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deposit for house

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Rossi
Contributor
Hi Guys and Girls? I need some advice? My Girfriend and I are taking a step back next year and aiming to save some money for a deposit on a house(Yes I will propose before then :)) We need to move out of our Shoe box:) What do you think is the best move to try and build a deposit? there can be a risk in my porfolio and I want to manage it myself I think getting a broker to do it will just get hit with management fee's. I plan to kick start it with R50 000 in January and contribute about R10 000 a month. I want to run it for 12 months and hopefully the followiing January move into our new place? ANY ADVICE WOULD BE GREAT!
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30 REPLIES 30
kwagga
Super Contributor
Stick to TOP40 shares. If you buy a resource share, then stick to the biggest resources share you can find - Billiton (resources are volitile, so stick to the big guns). Spread your risk by selecting shares from different sectors example - SAB, Remgro, Billiton, Tiger Brands, Naspers. Select one kicker - This is one share that adds more risk/reward that's not part of the TOP40 (My favourites - Capitec or JSE). Stick to your selection - buy and keep even if 1 ur 2 shares underperforms for a few months. Spread your R 50 000 equally among your selection (5). Invest your R10 000 per months in the following order. Month 1 - SAB Month 2 - Naspers Month 3 - Remgro Month 4 - Tiger Brands Month 5 - Capitec Repeat month 1- 6 Reason - Buy your biggest dividend payers first, and your risky share last. You want max return on a balanced portfolio. Stay away from penny shares - except if you want to flush your money down a toilet.
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AJT
Super Contributor
Rossi - based on your summary, i gather you are planning on entering the market for a 12 month period, please remember that profits made during this time will be taxed based on your income tax and not CGT, so build this into your equasion. I personally would not risk this money in the markets right now, but rather leave it in a fixed term deposit account until you are ready to purchase the house (IMO)..
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PaulC
Super Contributor
Im loathed to agree but given the market volitility and your timeframe I would go for a bank account with the best yield. Money markey perhaps? Im not clued up with regards to accounts. I have this irrational desire to reenter the property but a couple things. 1: Relative to average incomes average house prices are too high. 2: Banks are *likely* to want 10% deposit. 3: over a mill you need 8% of the cost of the prop in transfer theft ... er duty. So I reckon if you want to buy a 1.5m place with 10% down you will need 200k before you even start paying bond payments. Im personally buying gold but I will get whacked with CGT (ive been a buyr for 5 years) if I sell to realise my irrational desire. My long winded point here is that if you have decided in a year you will buy then bank account. If you could be happy renting together (even with a small upgrade along the way) you could invest, luquidate later when market conditions are better and you are not getting killed at income theft rates rather CGT
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Why can't he buy the Redefines and those types of income shares. There is 43 shares that have paid divs year in and year out for the past 5 years. Why are they bad choices? They are not penny shares.
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AJT
Super Contributor
not a bad option over time, but it appears as if the time frame is limited, with tricky market conditions. This appears to be their "dream house", therfore to avoid tears and fights, rather go for a risk free investment and you can dictate the outcome with a relative degree of certainty...
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Not applicable
Allan Gray stable fund or balanced - no broker fees and all done online.
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Last week I read a piece on Rent2Buy. Let me see if I still have it: Here we go. New home ownership concept comes to South Africa FIONA ZERBST | JOHANNESBURG - Oct 26 2010 13:05 SmartMoney has looked at the plight of first-time home buyers and self-employed potential buyers that struggle to enter the property market. Nearly 50% of employed bond applicants are declined every month and about 58% of self-employed applicants can't secure home loans, which is not good news for those who want a home of their own. Generally speaking, bonds are refused because clients don't have a deposit (although 100% bonds are advertised by banks, applications are not granted very frequently), or because banks feel clients can't service their loans. A poor credit history also counts against the applicant. Even a judgement or a late payment of an account can halt an application. A new concept that might make life easier for potential buyers -- and sellers who are struggling to sell or to get their asking price -- is Rent2Buy, touted as an alternative way to buy and sell properties. How does it work? Rent2Buy helps to negotiate an agreement between a potential buyer and a seller so that the buyer can rent a place with the option to buy it by a certain date, at an agreed price. Sellers know they will get their selling price in the future, and prospective buyers will be paying rent equal to a future bond repayment. The seller is protected by the higher rental income as well as rental insurance, which is factored in. A rental agency usually charges 10% insurance, but the percentage here is 4,5%, which is shared by both prospective buyer (2,5%) and seller (2%). The prospective buyer's deal is sweetened by the fact that he can rent with the option to buy; he can walk away at any time if affordability becomes a problem (he is not locked in, as would be the case with a traditional bond); and he can use this "probation period" to prove his affordability and his discipline in terms of paying on time and in full. Prospective buyers can take immediate ownership of a property and take over the responsibility for it, too -- including all rates, taxes, levies and maintenance -- just as if they were the de facto home owners. In effect, there is little risk for the buyer, the seller and the bank. Meyer deWaal, the founder of Rent2Buy, says that after exploring a few overseas Rent2Buy options, he realised some adaptation would be needed for the South African market. Realising that buyers might default, he considered how he could best protect all the parties. "A lady defaulted on my very first deal," he recalls. "After six months, she was transferred to another province, so she had to withdraw. But the seller was happy because she had been paying rates, taxes and the bond for six months and looking after the garden, too, because she had developed a sense of homeowner's pride." DeWaal says there are two different options on offer. The six- to nine-month period involves buyers paying the equivalent rental to a bond repayment. Traditionally, when you buy a property, you don't pay capital back during that period, and the same applies here, because if you load the buyer at the outset he'll be back to square one in terms of affordability and may default. Over 12 or 18 months, or a two-year period, the buyer pays about 9,5% or 10% rental (this includes 4% more than the usual rental, as rentals are about 6% of the value of a property, on average). This means that he will eventually need to apply for a 90% bond -- this will also ease the burden somewhat. So if you're looking at a R1-million property, you would be paying off R950 000,00. This is attractive for the seller, who will take the property off the market for 18 months and thus receive a Print Article http://www.mg.co.za/printformat/single/2010-10-26-new-home-owners... 