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My mother bought her house in 1971 for R200 a month (R20 000). By 1990 it was paid off. All she paid was rates and taxes, and her tenant in a back room paid those. By the age of 90 she sold her home for R2.6 million and bought a two-bed cottage in a retirement complex for R900 000. The rest she invested and uses it to fund her levy every month. Despite withdrawals, that investment is still growing. She's not a financial genius, just sensible. I'm constantly learning from her.
@@robintyson591 thanks for sharing! You are lucky to have learned from someone from a young age - I also like that it's a female role model 😄A quick calculation shows that R2000 invested in the S&P500 in 1971 would be worth more than R10mil today. The Rand's depreciation has a lot to do with it. And this is based on back-tested data since the first SP500 ETF only listed the early 90's and South Africans only got access much later. Still something interesting to think about! Would also be interesting to learn what your mother invested the proceeds from her house in. Thanks again for your feedback 😄
@@mr-rexxi my assumption was a 10% deposit on a R20K house 😉 to compare R200 a month mortgage we will need to know how much rent would have been back then. Hard to get reliable data 😉
This is a subject which should be thought at schools. It’s invaluable information for young people before they venture out into the unknown. Excellent content. Thank you
Let's be honest. Most people don't invest the difference between the Mortgage, levies, rates, taxes AND maintenance of the house they stay in and the rent that they pay for staying in that house. Very very very few people make that calculation and make sure they put the money away in something like the MSCI world index (something else to take into account is putting the money in an RA, TFIP, or other tax benefit account but it will overcomplicate the matter). Therefore if the property is close to that 8.5% or even 6.5%, I would still advise that people who aren't as financially savvy, to buy their property (then you are forced to invest into your property). This is more a discipline question than anything else, although a very thorough analysis for those who can achieve such discipline, thanks Carla.
I have a PhD in Investments and did a similar analysis 20 odd years ago. It is very rare that property will beat renting plus investment discipline. The problem is lack of discipline and a poorly diversified portfolio. I do like your analysis at the end.
I'm glad you said this. I wanted to point out to viewers that the only way renting can be better is if you INVEST you excess cash. So it's really a matter of buying vs (renting and investing). Fantastiese video, Carla!
Exactly. Add to the necessity of discipline a modicum of financial knowledge (more so than with your dwelling), and it becomes even more complicated. I find such financial know-how rare, even for simple products such as ETF's.
So true! In your late 20's and early 30's you most definitely are not investing the excess cash when renting. Point and case - this idiot I call myself 😞
An excellent explanation of the 8.5% rule. Thanks Carla! Things we should all keep in mind: - This particular buy vs rent analysis applies only to investors. It does not hold true for "regular" home owners or renters. The vast majority of people are not investors, but survivalists. - 40 years is a long time. Making changes to your plan anywhere before 40 years after implementation could ruin all your benefits. - A house is, of course, an asset, and money can be made with it. However, the primary function of a house is shelter - not investment. Ask yourself: am I buying/renting for shelter or investment? If your answer is both, then this analysis also does not apply to you. The 8.5% rule only applies to pure investors.
Investment gains of more than ~40k/a are subject to capital gains tax, whereas capital gains on a primary residence is only taxed for gains in excess of R2M. It's safe to assume that these thresholds will increase over time. But this would affect your 8.5% rule in 2 ways: 1. Even in scenarios where the renter's investment portfolio outperforms the buyer's property, the renter will have to pay higher tax rates on their gains, which drops the breakeven point below 8.5%. 2. Gains on a R5M home will be taxed more than a R1M home, meaning the breakeven point is lower for more affordable homes.
Came to the comments for this. As long as you staying in you home you won't be paying tax on the equity in the property. Renter will need to withdraw and pay tax to cover their rent.
Really amazing video Carla. I like the way you put them (rent vs buy) head to head with real life examples. The facts and numbers do not lie. Great job! I would also request if you can make a video about how and where to start teaching our kids about smart money decisions and investing. Thank you from Durban.
Thank you so much Carla I am 26 and recently bought a property in Stellenbosch. It’s a new development and be ready in the near future. I’ve had sleepless nights wondering if this was a good choice. I wish I’d found you sooner 😢 I’m camping on your channel from now on
The other thing I wanted to mention is that people will rarely want to or have the discipline to put the “deposit” they would have put down to buy a property into an investment account/ stocks. I think because people are scared of the investement account and that they cannot “predict” the stock markets and that it’s not something you can physically see like a house.
The simple reason why owning your own property are much better is the convenience, security and status. I can do what I want on my property. Have a cat, a dog, children, piss on the grass, plant trees, cut off trees, paint it the color I like, add on a room, add on a garage, build a swimming pool and upgrade the kitchen and bathrooms if I want. That is priceless. The renter cannot do anything in the property but sleep, shower and keep his mouth shut. The rent can go up at anytime, you can be forced to move after your contract, you need to allow the owner to inspect, when you move out the agent will try to screw you out of your deposit. Buy if you can. You will make an excellent investment and the convenience factor is priceless. Why do you think the rich, like Carla, will be the ones who will rent to you. They don't want you to buy but to rent from their portfolio. I made millions from buying and selling property.
Yes, primary residence properties can be lifestyle assets! Especially if you plan on living there for a long time. I just purely wanted to analyse it from a financial perspective. I don't own any properties, maybe one day when I feel like my stock portfolio is large enough and I can start buying lifestyle assets 😁 For now, I'm focusing on building maximum wealth. PS: Your house sounds like fun with the cats, dogs, swimming pool and hopefully it's the animals p*ssing on the grass 😂
really good to see a comprehensive proper comparison done.. so much bad information out there and we are conditioned that "buying always better" great job!
Renting in Cape Town only makes sense when the agreement is directly with the landlord, there's room to negotiate rent, upfront costs and annual increases etc and you can build a good relationship. I wish more landlords went this route instead of using rental agencies that offer very little value.
I am shocked by the misleading ads for rental properties by Agents. And the ridiculous fees they want for credit checks and lease agreements. When did we start having to pay for this stuff? And the high prices for nothing in a terrible neighbourhood.. Trying to come back to Western Cape and rent for awhile before buying again, and I am rather going to take your advice and find a Owner renting directly.
@@MichelleRubery-e3i directly with owner is much better, I've been able to negotiate a less than 6% annual rental increase whereas with agency they will want to take you for 8%+ increase. hope you find something good.
Excellent breakdown but I really struggle to accept annual escalation of Cape Town property at 9%. The market for upper end properties since 2004 is no where near 9% compound year after year
The analysis is thorough and balance. Other factors are not mentioned but I think is simple enough to comprehend. Maybe the risk and liquidity factors in another part two of this video could be mentioned. However, you opened my eyes, enlightened my day and I thank you
Wouldn't it be fair to say that once the buyer has paid off the mortgage would then start investing in the stock market as well? let's say that he would invest the same amount he was paying for the mortgage?
