Buying Property - Know Your Numbers
PUBLISHED 16 MAY 2017
Henry David Thoreau once wrote that:
"Our houses are such unwieldy property that we are often imprisoned rather than housed by them."
To buy your own property is a tremendously empowering and exciting experience. I remember how ecstatic I was when my wife and bought our first home.
It is something which not only provides you with physical shelter but more so it appeals to your higher needs and aspirations. It may also be said that it may become the basis not only for wealth building but also sets one on an upward path for the rest of your life.
It is this home, which will shelter your family's dreams, hopes, and aspirations.
But with the good also comes the other realities of property ownership, for which you must also be prepared.
Property as an asset class comes with costs which are part and parcel of owning property. On a very basic level, this will start with the transfer and mortgage bond costs. It is always wise to get an accurate estimation of these costs before putting pen to paper. These costs get paid before registration of transfer to the conveyancers (specialist property attorneys).
Part of these costs that the conveyancers collect include municipal rates and charges, levies (if the property is part of a group housing scheme). In many cases, this may mean prepaying these costs until the end of the applicable financial year.
The municipality usually will clear the rates, along with the usage to date up to and including the last day of the municipal financial year end. This will mean paying rates in advance, however, this will result in you not needing to pay rates until the new municipal year. In Port Elizabeth, the municipal financial year end is 30 June of each year.
If the property is a sectional property or freehold property which is part of a complex, there will be a levy, which is usually cleared up top the end of the complex or scheme's financial year end, much the same as the municipality, although the date may differ.
In addition, with complexes, there is also an insurance certificate that needs to be paid to satisfy the requirements of the financial institution providing your bond.
In addition, when you take out a mortgage bond you may have to pay an initiation fee which is dependent on the bank. It is important to consider this cost into you purchase consideration. Many clients have mentioned that they paid as much as R5,700.00, as an initiation fee.
It may be prudent for a buyer to obtain the services of a home inspector and the cost of this would also need to be factored in although, the peace of mind is priceless. In many cases, a seller may not be aware of a defect, which makes the home inspector an ally in the process of arriving at a win-win situation.
Once you own property one needs to consider the following:
- Municipal Rates and /or Services;
- Body Corporate levies;
- Insurance [On the property] (if not insured under the levy);
- Water and electricity;
- Insurance on the contents of the property;
- Staff (gardener and/or a domestic employee);
- Garden Services;
- Pool maintenance (if applicable);
- Security costs;
- Bond payments, if applicable;
Although this may seem like pouring cold water over your excitement, being properly prepared for the practical aspects ensures that you may happily enjoy your purchase with less stress.
As a closing remark, do not forget to "sweat your numbers"; which means you anticipate future cost increases such increases driven by inflation and increases in the lending rate. It's all about going into this with open eyes and good judgement.
Property ownership is a privilege but it comes with obligations and duties, much like citizenship.
Clinton Begley (PPRE MPRE CEA B.PROC (NMMU)) is the co-founder, Principal/Director at BOLD REALTY, in Port Elizabeth, South Africa. In addition, to his passion for people and real estate, he is also an experienced trainer, coach, and mentor. He holds a B.Proc degree through the Nelson Mandela Metropolitan University and is a non-practising Attorney, Notary, and Conveyancer (with over a decade of experience). His legal and real estate experience is augmented by studies towards an MBA degree through the Nelson Mandela Metropolitan University Business School, which he is scheduled to complete soon. This article reflects the personal opinion of the author only, it is NOT intended as legal advice nor may any reliance be placed upon it. The article is purely for information purposes and you are advised to consult an expert before making any decision.