If you are a 20- or 30-something renter, buying your first home may seem like an impossible dream.
With so many expenses already competing for a bite of your monthly ‘pie’, how can you afford to save up for a 10% deposit on a property, let alone afford the monthly bond repayments and rates and taxes?
To learn the tips and techniques used by savvy young homeowners, here is some insight from two Capetonians who bought before they were 27.
The Brilliant Young Budgeter
Head of print production at an ad agency, Lewendon bought a one-bedroom sectional title in Vredehoek with a garden, deck and gorgeous view 11 years ago.
She chose Vredehoek because her other favourite neighbourhoods – Tamboerskloof and Oranjezicht – were a bit pricey. Her favourite feature in her pad is its delightful deck, and she’s currently saving to knock out the wall between the kitchen and lounge to make it open-plan.
Lewendon says the downside of property ownership is that all changes and problems are for one’s own account. But the good outweighs the bad. “The sense of ownership is amazing. I struggled and gave up a lot, but every sacrifice was worth it.”
After thinking about buying for a while, her decision to invest in property was catalysed by her rental owner giving her notice. She started looking around and found only one place she could afford that met her criteria of being in a good location (Vredehoek) with plenty of potential and no serious damage or damp.
During the time of purchase, she was working at an ad agency, and she used the staff scheme to acquire a low interest rate for her bond.
She also took her pre-existing budgeting tendencies into overdrive, and drew up a strict plan that involved some smart sacrifices:
* She gave notice to her cleaning lady.
* Cancelled her gym and kick-boxing memberships.
* Trimmed down her insurance policies.
* Changed her medical aid to a hospital plan.
* Set a budget for food each month – and stuck to it (no morning coffees!).
* Reduced her cellphone expenditure.
* Didn’t buy any new clothes and had fewer hair appointments.
* Had no credit card.
* Didn’t go to dinners that weren’t in the budget.
She says it was all worth it as her bond is now only R4k per month. Since purchasing the property, Lewendon has renovated it all herself, stripped the kitchen cupboards, primed, sealed, painted and made it her own. She used her budgeting abilities to save up for a deck extending from the lounge, which has added to the house’s resale value.
Part of a Property Pouncing Pair
A digital copywriter, Mulvaney thinks Woodstock is wonderful because of its walking culture, street art, people and small businesses. Sharing his studio, sectional title apartment with blogger Natalie Roos (Tails of a Mermaid), his favourite feature of their happy home is the small mezzanine level they built to double up as their bedroom space.
Mulvaney and Roos were having a terrible time finding somewhere to rent in Cape Town. The length of the queues outside show houses for rentals seemed to keep getting longer, and the prices were ‘ludicrous’.
In 2015, they spotted a block of flats selling spaces from R1m in Woodstock – Mulvaney’s favourite area. Some basic maths proved that the bond repayment would be 30% less than rental expenses per month, making the decision to buy a straightforward one.
Mulvaney and Roos examined the financials and were comfortable covering the monthly rent but didn’t have the 10% deposit on hand. They approached Roos’s parents with an investment proposal – if the parents could foot the 10% deposit, they would receive 10% of the property value when the couple sold one day. They were willing and the purchase went ahead.
Mulvaney believes the biggest difference between renting and buying is the emotional and psychological investment.
“Having a space with which you’re able to do anything you like is so refreshingly liberating. You learn the names of the community around you because, all of a sudden, they’re not just ‘the neighbours’ – they’re ‘my neighbours’.
“I know we’re going to be living there for the foreseeable future and I want to live in a community that I can invest in – and that can invest in me.”
James says if you’re considering the decision to buy, don’t be afraid to seek advice from a professional and weigh up all your options objectively. “If you need to apply for a bond or ask a loved one for a loan, do the maths, be realistic, and make sure your budget is sound.”
* Be a brilliant budgeter. Before you apply for a mortgage, understand what your gross income amounts to once you’ve subtracted all additional expenses like UIF, taxes and monthly commitments such as groceries, your vehicle, credit card and entertainment. Once you’ve done your budget calculations, you can see if a home loan is viable.
* Collaborate if you can. Buying with a family member or partner is a fantastic way to make investing more affordable. Be sure to enter into it as a business arrangement – have a lawyer draft a contract, and make sure both parties’ finances are in order before signing on the dotted line. If you’re buying the space to rent it out, ensure returns are agreed on upfront.
* Use a reputable buy versus rent calculator online: To sort through all the financial aspects of the buy so you understand at what point it makes more sense to purchase than rent. Look at everything from the house price and mortgage rates to interest rates, insurance fees, transfer fees, capital appreciation fees and so forth. You also need to have an idea of how long you’ll live in the house, and how much you could accumulate investing the same sum of money elsewhere.
– Copy supplied by Property Fox