Interesting video. What assumption did you make regarding the accruing of the cash flow to the investment of the renter? Did you assume that the renter deposits the cash flows into their investment at the beginning of the year or only at the end of each year? I would assume in order to get the most accurate investment growth one would need to model the cash flow changes monthly as the renter would either be paying in or withdrawing monthly. Also, do you think it's reasonable to keep the R&M provision at 1% of the property value throughout as this would imply that the cost of R&M goes up by the same percentage as your property growth which is 9.67% in this case (a case could be made that this should be matched to inflation)? What about deducting sales cost off the property value at the end? Look forward to hearing your thoughts.
I just stumbled on your channel, what a gold mine! If you're taking requests, I'd love to know more about whether Reg 28 is as bad as people make it out to be! I was told that it's better to go off shore, convert to dollars and the growth + rand devaluing are better than the tax relief of an RA. Keep up the great work!
Great video for new, young home buyers, having said that. Going the rental route, financial discipline is key. With cash on hand there is always a reason for having to spend it.
Great concept for a program, very informative. Just one thing missing, the effect of tax on the rental/investment option. perhaps you could do a follow up including the tax.
Thank you! This helps so much. The only question I have is, what if the value of the property listed, is inflated? As it's quite a subjective figure. Really enjoyed this analysis.
Such an educational video! Definitely did the drum roll 20:04 😂🥁. The video taught me everything I have to know on how to compare the two options (Renting vs Buying). Please keep on uploading great investing and financial content!😄
This is a great video and I really appreciate this from a SA point of view. One consideration that I think you should have in your follow up: The devaluation of currency over time. This plays a massive part, specially in the buyers favour as the value of the bond/mortgage stays the same, but the same amount of money has changed the "value". Nevertheless, I enjoyed this!
Thanks for a great video. What would also be interesting is if you consider buying a free standing house and investing the levies or small additional payment into the property and paying it off earlier. If you invest the mortgage payment from year 14 this could also change the result
Great video, thanks. I did a similar calculation recently and this was a good sanity check. I'd love to see you breakdown retirement investments and if it is worth putting money in an RA in South Africa vs just investing the money on S&P500 or something. Every financial advisor I have spoken to tries to sell RA products but I am not so convinced given that they are taxed at the end, limit foreign investment, and are hard to get your money out if you leave SA.
Personally not a massive fan of RA's either due to limited geographical diversification as you mention. If you plan on emigrating it would be hard to see a reason to use RA's.
For the stock market option, I presume you including stock market crashes which come in cycles. Eg, since 2000 S&P annualises to 7.45%, but since 2010, it's 13.39% (both these exclude Rand devaluation, which is a major factor The second thing is getting money out the country to invest into an index incurs exchange rate penalties & fees. This innocuous seeming difference in buy vs sell rates can eat a lot of the profit
Thank you Carla. One of the best rent vs buy analysis I have seen! Could you perhaps do a similar video on buying property as an investment in Cape Town vs only investing in diversified world ETF?
I just bought a property for R1.75m with a 10% deposit and an interest rate of prime -1.1%. Aiming to pay it off in 5 years. I want the freedom to drill holes through walls, make minor changes without approval and not have routine inspections. I don't ever want to live in a house that is being actively marketed for sale by the owner. Privacy, freedom and peace of mind.
@@TheDevign and that makes total sense! In one of my videos (10 Tips for Financial Success) I call primary residence properties "lifestyle assets" because even if they don't always make most financial sense they could make "lifestyle or psychological sense". Hope you enjoy your house and thanks for sharing 😊
@11:23 So if I understand correctly inflation was not considered in the calculation? The high inflation in SA is the main reason that there is a high interest rate and the high inflation and inflation adjusted salaries should over the years make the mortgage a smaller portion of your overall expenses. The surplus you can either invest or use to pay down your mortgage faster? Or is this considered the same for both scenarios? I`m impressed that property is performing so well in a high interest scenario.
Great video Carla. One thing I'd like to point out that wasn't mentioned as an advantage to the renter is liquidity. This opens up huge advantages from a diversification perspective for the renter. Having all your wealth locked into brick and mortar or land is not wise. I know you were just talking numbers, but from a financial planning perspective it's very important to consider liquidity. Either way, great work!
@@reactionaryopinions200 very true! I mention this and other arguments for and against buying in my video "Why Buying Property Isn't Better than Renting". Thanks for the feedback 🙏🏼
This is an excellent video, thank you so much! I am very very interested to see how I can calculate the difference between buying small properties to rent out VS having a standard retirement portfolio. With regards to the R7. 5 Mil property in Paarl, while working in real estate in Cape Town, I realized that there can be a substantial price difference between the listing price and the final sale price. Perhaps looking at the historical sales report on Property24 or on the City Valuation Roll, would help to narrow the gap between asking price and real market price. Looking forward to watching more on these kinds of topics.
Unrealistic to look at 9.67% annualized compound growth of property value, especially considering the incredible growth of the last 13yrs based on the decrease in cost of capital due to interest rate reductions - The prime lending rate essentially went from 15% to 7% over this period... Inflation-adjusted present value if you work back from R45m considering the SA average inflation rate would be R22.5m. This is unrealistic and not a remotely accurate assumption, especially if you compare it with wage growth in South Africa.
This is a fair point. The Index only starts in 2013 therefore hard to get reliable data for the period before. Perhaps I can get someone like Lightstone to sponsor historic data for my next video. And I will build in the CGT assumptions. Stay tuned :)
Good stuff. Difficult to use relatively short 10 year historic property performance to extrapolate 25 years in the future - jhb had practically zero growth in 10 years, and thus the methodology would put buying a R3m house at R55m in cape town v R3m in jhb in 25 years. Also 15% ZAR Msci return has been in a period of (arguably) unsustainably low interest rates. But you do point out the sensitivity of variables. Enjoyed the vid, and especially the 8.5% heuristic
@@nickturner8202 thanks for the quality feedback, Nick 🙏🏼 I checked the data from stats SA and it shows a 5.8% annual average increase in JHB residential property since 2010. Also valid point on MSCI. Although the 40 yr average is 8.5% USD and assuming a 6% USD ZAR depreciation (20-yr average) that comes to 14.5%. More on this in next vid 😄
Carla, could you include in the calculation if the buyer after 25years invests their bond repayment into the same type of investment for the 50year exercise please?
It appears that you did not make provision for the extra cash flow that a property owner would have once the property is paid off to be invested in stocks (similar to the renter)... Or did you? I would be interested to see how this would change the analysis.
Should you not be taking into account the annual tax on the 2 investments over the 25 year period? Tax on investment portfolio is considerably more. Would be interested to see the impact.
Owning 1 property, for my opinion, is all the property diversification one requires. The rental/lack of rent is a fairly constant income component to ones portfolio which does not vary with the market. So if you plan to retire on 100k per month, taxed from your investments is 85k in your pocket, then having 30 odd% of your expenditures every month "stable" does add a piece-of-mind component which adds value albeit not financial. Considering that paying rent out of your portfolio comes with a 15%(cgt I think?) and you do not get taxed when not paying rent to yourself, this would have a >1% impact on your 8.5% rule, especially post bond. would you mind making a 3min video including the tax component to the rental component? assuming it is all CGT out of a stock portfolio?
This content is great! Two questions to consider. When you buy a property it forces you to make the payments or risk losing your house. How many renters are disciplined enough to put the excess cash into the markets on a regular basis...? I have never met a disciplined renter.
