that they feel the same, if this was not so mortgage originators would have been sidelined and would have disappeared in the last couple of months with the current financial crises. We know that the mortgage divisions in the banks are really struggling to meet their targets and they would prefer to save the commission they pay the originators but they must realise that these originators do have a very important role in this process.

So next time you hear or see an advert telling you that your agent does not deserve to get the kickback from the mortgage originator, ask yourself how well you understand the process and pitfalls of going to all the major bank to negotiate the best possible mortgage while running your life, job and family as usual.

Caroline

Buying Real Estate in South Africa for Non-residents

1. The contract
Contracts must be in writing, and signed by both parties. Estate Agents draw up an Offer to Purchase. Once signed this constitutes a valid & legally binding contract from which neither party can withdraw without incurring legal consequences.

2. Mortgages for Non-residents
Non-resident may only borrow up to a maximum of the amount he invests into the purchase of the property, which translates into a 50% loan.

3. Transferring the property
It is customary for the Seller to appoint the conveyancer
and the Purchaser to pay the costs. The conveyancer prepares the transfer documentation which, after signature by the Purchaser and Seller, is lodged together with the cancellation of any existing mortgage bonds and new mortgage bonds to be registered in a regionally located Deeds Registry. The Purchaser is recorded as the new owner of the property and the purchase price is paid to the Seller

4. Transfer Duty
The Purchaser is responsible for the payment of these fees unless purchasing new property directly from a developer whereby by developer is VAT registered. Transfer Duty
is payable to the Receiver of Revenue.

5. Commission
Commission is payable. The Seller is responsible for this fee.

6. Exchange Control
All funds introduced from outside SA to acquire fixed property within SA may be repatriated together with any profit on resale of the property, provided the title deed of the property has been endorsed "non-resident". The profit on resale may also be repatriated, provided, the relevant securities have been endorsed "non-resident".

7. Capital Gains Tax
Non-residents are only liable to pay CGT on the disposal of the following: Immovable property situated in SA, incl. any right or interest in immovable property.
- Individuals; 25% of the Gain is taxable.
- Juristic persons (Companies, Closed Corporations); 50% of the Gain is taxable. Companies are taxed at 30%.
- Trusts, 50% of the Gain is taxable. Trusts are taxed at 40%.

This is embarrassing!

Today is the 9th of November, my last post was four months ago! This is certainly NOT the way to go. What has happened in these last four months?

1. The property market has gotten even worse internationally.
2. Stock markets the world over are bleeding, I personally must have lost about 20% of my estate - fortunately it is only paper losses at the moment.
3. The Rand has also taken a hammering and lost quite some value - making my next overseas trip so much more expensive!

On a personal level, from the eternal optimist:

1. I've had at least one sale per month since I started with RE/MAX, of which only two have not qualified for finance.
2. I seem to be working even harder but it's starting to get a bit smarter too.
3. I went to Vietnam in September, my first overseas trip in more than ten years! This is only the first of many!

Although I have not been writing in this blog I have thought about it constantly (guilt) and I think writing a travel blog while in Vietnam is forcing me to get to this one. I have been struggling with the format I would like this blog to take, I would like to keep it focused on real estate but I would also like to give you a glimpse into my life, so you can get to know me a little better. So the idea will be to use the titles of my blogs cleverly so you would be able to distinguish business from pleasure.

I hope you enjoy reading the ravings of a realtor who really believes that she has found the best job in the world and that you will write back sometimes.

Caroline