#115: Tips and tricks for buying a home

It's finally done. I've submitted the offer, the owner accepted it. Pending the approval of my home loan, I've bought a house. The process has been dreadful and not one I'd like to repeat. I'm very sensitive to where my money goes and what I'd like it to do in the future. Making a decision involving hundreds of thousands of rands was never going to be easy.  The worst part was not knowing whether I could trust the information I was getting. It's a negotiation between a buyer and a seller, mediated by a third party who has a vested interest. I only have a superficial idea of what I actually signed on for.  If you are about to embark on this journey, I recommend visiting the Estate Agency Affairs Board website and downloading the Code of Conduct. This document inadvertently tells you all the fast ones agents like to pull. It also gives you a sense of what you are entitled to as a buyer (and seller). I wish I read this before I started. I made liberal use of the South African Property Transfer Guide reports. I bought four, in total. I knew exactly who the seller was, how much he paid for the unit, what the other units in the complex were going for and how much churn the complex had seen recently. It also helped me figure out the agent showing me a different unit was being duplicitous; think Photoshopped pictures and unregistered agents. Lastly, I want to point you to the tool I found an hour too late, submitted by Adam. This company does a comprehensive inspection of the home you're about to sink your fortune into. If you are seriously considering buying a place, pay a company like this before you commit.  My house hunting stirred some ideas and questions for you too. In this podcast we share some tips and tricks and help a few listeners figure out how best to buy or sell. Sally has a question about a second property. She didn't buy it as an investment property initially, but then her circumstances changed. At first she wasn't sure if she should keep it or sell it, but in the time it took us to get to her question, she's had some closure. I've always been of the mind that an investment in property is a good thing and never really looked into it any deeper (in terms of returns etc).  I was mostly covering costs currently and figured I'll have extra income once the property has been paid off.  First, I did the Stealthy spreadsheet, with all the actual money that went in and out of this property over the years.  The returns are sitting around 8-10%, which is not great.  I've actually been extremely lucky with tenants, and had no vacancies with this place, but who knows how long that luck will last!  Then I looked at retirement numbers.  My cost of living with the income is lower, thus the number I need to reach is lower,  and could potentially reach it in 15 years.  Without the income,  my retirement number is a bit higher, but without the property I would have more disposable income. If I'm disciplined, I could actually reach the higher number in just under 14 years.  Due to the amount of money in and out of the bond, the amount of cash from the sale will not be huge, but on the plus side, I won't have a bond to pay off. I am thinking I may now put it on the market and buy some nice passive property etfs. I'm in no rush to sell, so that's in my favour. I understand it may take time to sell, which isn't an issue either.  What do you think? Have I missed anything critical,  or do you have further arguments for keeping versus selling? Christiaan shared a bond calculator. It shows: How your monthly contribution would change if the interest rate changes. How many times you'll be paying the property if you just paid the bond amount. 2.36 times in my case, which means if I paid cash I could buy two of those places for the price of a bond How additional payments would affect your payment term. For example, my planned additional payment would shave 14 years off my bond repayment. Bond calculator spreadsheetDownload Antoine says: The emotional temptation of owning your own property is that it gives you control to fix broken things. However it's not easy to deal with contractors. Although I can do a lot of these things myself, I don't have time and it doesn't make financial sense to spend time on these things. So in a sense I have to rely and deal with the quality of someone else's work. Before you buy, reframe the problem and think about all the choices you have if you want to move to a different location or province at the drop of a hat. This might help elevate the emotional anxiety. Then decide to buy a house because it makes rational financial sense or decide to just rent a different apartment. If you have a lot of time on your hands to fix things at the house yourself (and you actually enjoy doing stuff like this.) Buying and renovating might be reframed as a "second" job. @chi_gunda and I had a conversation about what a bond does to our overall net worth. Both of us will have more liabilities than assets due to our home loans. I listened to the Fat wallet podcast this week, couldn't believe you were even considering liquidating your tax free account,  I kept screaming 'nooooooooo, Kristia, don't do it' to myself. Rudabager Lassie von Tigerbalm figured out a great way to consider the financial impact of buying. I'm on a bit of a present-value mission right now. One calculation you owe yourself is to consider what the extra monthly costs of a house are worth by retirement, when adding in compound growth. That's the real cost. At least if you buy it you know beforehand, rather than screaming into the night later. Cliff has his financial situation completely under control and wants to know what percentage of his portfolio should go towards buying a home. I am invested in and contribute monthly to ETFs, equities both domestic and abroad, tax free savings, an RA. I've even dabbled in some cryptos. I also have about 25% in cash which I have in a money market acc that I can draw from if I see a good buying opportunity that I like. When the day comes where I want to buy an apartment/house, what % of my portfolio should I contribute towards buying a house?  I wouldn't want to sell any of my equity holdings and I would prefer to buy in full with cash.  But that would also not be a wise decision because I would be putting all my eggs in one basket.  When it comes to buying would you recommend contributing 50% of my portfolio towards the purchase of the house and mortgaging the other 50% or putting down the minimum 10%, pay a larger monthly mortgage and have less disposable income to invest in the market every month?  I live in cape town where the price of a two-bedroom apartment is around ~R2m. I'm also considering what Simon said last week where cash is king when buying property. Stealthy Wealth once wrote an article about the cost of living in Cape Town. http://www.stealthywealth.co.za/2017/06/living-in-cape-town-definition-of.html Get Down Adam, who is a doctor and apparently a late bloomer, wants to know about buy-to-let. I just want to remind Adam that people live much longer, so finding your career later in life is probably a good thing. I come from a family where money wasn't discussed and property is king.  From what you say on the podcast, property is a less smart investment these days and I get that but I also HATE paying rent, even if the maths makes sense. I'm having trouble shaking the emotional connection to property.  I have my eye on a piece of land that could potentially fit three small townhouses.  No one else has built there because there is an issue with access, but the land borders my parents' property and they would sell me access. The issue is the land is over-valued for something you can't use. The seller doesn't know that I could potentially use it so I could get a deal. I could theoretically build three, let two and live in one.  Is this a dangerous game? I know property itself is a nightmare, but there's a big part of me telling me this is a sneaky opportunity.  The not-get-down Adam also wrote us about inspecting a home before you buy it. Unfortunately I got it an hour after signing an offer to purchase.  You mention checking cracks, mould, damp etc. before buying a place. My personal experience has been to enlist the professionals here such as Inspect-a-home. I've used these guys twice for both my places and I actually had their investigation as part of the "subject to" criteria before purchasing. They do a full inspection and will identify faulty wiring, mold, cracks etc. with a neat little report that really helps.