@@MrTarrentaal I am a disciplined renter with a significant stock portfolio😄 and when I have capital to allocate I need to choose between property or stocks - hence this analysis started. Nonetheless, it is a valid point. I discuss this and other non-financial considerations for and against owning your house in my previous video "Why Buying Property Isn't Better Than Renting". PS: Love your handle 😄
@@MoneywithCarla Thanks for swift comment. You are now the first disciplined renter I have met. I love your content and all aspects of your video and analysis. I wish I could be a disciplined renter. ❤
Great video! I've been really interested in property investment lately and your insights are incredibly helpful. Do you have any tips for beginners who are just starting out in this field? Also, what are some key factors to consider when evaluating a potential property investment? Thanks for sharing your expertise!
Overall, well presented. However, you assumed that the maintenance cost, rates & taxes and levies on the house bought will stop at the end of the mortgage. Also, the 1% maintenance cost is OK for the first 10 years, but will probably go up significantly at around 20 years as major repairs / revamping will be required. I have done this comparison many times in the past. Buying has an emotive upside that cannot easily be quantified. But also, people will then spend extra to reshape the house to their liking. I would not be surprised if it amounts to an extra 2% (of the property value) per year. Renting has the upside of moving if you circumstances change, and not spending on expensive modifications to the building. However it then also requires the dedication / discipline to invest the set out amount into the ETF no matter how the market is looking. In the end, after building a very complex model, I think you will find that both option are very close.
Very interesting Carla, thank you. Please could you do a scenario on your spreadsheets if you Don't have the 10% deposit as a buyer or renter, so no preferable interest rate on your 100% bond or no initial investment capital as a renter.. How would that lo9k after 40/50 years? 🙏
Hi Carla Thank you for the thorough comparative analysis. Could you kindly share the spreadsheets and data sets you used? I want to run some scenarios for my buy/rent decision.
I did the maths as a property invester and i decided to sell my whole property portfolio. Last year when doing my taxes , i realized that my ROi after levy,tax,maintenance and bad debt were only 5%... investing the money and using it to fund my side hustle brings me 10x that
Great video! However, there are other things to consider when choosing to buy or rent: Renting a property gives you a lot of flexibility. It's easy to end your contract and relocate, whereas selling your property or finding a tenant requires more effort. Buying a property, on the other hand, provides stability. A landlord cannot ask you to leave because they want to sell the property or move in themselves. Since it's your property, investing time in improvements makes sense because it will increase the value when you decide to sell. As a renter, it often doesn't make sense to settle in deeply, knowing you might not stay long-term. Lastly, buying a home forces you to pay the mortgage every month, which can be a form of forced savings. While renting theoretically allows you to save and invest the surplus, many people lack the discipline to do so consistently.
@@cobuslouw96 yes indeed, there are many non-financial considerations - I discuss those in my previous video "Why buying isn't better than renting" if you're interested 😊
What I am really interested in is using apartments in decent middle income neighborhoods to generate rental income. Typically they cost around R700K to R900K and generate an income of R8000 to R10,000 per month. These lower cost properties, don't have high transfer duties, or large maintenance costs. That would be very interesting to see a cost / cashflow projection over 50 years.
Thanks, Carla. I will just check all my investment rentals, I am at least getting rent more than 8.5% every year. The banks give less than prime but rarely 1.25%. It depends if you plan to stay short term in a place or long term.
Very nice video The cheaper the property the more likely it will be better to buy....once you get to crazy nice houses to meet you Instagram lifestyle it's usually better to rent.
Other factors on this question of buy vs rent is that property is a less liquid asset. You cannot sell for the optimal price when you want to. Global ETFs especially offshore domiciled are not influenced by political instability in a place like south africa. It's not an easy answer, so many highly influential variables
I tried really hard to find a flaw in your video 😂 call me a sceptic when it comes to financial advice online, but your video was spot on. We need MORE of this type of content. Keep it up.
Informative video, Thank You With recent developments in KZN with the political situation, would it be better to rent or buy in KZN? Durban and the surrounding area's in particular.
I hold a PhD in Investments and conducted a similar analysis over two decades ago. In my experience, it's uncommon for owning property to outperform renting combined with disciplined investing. The main issues typically lie in a lack of financial discipline and an insufficiently diversified portfolio. Your concluding analysis, however, is something I appreciate.
to be honest, it's literally the minority that will be buying a house\property that is 3mil+. The avg person would be paying between 2-2.5mil max. R4mil+ is very unrealistic\obtainable for most people. Either way, very good video. Also, best value for money properties in the cape is in southern suburbs. You can get a reasonable property without paying for the next 50 years.
Great Vid Carla. Which platforms do you recommend to invest in SP500?. EasyEquities, Robin Hood, Plus500, E-Toro etc Where do you see the USD heading? Where do you see the ZAR heading? Where do you see Euro heading? Thank you - more questions to follow ;)
I love the questions, keep them coming! USD/ZAR questions very valid because the "superior" returns of the global stock portfolio vs CT property has a lot to do with the USD strengthening to the ZAR and the conclusion depends on this continuing in future. I believe the longterm trends will continue (USD/ZAR, stocks vs property etc), but these questions are worth their own videos 😄
Regarding the platform, the more boring the better. You don't want to be tempted to visit it often or sell/buy based on market movements. Continue investing and trust the market in the longterm. Depending on where you live, it's worth considering the security offered by the broker platform and also think about the ETF you choose to avoid US estate duties. Not personal investment advice 😉 Subscribe to my blog - I will be posting blogs on this to help more.
Dankie Carla! I would very much like to connect with you and understand the concept of paying additional funds into my home loan. The question is, is additional monthly payments better vs annual lump sums? Also, I have a spreadsheet I keep to track my progress, but it all falls apart when you withdraw funds (not too large amounts) for emergencies from the access bond. Is there a spreadsheet or formulas you can recommend to take into account monthly payments, additional payments and withdrawals and very importantly, interest rate changes? Again, thanks for this video. I have also known about the S&P 500 but was not sure we, as South Africans can invest ... I know, sounds silly but then it comes to investments, the SA giants have always been my primary investment companies.
Other mitigating factors to these scenarios would be geopolitical events, natural business cycles, a functioning power grid, the level of crime, government policies promoting investment in the country in order to create jobs.......otherwise who will be buying my owned property? ANY asset is only worth what the buyer is willing to pay! 😉 In addition, while money printing accelerates these extraordinary numbers, the buying power of the same ZAR is severely decimated over time. In August, 1980, it took U$1.35 to buy ONE South African Rand.....yes, the ZAR was STRONGER than the USD. Today, July 2024, 44 years later, it takes U$0.055.....yes, five and a half U$ cents.....to buy one South African Rand.....that's a 96% erosion in buying power by the ZAR!!! YIKES!!! 🤯
Love the 8,5% Rule. If you can afford a rent to buy scenario and invest additional funds after covering the bond then I assume you would get both the wins? Really appreciated the SA examples. Thanks Carla
Glad you enjoyed it Timothy! Actually, if you're looking at it from a purely financial standpoint, and you can rent for less than 8.5% - it's better to rent and invest as much as possible in the stock market (regardless of whether you can afford both a bond and to invest). But WHERE you invest is important of course as I mentioned. Disclaimer: Not personal investment advice😉
Great Video and really well explained. The 8.5% rule makes a lot of sense. Just two observations: 1. Would I be correct in assuming that the Global growth of 14.27 is really exceptionally good and had a lot to do with the Rand's weak performance because of mismanagement by the Zuma administration. The question would then be, what would happen over the next 10/20/30 years? Will the rand keep devaluing? How does this impact the figures if the Rand actually strengthens? And how would this change the figures of the rand just stayed on par with the dollar? If I am correct, in 2010 the R7.3 were to the USD CAn this figures be taken back to 2000 when the rand were a bit closer to today? 2. Most renters I meet, might not have the ability (or discipline) to invest the excess that they would have paid on their bond. However they still want to live a "lifestyle" that is technically higher than their income level. Renting allows them this in certain instances. Love content like this that uses real world data and base conclusions on facts. Just subscribed!
