Real Estate Investor Magazine South Africa March 2014

COVER STORY • The buyer pays a deposit, takes over bond repayments, and makes additional monthly payments to the seller to cover the balance of the purchase price. • If the property is not bonded, the buyer could even negotiate an interest rate on the purchase price to be paid off, say 6%. This way the seller, instead of the bank, will receive interest on the purchase price which paid in monthly installments, turning the ALA agreement into a solid investment that produces a good return, paid monthly. Bear in mind, however, that the interest – if any - is negotiated between the seller and the buyer. • The buyer and seller can negotiate on points such as who will be responsible for maintenance, payments of rates and taxes etc. Many sellers simply want to free themselves from the cost and hassle of maintaining a property or relocate as quickly as possible, and a buyer willing to take over these responsibilities may well be able to negotiate a reduced purchase price. Here is an example of an offer accepted by a seller, who needed to relocate, on a R1.4 million property with a main house and two flats. The bond on the property was just under 10 years old and the repayments were R8 000 per month. About half of the bond repayment amount was interest repayment and the other half capital repayment. (On a new bond around 80% of the bond repayment is interest and less than 20% is capital repayment.) Given this reality, paying R1 000 a month extra into the bond (raising the capital repayment portion to R5 000 each month) for the next five years or 60 months will not only decimate the outstanding balance, but will also drastically reduce the interest payable each month, and this saving in interest is then also allocated to the capital repayment portion. The compounding, snowballing effect of an extra R1 000 a month on the repayment will bring the buyer very close to paying off the bond in the five year period of the ALA contract. The buyer is also paying the seller the balance of R225 000 plus 6.5% interest per annum in 16 March 2014 SA Real Estate Investor monthly installments of R4402.40, which gives the seller an additional R39 143 in interest earned over the five years. generating property is held. And this for easily affordable installments of R1 750 per month, over just five years. So, the buyer is paying R13 402.40 a month for the property, including a R1 000 a month extra payment into

Real Estate Investor Magazine South Africa March 2014 | Page 18