Real Estate Investor Magazine South Africa REIM February 2018 | Page 6

Q&A Property Advice Q I’m looking to buy my first house, but I keep getting rejected for a home loan. What are my options? A rent-to-buy system may offer a practical solution to help home- owners on their way. Given the current economic climate, banks are more jittery than ever about lending to first-time homebuyers. If you don’t have a deposit or there is a spot on your credit record, your chances of getting approved are even slimmer. MEYER DE WAAL Practicing Attorney and Direc- tor of Meyer de Waal Inc, My Bond Fitness, and rent2buy The rent2buy concept was developed and fine-tuned as an alternative for buy- ers eager to get a toehold on the proper- ty ladder sooner rather than later. In this case a buyer who has been turned down by the banks – but who may qualify for a home loan in the future – rents the property from the owner for a fixed time frame (between six months and two years) with the intention of purchasing it at the end of that period. It works best for an investment property being sold by the owner, or for a prop- erty developer, where the seller is willing to wait for a prescribed period before the sale goes through. With rent2buy, the buyer has breath- ing space to improve his credit rating, if that is the reason why the loan was turned down. In addition, the rent2buy rental is about 3-4% more than the go- ing rentals for the suburb in which the renter intends to buy (it is usually close to a normal bond repayment). This extra portion of the rental is credited towards a savings account for the potential pur- chaser to build up a deposit. The rental period also gives the potential purchaser a test run at dealing with the realities of being a homeowner, as they take over all the associated responsibil- ities – such as rates, taxes and mainte- nance. ASK THE EXPERTS 4 Anything can happen over six to 24 months, while the first-time buyer is waiting to enter the market. Interest rates or house prices can skyrocket. This puts owning a home further out of reach. So, part of the beauty of the programme is that the purchase price is usually frozen at the original amount, unless the term is longer than 12 to 18 months, to be fair to the seller. If one was to take a typical property worth R1m, it would be rented out for R7,000 a month. The landlord carries the expenses of rates, taxes, insurance, levies and maintenance – in total about R1,000 – and ends up with R6,000 a month in his pocket. But as part of the negotiation the rent- 2buy tenant offers a higher income with a rent2buy rent, close to a home loan repayment based on the purchase price – say R10,000 a month for a R1m property. The tenant also takes over R1,000 of expenses (rates, levies etc). And so the seller has a much improved cash-flow during the rent2buy term: an additional R3,000 and R1,000 of expenses. That is a R4,000 improve- ment. Meanwhile the rent2buy tenant “tests” his affordability capacity to pay back a bond and own a property in real circumstances. To assist the purchaser in saving to- wards a deposit – the third leg of rais- ing a home loan, after credit profile and affordability – this ‘extra’ portion of the rental is credited towards a downpay- ment of the purchase price. In this in- stance, after a year, the potential buyer has 12 months of R3,000 – totalling R36,000 – saved as a deposit. Do you have a property question you would like answered by our experts? If so, post it on ASK THE EXPERTS on www.reimag.co.za or email [email protected] FEBRUARY 2018 SA Real Estate Investor Magazine