@@RiekertCloete-sx1yo thanks Riekert! The USD/ZAR movement is a big factor indeed. What's your opinion on the forecast? It's been a 6% per year average annual depreciation against USD for 20 years. Added to MSCI All World annual average since 1987 of 8.5% it's 14.5% gross before fees. I think a scenario of staying on par with USD is unlikely but could include some sensitivity on this in future!
@@RiekertCloete-sx1yo observation 2 is valid and unfortunate. Hopefully I could make a few people aware of the benefits of investing in the stock market 😊
I like that you can follow the 8.5% rule to decide if it is better to rent or buy. However my question is when there are rental houses, they only supply you the rental amount per month like R35000 per month, excluding water and electricity etc.. How are we supposed to figure out now what the house is worth on the market if the house is not for sale. Do you look at houses in the same area that are for sale with the same amount bedrooms, bathrooms, plot size etc?
Hi Cara, in your comparison investment did the renter invest the transfer fees and bond registration fees that that they would have paid if they bought? and what was the deposit amount assumed?
What about the fact that there's a tax allowance for capital gains on your primary residence? Factoring that in, and I'd expect renting makes less sense (rule of ~5% instead).
Very informative thank you! You put a lot of effort into these and you cover everything. I think in general it’s better to rent unless you can buy a property well below market value. Thats my generally rule of thumb.
"Historic performance is not indicative of future returns." Lots to think about. Shouldn't we use a longer term house price increase for a 25 year mortgage? FNB house price index has shown quite low house price increases over the last 5 years. And as your resarch shows, the invester's position is heavily affected by the market performance.
@@andrelouw7210 as mentioned in the video, CGT would apply to both the property and investment/stock portfolio scenarios. For property it would depend on the primary residence exclusion at time of sale. For stock portfolio, to limit CGT: Max out TFSA, then invest in an accumulative fund to limit dividends tax so that all gains are taxed as capital of nature. Also investing in a USD-denominated fund means ZAR/USD depreciation is not taxed as gains. Perhaps another video on this 😁
In example 2 he can also sell R75 million of his shares and buy the house for cash at year 25. He will still be left with R26 million in his share investment account and a paid off house vs only the paid off house which the buyer will have.
Also take into consideration when having a debit order you have no choice to pay the money... when you have free cash to invest how many people will invest it and how many will spend it on lianilities ?
If a person buys a property, and after 25 years, they invest all the money they would have spend on the bond. How would that affect the outcome of your scenario?
I love this presentation. Exactly the way I think. Here's the point. In 20 years time your bond is PAID. All you pay are the rates and maintenance. So, if you are now 46, and even if your mortgage is currently DOUBLE what you pay in rent (R10 000) you STILL, after 21 years, are MUCH better off. You are now paying R14 078 a month, but the renter is paying R41 406. And NOW it gets MUCH WORSE. By age 90 you are paying R196 285 in rent. But if you had bought, your rates and maintenance are just R66 737. AND, of course, you now have an ASSET which you can SELL and buy a smaller cottage, maybe in a retirement complex. I think your projections need to be a lot longer in terms of duration. Seemingly we are now going to live to at least 100! By that stage, as a renter you have NO ASSET, nothing to sell, and are basically trapped forever with increased rents. I love your idea of buying an S&P500 ETF. BUT, unfortunately, most renters won't have that discipline to invest what they are saving each month by renting.
Thanks for the comment 😊 if the renter has the awareness and education to build up an investment portfolio they will be better off if the rent they pay is below the threshold I calculated. Even if the projections are extended another 20-30 years, the chart clearly only has an exponential direction. Hopefully this will make people more aware of investing in the stock market and not put their life savings into only 1 property.
@@MoneywithCarla And that's the problem. People are 'scared' of the stock market and feel 'safe' buying property. They think investing in the S&P would be a 'gamble', whereas the house they can 'feel' and 'see'. It's going to be a challenge to change those perceptions.
@@MoneywithCarlaanother factor is any landlord renting a property at under 10% is crazy as they will be running at a loss. When renting out a property you must ensure your rental income covers your bond, rates and taxes and maintenance on the property. Just factoring in the lending rate alone, the bond itself will be over 10%, so in real terms, rental income is in the region of 14-16% of the value of the property
@@4u2nvcpt I rented a property in Cape Town for 5% of the property value. I have not seen any landlord charge R35k per month for a property worth R3mil (which would equal 14%) - landlords cannot dictate pricing. The market does. Also the reason I used real examples from Property24 - to see actual rent and property prices.
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My mother bought her house in 1971 for R200 a month (R20 000). By 1990 it was paid off. All she paid was rates and taxes, and her tenant in a back room paid those. By the age of 90 she sold her home for R2.6 million and bought a two-bed cottage in a retirement complex for R900 000. The rest she invested and uses it to fund her levy every month. Despite withdrawals, that investment is still growing. She's not a financial genius, just sensible. I'm constantly learning from her.
@@robintyson591 thanks for sharing! You are lucky to have learned from someone from a young age - I also like that it's a female role model 😄A quick calculation shows that R2000 invested in the S&P500 in 1971 would be worth more than R10mil today. The Rand's depreciation has a lot to do with it. And this is based on back-tested data since the first SP500 ETF only listed the early 90's and South Africans only got access much later. Still something interesting to think about! Would also be interesting to learn what your mother invested the proceeds from her house in. Thanks again for your feedback 😄
@@MoneywithCarla How much if it was R200 a month? Which is what his mother invested not R2000.
@@mr-rexxi my assumption was a 10% deposit on a R20K house 😉 to compare R200 a month mortgage we will need to know how much rent would have been back then. Hard to get reliable data 😉
Great video! Something I'd like to mention is that deposits for rentals in CPT are almost always 2x the monthly rent :)
at least 2x
This is a subject which should be thought at schools. It’s invaluable information for young people before they venture out into the unknown. Excellent content. Thank you
Let's be honest. Most people don't invest the difference between the Mortgage, levies, rates, taxes AND maintenance of the house they stay in and the rent that they pay for staying in that house. Very very very few people make that calculation and make sure they put the money away in something like the MSCI world index (something else to take into account is putting the money in an RA, TFIP, or other tax benefit account but it will overcomplicate the matter). Therefore if the property is close to that 8.5% or even 6.5%, I would still advise that people who aren't as financially savvy, to buy their property (then you are forced to invest into your property). This is more a discipline question than anything else, although a very thorough analysis for those who can achieve such discipline, thanks Carla.