1 of 3 27/10/2010 12:04 PM higher rental income. The purchaser scores because the purchase price is 'fixed' and he or she gets a foot in the door in the property market. He or she will also be able to pay off on the deposit as well, if the seller is agreeable (this is optional). Home owner education Rent2Buy also attempts tomake life easier for prospective buyers by offering a home owner education programme to train and mentor bond applicants. This should increase their chance of securing a home loan. The My Budget Fitness programme looks at improving an applicant's credit rating and affordability. Rent2Buy developed the programme in association with Solly Molefe of Setsmol Training. You don't have to be a Rent2Buy customer to sign up for the programme and you can also access the software on your cellphone. The programme really targets first-time home buyers, as well as the self-employed, who need some kind of 'track record' before they can secure loans. With the property market as flat as it is, this might be a way to boost it, while assisting sellers who are currently struggling to sell. It looks like a win-win solution. Readmore news, blogs, tips and Q&As in our SmartMoney section. Post questions on the site for independent and researched information Source: Mail & Guardian Online Web Address: http://www.mg.co.za/article/2010-10-26-new-home-ownership-concept-comesto- south-africa Print Article http://www.mg.co.za/printformat/single/2010-10-26-new-home-owners... 2
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Sorry guys, did'nt see it was such a long piece. I just cut and paste.
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Franksays
Frequent Contributor
Personally, I would put the cash in the bank. 12 months is hardly any time and your risk is signifcantly higher than over a 5-10 year period. Can you handle a 15-20 percent knock IF there is a correction? When we saved up for our wedding the money went into a money market acc and same for the house. You will need about 18 - 20 percent of the cost of the house upfront - 10 percent for your deposit and the other 8 for transfer fees, bond registration costs and all those little extra things like moving costs, painting, fixing, tools etc. Trust me rather work on your plan to save money with your purchase like negotiating to choose your own conveyancor as part of the OTP. Then when you have that phone around. We saved R10 000! Now thats a return 15 percent saving just by being shrewd.
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coops
Occasional Contributor
Maybe then put into a high interest fixed term multiple deposit account,you wont get charged income tax owing to tax exemption and the R4 a month fee will be less than buying/selling into the market. capitec offer a multiple deposit account and you get around 6.7%, not sure what other banks offer.
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SimonPB
Valued Contributor
for a 12 month time frame .. stick it in the bank .. what if you had done this in 2008 ??
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AJT
Super Contributor
depends... if you had done it at the beginning of 2008, you are smiling, at the end, then different story...
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SimonPB
Valued Contributor
no .. 2008 was the collapse ..
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AJT
Super Contributor
bank beginnig of 2008 = smiling; bank end of 2008 = tears...
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Not applicable
Seeing as most traders wipe out their first portfolio, stick R35K in the bank. Take R15K and trade/invest with that and see how things go.
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DEP
Super Contributor
Gold / Gold shares / silver / Plat. / plat shares...
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Rossi
Contributor
Hey Guys, Thanks for the replies, a lot for me to read and think about! Just to give you more background. I'm not as clued up as you guys. I am currently running a access bond with certain amount of money coming back to me every month. In my little spread sheet I call it Capital gain. Should I just keep the money in and constantly pay the R10 000 into the access bond and grab my capital gains portion?(my bond is financed at (P-1.5%). I am young and can build capital if need be, if I lose a certain percantage I understand it comes with the game. My goal is to build as much deposit as possible. I have R300 000 in mind and will most probably buy somehting in the region of R1500 0000.00 and hopefully from a developer to avoid transfer theft! Then in about 5 years look at the dream house and hopefully have built up biger capital? Realistically I will be saving for about 15 months! Thanks
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saash
Super Contributor
Hmmm .... tough one. Thing is you're not putting in a lump-sum right now, so if you choose an index fund, like a SAT40, you're buying the market spread over 12 months, you're getting the highs and the lows. I'd say it also depends on your earnings, what your effective tax will be on the income, and I'm guessing around 30%. You will get around R1500 interest over the 12 months. Say the average growth of market over the period is 5%, and the average div return around 2% (cos your shares are low in first 2 quarters) .... maybe better off in a sat40? By hopefully about R2k ... risk spread is worthwhile, maybe mkt gets to 45000 by then, but maybe falls and comes back to this level or a bit off ---- but either way, you're pretty sure to keep most of the capital.
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saash
Super Contributor
Oh read the papers - currently a new house from a developer costs on avg 30% more than a house from a seller! Because it costs more to build, and you can negotiate sellers down quite well (in the present market - but sure a year from now won't be a lot different!)
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