I have a PhD in Investments and did a similar analysis 20 odd years ago. It is very rare that property will beat renting plus investment discipline. The problem is lack of discipline and a poorly diversified portfolio. I do like your analysis at the end.
I'm glad you said this. I wanted to point out to viewers that the only way renting can be better is if you INVEST you excess cash. So it's really a matter of buying vs (renting and investing).
Fantastiese video, Carla!
Loved the video, but like you said the discipline is the tough part.
Exactly. Add to the necessity of discipline a modicum of financial knowledge (more so than with your dwelling), and it becomes even more complicated. I find such financial know-how rare, even for simple products such as ETF's.
So true! In your late 20's and early 30's you most definitely are not investing the excess cash when renting. Point and case - this idiot I call myself 😞
An excellent explanation of the 8.5% rule. Thanks Carla!
Things we should all keep in mind:
- This particular buy vs rent analysis applies only to investors. It does not hold true for "regular" home owners or renters. The vast majority of people are not investors, but survivalists.
- 40 years is a long time. Making changes to your plan anywhere before 40 years after implementation could ruin all your benefits.
- A house is, of course, an asset, and money can be made with it. However, the primary function of a house is shelter - not investment. Ask yourself: am I buying/renting for shelter or investment? If your answer is both, then this analysis also does not apply to you. The 8.5% rule only applies to pure investors.
This was brillant not sure why the algorithm did not pick u up before now. Excellent
Investment gains of more than ~40k/a are subject to capital gains tax, whereas capital gains on a primary residence is only taxed for gains in excess of R2M. It's safe to assume that these thresholds will increase over time. But this would affect your 8.5% rule in 2 ways:
1. Even in scenarios where the renter's investment portfolio outperforms the buyer's property, the renter will have to pay higher tax rates on their gains, which drops the breakeven point below 8.5%.
2. Gains on a R5M home will be taxed more than a R1M home, meaning the breakeven point is lower for more affordable homes.
Came to the comments for this. As long as you staying in you home you won't be paying tax on the equity in the property. Renter will need to withdraw and pay tax to cover their rent.
Thanks for your raw honesty. Such a refreshing, impactful video!
Something to think about .Super cool video
Really amazing video Carla. I like the way you put them (rent vs buy) head to head with real life examples. The facts and numbers do not lie. Great job!
I would also request if you can make a video about how and where to start teaching our kids about smart money decisions and investing. Thank you from Durban.
Thank you so much Carla I am 26 and recently bought a property in Stellenbosch. It’s a new development and be ready in the near future. I’ve had sleepless nights wondering if this was a good choice. I wish I’d found you sooner 😢 I’m camping on your channel from now on
The other thing I wanted to mention is that people will rarely want to or have the discipline to put the “deposit” they would have put down to buy a property into an investment account/ stocks. I think because people are scared of the investement account and that they cannot “predict” the stock markets and that it’s not something you can physically see like a house.
The simple reason why owning your own property are much better is the convenience, security and status. I can do what I want on my property. Have a cat, a dog, children, piss on the grass, plant trees, cut off trees, paint it the color I like, add on a room, add on a garage, build a swimming pool and upgrade the kitchen and bathrooms if I want. That is priceless. The renter cannot do anything in the property but sleep, shower and keep his mouth shut. The rent can go up at anytime, you can be forced to move after your contract, you need to allow the owner to inspect, when you move out the agent will try to screw you out of your deposit. Buy if you can. You will make an excellent investment and the convenience factor is priceless. Why do you think the rich, like Carla, will be the ones who will rent to you. They don't want you to buy but to rent from their portfolio. I made millions from buying and selling property.
Based on your reply, I'm sure I met you at a braai once where you brought this up?
No heart on this comment. But still a valid response.
@@skilledinspeech9917 Nice try but no cigar.
Yes, primary residence properties can be lifestyle assets! Especially if you plan on living there for a long time. I just purely wanted to analyse it from a financial perspective. I don't own any properties, maybe one day when I feel like my stock portfolio is large enough and I can start buying lifestyle assets 😁 For now, I'm focusing on building maximum wealth.
PS: Your house sounds like fun with the cats, dogs, swimming pool and hopefully it's the animals p*ssing on the grass 😂
@@MoneywithCarla Agreed Carla. If building maximum wealth is your goal make your sums and go for it. My goal is to enjoy life while I can.
really good to see a comprehensive proper comparison done.. so much bad information out there and we are conditioned that "buying always better" great job!
Renting in Cape Town only makes sense when the agreement is directly with the landlord, there's room to negotiate rent, upfront costs and annual increases etc and you can build a good relationship. I wish more landlords went this route instead of using rental agencies that offer very little value.
I am shocked by the misleading ads for rental properties by Agents. And the ridiculous fees they want for credit checks and lease agreements. When did we start having to pay for this stuff? And the high prices for nothing in a terrible neighbourhood.. Trying to come back to Western Cape and rent for awhile before buying again, and I am rather going to take your advice and find a Owner renting directly.
@@MichelleRubery-e3i directly with owner is much better, I've been able to negotiate a less than 6% annual rental increase whereas with agency they will want to take you for 8%+ increase. hope you find something good.
agents are parasites of the worst kind indeed
In Atlantic Seaboard in Cape Town at the moment the rental price is around 10%+ the property value!
Great video, really helped me grasp this concept. UA-cam needs more financial channels like this.
@@antondevilliers8763 thank you!
Excellent breakdown but I really struggle to accept annual escalation of Cape Town property at 9%. The market for upper end properties since 2004 is no where near 9% compound year after year
Correct, 9% in Blue Downs maybe.
The analysis is thorough and balance. Other factors are not mentioned but I think is simple enough to comprehend. Maybe the risk and liquidity factors in another part two of this video could be mentioned. However, you opened my eyes, enlightened my day and I thank you
Wouldn't it be fair to say that once the buyer has paid off the mortgage would then start investing in the stock market as well? let's say that he would invest the same amount he was paying for the mortgage?
Not accounting for income from the purchased property!
100%, this is the massive part that's missing
Interesting video.
What assumption did you make regarding the accruing of the cash flow to the investment of the renter? Did you assume that the renter deposits the cash flows into their investment at the beginning of the year or only at the end of each year? I would assume in order to get the most accurate investment growth one would need to model the cash flow changes monthly as the renter would either be paying in or withdrawing monthly.
Also, do you think it's reasonable to keep the R&M provision at 1% of the property value throughout as this would imply that the cost of R&M goes up by the same percentage as your property growth which is 9.67% in this case (a case could be made that this should be matched to inflation)?
What about deducting sales cost off the property value at the end?
Look forward to hearing your thoughts.
I just stumbled on your channel, what a gold mine! If you're taking requests, I'd love to know more about whether Reg 28 is as bad as people make it out to be! I was told that it's better to go off shore, convert to dollars and the growth + rand devaluing are better than the tax relief of an RA. Keep up the great work!
Wow! This was so informative, thank you!
Very useful analysis and well presented too!
Great video for new, young home buyers, having said that. Going the rental route, financial discipline is key. With cash on hand there is always a reason for having to spend it.
Great concept for a program, very informative. Just one thing missing, the effect of tax on the rental/investment option. perhaps you could do a follow up including the tax.
Thank you! This helps so much. The only question I have is, what if the value of the property listed, is inflated? As it's quite a subjective figure. Really enjoyed this analysis.
Such an educational video! Definitely did the drum roll 20:04 😂🥁. The video taught me everything I have to know on how to compare the two options (Renting vs Buying). Please keep on uploading great investing and financial content!😄
Thank you. Very clear to understand
Hi
How does TAX on the investment portfolio affect this model … 😳
This is a great video and I really appreciate this from a SA point of view. One consideration that I think you should have in your follow up: The devaluation of currency over time. This plays a massive part, specially in the buyers favour as the value of the bond/mortgage stays the same, but the same amount of money has changed the "value". Nevertheless, I enjoyed this!
Great video, well done!
I loved this explanation. The downside of renting is that the owner can sell the house and kick you out at any point.
Thanks for a great video. What would also be interesting is if you consider buying a free standing house and investing the levies or small additional payment into the property and paying it off earlier. If you invest the mortgage payment from year 14 this could also change the result
Great video, thanks. I did a similar calculation recently and this was a good sanity check. I'd love to see you breakdown retirement investments and if it is worth putting money in an RA in South Africa vs just investing the money on S&P500 or something. Every financial advisor I have spoken to tries to sell RA products but I am not so convinced given that they are taxed at the end, limit foreign investment, and are hard to get your money out if you leave SA.
Personally not a massive fan of RA's either due to limited geographical diversification as you mention. If you plan on emigrating it would be hard to see a reason to use RA's.
For the stock market option, I presume you including stock market crashes which come in cycles. Eg, since 2000 S&P annualises to 7.45%, but since 2010, it's 13.39% (both these exclude Rand devaluation, which is a major factor
The second thing is getting money out the country to invest into an index incurs exchange rate penalties & fees. This innocuous seeming difference in buy vs sell rates can eat a lot of the profit
Thank you Carla. One of the best rent vs buy analysis I have seen!
Could you perhaps do a similar video on buying property as an investment in Cape Town vs only investing in diversified world ETF?
It's coming up 🤩
wow.....excellent video with so much information, I'm immediately a fan...because I'm a property investor in Cape Town🤩🤩
I think I'm going to love this channel
Me too❤
I just bought a property for R1.75m with a 10% deposit and an interest rate of prime -1.1%. Aiming to pay it off in 5 years. I want the freedom to drill holes through walls, make minor changes without approval and not have routine inspections. I don't ever want to live in a house that is being actively marketed for sale by the owner. Privacy, freedom and peace of mind.
@@TheDevign and that makes total sense! In one of my videos (10 Tips for Financial Success) I call primary residence properties "lifestyle assets" because even if they don't always make most financial sense they could make "lifestyle or psychological sense". Hope you enjoy your house and thanks for sharing 😊
@11:23 So if I understand correctly inflation was not considered in the calculation? The high inflation in SA is the main reason that there is a high interest rate and the high inflation and inflation adjusted salaries should over the years make the mortgage a smaller portion of your overall expenses. The surplus you can either invest or use to pay down your mortgage faster? Or is this considered the same for both scenarios? I`m impressed that property is performing so well in a high interest scenario.
Great video Carla. One thing I'd like to point out that wasn't mentioned as an advantage to the renter is liquidity. This opens up huge advantages from a diversification perspective for the renter. Having all your wealth locked into brick and mortar or land is not wise. I know you were just talking numbers, but from a financial planning perspective it's very important to consider liquidity. Either way, great work!
@@reactionaryopinions200 very true! I mention this and other arguments for and against buying in my video "Why Buying Property Isn't Better than Renting". Thanks for the feedback 🙏🏼
This is an excellent video, thank you so much!
I am very very interested to see how I can calculate the difference between buying small properties to rent out VS having a standard retirement portfolio.
With regards to the R7. 5 Mil property in Paarl, while working in real estate in Cape Town, I realized that there can be a substantial price difference between the listing price and the final sale price. Perhaps looking at the historical sales report on Property24 or on the City Valuation Roll, would help to narrow the gap between asking price and real market price.
Looking forward to watching more on these kinds of topics.
Great content - Is it worth it for expats to buy/invest in SA? Maybe worth doing a video on that (please)
Unrealistic to look at 9.67% annualized compound growth of property value, especially considering the incredible growth of the last 13yrs based on the decrease in cost of capital due to interest rate reductions - The prime lending rate essentially went from 15% to 7% over this period... Inflation-adjusted present value if you work back from R45m considering the SA average inflation rate would be R22.5m. This is unrealistic and not a remotely accurate assumption, especially if you compare it with wage growth in South Africa.
This is a fair point. The Index only starts in 2013 therefore hard to get reliable data for the period before. Perhaps I can get someone like Lightstone to sponsor historic data for my next video. And I will build in the CGT assumptions. Stay tuned :)
Good stuff. Difficult to use relatively short 10 year historic property performance to extrapolate 25 years in the future - jhb had practically zero growth in 10 years, and thus the methodology would put buying a R3m house at R55m in cape town v R3m in jhb in 25 years. Also 15% ZAR Msci return has been in a period of (arguably) unsustainably low interest rates. But you do point out the sensitivity of variables. Enjoyed the vid, and especially the 8.5% heuristic
@@nickturner8202 thanks for the quality feedback, Nick 🙏🏼 I checked the data from stats SA and it shows a 5.8% annual average increase in JHB residential property since 2010. Also valid point on MSCI. Although the 40 yr average is 8.5% USD and assuming a 6% USD ZAR depreciation (20-yr average) that comes to 14.5%. More on this in next vid 😄
Carla, could you include in the calculation if the buyer after 25years invests their bond repayment into the same type of investment for the 50year exercise please?
It appears that you did not make provision for the extra cash flow that a property owner would have once the property is paid off to be invested in stocks (similar to the renter)... Or did you?
I would be interested to see how this would change the analysis.
Should you not be taking into account the annual tax on the 2 investments over the 25 year period? Tax on investment portfolio is considerably more. Would be interested to see the impact.
Owning 1 property, for my opinion, is all the property diversification one requires. The rental/lack of rent is a fairly constant income component to ones portfolio which does not vary with the market. So if you plan to retire on 100k per month, taxed from your investments is 85k in your pocket, then having 30 odd% of your expenditures every month "stable" does add a piece-of-mind component which adds value albeit not financial.
Considering that paying rent out of your portfolio comes with a 15%(cgt I think?) and you do not get taxed when not paying rent to yourself, this would have a >1% impact on your 8.5% rule, especially post bond.
would you mind making a 3min video including the tax component to the rental component? assuming it is all CGT out of a stock portfolio?
This content is great! Two questions to consider. When you buy a property it forces you to make the payments or risk losing your house. How many renters are disciplined enough to put the excess cash into the markets on a regular basis...? I have never met a disciplined renter.
@@MrTarrentaal I am a disciplined renter with a significant stock portfolio😄 and when I have capital to allocate I need to choose between property or stocks - hence this analysis started. Nonetheless, it is a valid point. I discuss this and other non-financial considerations for and against owning your house in my previous video "Why Buying Property Isn't Better Than Renting". PS: Love your handle 😄
@@MoneywithCarla Thanks for swift comment. You are now the first disciplined renter I have met. I love your content and all aspects of your video and analysis. I wish I could be a disciplined renter. ❤
Great video! I've been really interested in property investment lately and your insights are incredibly helpful. Do you have any tips for beginners who are just starting out in this field? Also, what are some key factors to consider when evaluating a potential property investment? Thanks for sharing your expertise!
Overall, well presented. However, you assumed that the maintenance cost, rates & taxes and levies on the house bought will stop at the end of the mortgage. Also, the 1% maintenance cost is OK for the first 10 years, but will probably go up significantly at around 20 years as major repairs / revamping will be required.
I have done this comparison many times in the past. Buying has an emotive upside that cannot easily be quantified. But also, people will then spend extra to reshape the house to their liking. I would not be surprised if it amounts to an extra 2% (of the property value) per year.
Renting has the upside of moving if you circumstances change, and not spending on expensive modifications to the building. However it then also requires the dedication / discipline to invest the set out amount into the ETF no matter how the market is looking.
In the end, after building a very complex model, I think you will find that both option are very close.
Very interesting Carla, thank you. Please could you do a scenario on your spreadsheets if you Don't have the 10% deposit as a buyer or renter, so no preferable interest rate on your 100% bond or no initial investment capital as a renter.. How would that lo9k after 40/50 years? 🙏
Hi Carla
Thank you for the thorough comparative analysis. Could you kindly share the spreadsheets and data sets you used? I want to run some scenarios for my buy/rent decision.
Dankie baie.. goeie advies en hulp
I did the maths as a property invester and i decided to sell my whole property portfolio. Last year when doing my taxes , i realized that my ROi after levy,tax,maintenance and bad debt were only 5%... investing the money and using it to fund my side hustle brings me 10x that
Great video! However, there are other things to consider when choosing to buy or rent:
Renting a property gives you a lot of flexibility. It's easy to end your contract and relocate, whereas selling your property or finding a tenant requires more effort.
Buying a property, on the other hand, provides stability. A landlord cannot ask you to leave because they want to sell the property or move in themselves. Since it's your property, investing time in improvements makes sense because it will increase the value when you decide to sell. As a renter, it often doesn't make sense to settle in deeply, knowing you might not stay long-term.
Lastly, buying a home forces you to pay the mortgage every month, which can be a form of forced savings. While renting theoretically allows you to save and invest the surplus, many people lack the discipline to do so consistently.
@@cobuslouw96 yes indeed, there are many non-financial considerations - I discuss those in my previous video "Why buying isn't better than renting" if you're interested 😊
@@MoneywithCarla Awesome! I’ll definitely give it a watch. Great content😃
What I am really interested in is using apartments in decent middle income neighborhoods to generate rental income.
Typically they cost around R700K to R900K and generate an income of R8000 to R10,000 per month.
These lower cost properties, don't have high transfer duties, or large maintenance costs.
That would be very interesting to see a cost / cashflow projection over 50 years.
That assumes the rent is paid
@@mvubu6823 very true, and why one would need multiple properties, as well as keep cash aside to cover expenses in months that you don't have rental.
@@mvubu6823 What 'decent middle income neighbourhoods' sell at that price. They are not R700-900k. I've been searching but none in that bracket.
Thanks, Carla. I will just check all my investment rentals, I am at least getting rent more than 8.5% every year. The banks give less than prime but rarely 1.25%. It depends if you plan to stay short term in a place or long term.
hello! This video is purely from a buyer vs renter point-of-view. Next video looks at investment property from a landlord's point-of-view
Very nice video
The cheaper the property the more likely it will be better to buy....once you get to crazy nice houses to meet you Instagram lifestyle it's usually better to rent.
Other factors on this question of buy vs rent is that property is a less liquid asset. You cannot sell for the optimal price when you want to. Global ETFs especially offshore domiciled are not influenced by political instability in a place like south africa. It's not an easy answer, so many highly influential variables
Would be good to redo the numbers with tax considerations, please.
I tried really hard to find a flaw in your video 😂 call me a sceptic when it comes to financial advice online, but your video was spot on. We need MORE of this type of content. Keep it up.
Great video! Pls do similar for JHB
Informative video, Thank You
With recent developments in KZN with the political situation, would it be better to rent or buy in KZN? Durban and the surrounding area's in particular.
Amazing content!
Please do one for the Garden Route
I would prefer an option to do my hobbies such as painting, gardening, trimming trees, building and so on...
I hold a PhD in Investments and conducted a similar analysis over two decades ago. In my experience, it's uncommon for owning property to outperform renting combined with disciplined investing. The main issues typically lie in a lack of financial discipline and an insufficiently diversified portfolio. Your concluding analysis, however, is something I appreciate.
to be honest, it's literally the minority that will be buying a house\property that is 3mil+. The avg person would be paying between 2-2.5mil max. R4mil+ is very unrealistic\obtainable for most people. Either way, very good video. Also, best value for money properties in the cape is in southern suburbs. You can get a reasonable property without paying for the next 50 years.
Brilliant video!
Please do Sandton!
Great Vid Carla.
Which platforms do you recommend to invest in SP500?. EasyEquities, Robin Hood, Plus500, E-Toro etc
Where do you see the USD heading?
Where do you see the ZAR heading?
Where do you see Euro heading?
Thank you - more questions to follow ;)
I love the questions, keep them coming! USD/ZAR questions very valid because the "superior" returns of the global stock portfolio vs CT property has a lot to do with the USD strengthening to the ZAR and the conclusion depends on this continuing in future. I believe the longterm trends will continue (USD/ZAR, stocks vs property etc), but these questions are worth their own videos 😄
Regarding the platform, the more boring the better. You don't want to be tempted to visit it often or sell/buy based on market movements. Continue investing and trust the market in the longterm. Depending on where you live, it's worth considering the security offered by the broker platform and also think about the ETF you choose to avoid US estate duties. Not personal investment advice 😉 Subscribe to my blog - I will be posting blogs on this to help more.
Dankie Carla!
I would very much like to connect with you and understand the concept of paying additional funds into my home loan. The question is, is additional monthly payments better vs annual lump sums? Also, I have a spreadsheet I keep to track my progress, but it all falls apart when you withdraw funds (not too large amounts) for emergencies from the access bond. Is there a spreadsheet or formulas you can recommend to take into account monthly payments, additional payments and withdrawals and very importantly, interest rate changes?
Again, thanks for this video. I have also known about the S&P 500 but was not sure we, as South Africans can invest ... I know, sounds silly but then it comes to investments, the SA giants have always been my primary investment companies.
Other mitigating factors to these scenarios would be geopolitical events, natural business cycles, a functioning power grid, the level of crime, government policies promoting investment in the country in order to create jobs.......otherwise who will be buying my owned property? ANY asset is only worth what the buyer is willing to pay! 😉 In addition, while money printing accelerates these extraordinary numbers, the buying power of the same ZAR is severely decimated over time. In August, 1980, it took U$1.35 to buy ONE South African Rand.....yes, the ZAR was STRONGER than the USD. Today, July 2024, 44 years later, it takes U$0.055.....yes, five and a half U$ cents.....to buy one South African Rand.....that's a 96% erosion in buying power by the ZAR!!! YIKES!!! 🤯
Love the 8,5% Rule. If you can afford a rent to buy scenario and invest additional funds after covering the bond then I assume you would get both the wins? Really appreciated the SA examples. Thanks Carla
Glad you enjoyed it Timothy! Actually, if you're looking at it from a purely financial standpoint, and you can rent for less than 8.5% - it's better to rent and invest as much as possible in the stock market (regardless of whether you can afford both a bond and to invest). But WHERE you invest is important of course as I mentioned. Disclaimer: Not personal investment advice😉
What about the renters stock portfolio that has to pay supertax when selling the stocks ?
Great Video and really well explained.
The 8.5% rule makes a lot of sense.
Just two observations:
1. Would I be correct in assuming that the Global growth of 14.27 is really exceptionally good and had a lot to do with the Rand's weak performance because of mismanagement by the Zuma administration.
The question would then be, what would happen over the next 10/20/30 years?
Will the rand keep devaluing? How does this impact the figures if the Rand actually strengthens?
And how would this change the figures of the rand just stayed on par with the dollar?
If I am correct, in 2010 the R7.3 were to the USD
CAn this figures be taken back to 2000 when the rand were a bit closer to today?
2. Most renters I meet, might not have the ability (or discipline) to invest the excess that they would have paid on their bond.
However they still want to live a "lifestyle" that is technically higher than their income level. Renting allows them this in certain instances.
Love content like this that uses real world data and base conclusions on facts.
Just subscribed!
@@RiekertCloete-sx1yo thanks Riekert! The USD/ZAR movement is a big factor indeed. What's your opinion on the forecast? It's been a 6% per year average annual depreciation against USD for 20 years. Added to MSCI All World annual average since 1987 of 8.5% it's 14.5% gross before fees. I think a scenario of staying on par with USD is unlikely but could include some sensitivity on this in future!
@@RiekertCloete-sx1yo observation 2 is valid and unfortunate. Hopefully I could make a few people aware of the benefits of investing in the stock market 😊
I like that you can follow the 8.5% rule to decide if it is better to rent or buy. However my question is when there are rental houses, they only supply you the rental amount per month like R35000 per month, excluding water and electricity etc.. How are we supposed to figure out now what the house is worth on the market if the house is not for sale. Do you look at houses in the same area that are for sale with the same amount bedrooms, bathrooms, plot size etc?
Great advice
Great video👏🏼👏🏼👏🏼👏🏼
Loved the video thank you
The 30 year market return for S&P 500 is around 9%(7% when inflation adjusted). I would invest into NASDAQ 100 index for better return.
@@SH_K the return you quote is in USD. When converting to ZAR, you need to account for ZAR/USD depreciation which adds ~5% (20 yr average CAGR)
Hi Cara, in your comparison investment did the renter invest the transfer fees and bond registration fees that that they would have paid if they bought? and what was the deposit amount assumed?
Great video - growth in index funds is not linear - how does that impact the value if withdrawals happen during a downturn?
Will need to model different scenarios for this - another video idea 😄
What about the fact that there's a tax allowance for capital gains on your primary residence? Factoring that in, and I'd expect renting makes less sense (rule of ~5% instead).
Very informative thank you! You put a lot of effort into these and you cover everything. I think in general it’s better to rent unless you can buy a property well below market value. Thats my generally rule of thumb.
"Historic performance is not indicative of future returns." Lots to think about.
Shouldn't we use a longer term house price increase for a 25 year mortgage? FNB house price index has shown quite low house price increases over the last 5 years. And as your resarch shows, the invester's position is heavily affected by the market performance.
Could you please do the same analysis for Johannesburg/Gauteng?
What s the effect of income and capital gains tax on the investment scenario?
@@andrelouw7210 as mentioned in the video, CGT would apply to both the property and investment/stock portfolio scenarios. For property it would depend on the primary residence exclusion at time of sale. For stock portfolio, to limit CGT: Max out TFSA, then invest in an accumulative fund to limit dividends tax so that all gains are taxed as capital of nature. Also investing in a USD-denominated fund means ZAR/USD depreciation is not taxed as gains. Perhaps another video on this 😁
New to channel...keep it up
In example 2 he can also sell R75 million of his shares and buy the house for cash at year 25. He will still be left with R26 million in his share investment account and a paid off house vs only the paid off house which the buyer will have.
Unit bought for R300K 10 years ago, now valued at R800K.
Rent was R3500 then, now is R8000K
If a buyer had put that money into the nasdaq 100 index fund, return would have been much much higher
Also take into consideration when having a debit order you have no choice to pay the money... when you have free cash to invest how many people will invest it and how many will spend it on lianilities ?
If a person buys a property, and after 25 years, they invest all the money they would have spend on the bond. How would that affect the outcome of your scenario?
I love this presentation. Exactly the way I think. Here's the point. In 20 years time your bond is PAID. All you pay are the rates and maintenance. So, if you are now 46, and even if your mortgage is currently DOUBLE what you pay in rent (R10 000) you STILL, after 21 years, are MUCH better off. You are now paying R14 078 a month, but the renter is paying R41 406. And NOW it gets MUCH WORSE. By age 90 you are paying R196 285 in rent. But if you had bought, your rates and maintenance are just R66 737. AND, of course, you now have an ASSET which you can SELL and buy a smaller cottage, maybe in a retirement complex. I think your projections need to be a lot longer in terms of duration. Seemingly we are now going to live to at least 100! By that stage, as a renter you have NO ASSET, nothing to sell, and are basically trapped forever with increased rents. I love your idea of buying an S&P500 ETF. BUT, unfortunately, most renters won't have that discipline to invest what they are saving each month by renting.
Thanks for the comment 😊 if the renter has the awareness and education to build up an investment portfolio they will be better off if the rent they pay is below the threshold I calculated. Even if the projections are extended another 20-30 years, the chart clearly only has an exponential direction. Hopefully this will make people more aware of investing in the stock market and not put their life savings into only 1 property.
@@MoneywithCarla And that's the problem. People are 'scared' of the stock market and feel 'safe' buying property. They think investing in the S&P would be a 'gamble', whereas the house they can 'feel' and 'see'. It's going to be a challenge to change those perceptions.
@@MoneywithCarlaanother factor is any landlord renting a property at under 10% is crazy as they will be running at a loss. When renting out a property you must ensure your rental income covers your bond, rates and taxes and maintenance on the property. Just factoring in the lending rate alone, the bond itself will be over 10%, so in real terms, rental income is in the region of 14-16% of the value of the property
@@4u2nvcpt I rented a property in Cape Town for 5% of the property value. I have not seen any landlord charge R35k per month for a property worth R3mil (which would equal 14%) - landlords cannot dictate pricing. The market does. Also the reason I used real examples from Property24 - to see actual rent and property prices.
What happens if you add year over year variability to the interest rates?