Purchasing property for the first time – On the Money with Jarryd Neves

Jarryd Neves
On the Money. Budding stock market investor Jarryd Neves, of BizNews, sends out an invitation to everyone who wants to ask questions about share investing – but is too embarrassed to ask. Write to [email protected] And tune in for his regular Monday column: On the Money

I’m not sure about you, but I can spend hours trawling Property24 looking at myriad townhouses, flats and homes to see what would suit me best. Never mind the price, it’s time to dream.

Playing around with the bond calculator, you can see whether said property is something you can potentially afford. It’s one of my favourite pastimes – and I’m told many people my age spend countless hours doing the same. It’s quite entertaining. Looking at multi-million rand mansions and ‘passing’, because the kitchen is not to your liking.

Enjoyment factor aside, I look because, God-willing, I plan on buying my own property in a few years. It’s a very special milestone in one’s life. Saving up for a substantial deposit takes time and patience.

Even shopping for the right property takes the patience of a saint. Not only is the process long-winded and laborious, but you have to contend with chipper real estate agents who try to pawn a matchbox off onto you, using keywords like ‘bijou’ and ‘quaint’.

As exciting as this can be, it can also be a very trying time. Let’s look at some tips to alleviate the stress that comes with buying your first property.

First and foremost, you need to determine affordability. Yes, you may have a sizeable chunk of a deposit to slap down, but what monthly repayments can you afford? What about rates and taxes?

Standard Bank also reminds first-time buyers to not forget the potential extra costs that come with home ownership. ‘Apart from the levy or rates and taxes, you may need to maintain a pool, hire a garden service or pay for security’.

Once you’ve calculated what sort of property best suits your pocket, you need to find a reputable – and reliable- real estate agent who puts your needs first, not theirs. Many are out there just to make a good living for themselves. That’s not to say that there aren’t any trustworthy realtors out there. Ask for references of past first-time buyers they’ve helped. Find out what they’ve done for other clients and how they can help you find the best deal.

Thirdly, take your time. Don’t feel pressured to make an offer on a property just because there is plenty of interest in it. Rushing big financial decisions such as this never go well. Taking your time also allows you to give the property a thorough inspection. Have it checked for leaks, structural issues and mould.

With Covid-19 being a reality, many people are hesitant to attend open houses. Thankfully, the internet is your friend. Virtual house tours and detailed pictures can give you a good idea of a house, but be warned – pictures can be altered, or taken in a way to make rooms look bigger. If you’re keen on a house, it’s always best to see it in person.

If you’ve decided on a property, negotiate. Never pay the list price. Chances are, the owner is willing to budge on the list price. This saving can be used to carry out repairs or renovations your new home may need.

Perhaps the most important tip is to insure your purchase. Property is most likely the most expensive thing you will ever purchase. So it’s essential that you protect it. Accidents happen, and you don’t want to be caught off-guard if the worst happens.

Last week, I asked you to send me your finance and investment queries. Here, Johan Steyn, CFA* of Stellenbosch University, and Leslie Greyling* of Brenthurst Wealth Management, share their expert advice by providing answers to your questions.

Nick asked,
With regards to tax-free investing, is it really more feasible than a normal fixed deposit? The fixed deposit has a higher interest rate usually. I’m running a five-year one that’s currently on 8.5% PA. That’s way more than what a tax-free would have given me. That would have been around 5.75%.
Johan answers,
When you invest in a tax-free savings account (TFSA) the interest earned on the investment is not subject to tax. The interest earned on your fixed deposit would be taxed. There is, however, an exemption of for the first R23 800 per annum interest earned by any natural person under 65 years of age.
Therefore, depending on your marginal tax rate, you could invest a certain amount outside the TSA where the interest won’t be taxed. Beyond the specific threshold it may be worthwhile investing in the TFSA rather, as the net after tax yield may be higher. The TFSA could also play a valuable role in the broader asset allocation strategy in your investment portfolio even if you have not reached the tax exempt threshold yet.
You could, for example, decide to use the TFSA allocation for equity and offshore investments, and thereby not pay tax on dividends and capital gain that would otherwise be applicable.

Marilyn asked,

I have some funds I’d like to invest. We met a young, dynamic couple from Johannesburg recently. We started chatting and he is doing really well with cryptocurrency investments.   

He has sent me step-by-step information on how to open accounts for myself – but he’s not pressuring me in any way.

I’m just wondering whether at the age of 66 I should even be contemplating this avenue?

Leslie answers,

Investing in Bitcoin is a popular concept that regularly attracts media attention and is even supported by billionaire Elon Musk. It is not an asset class (as some refer to it) that we support due to the speculative nature of the investment and also its extreme volatility. Some liken Bitcoin to gambling and advise investing only as much money as you can afford to lose.

A decision to invest in Bitcoin comes down to your appetite for risk. While we do not have information about your overall financial plan and existing other investments, considering your age I would advise against it.

If you need to rely on the proceeds of this investment to support you through retirement, Bitcoin is not the appropriate choice for you. Also, do note that there is currently no regulation on Bitcoin so as a result you could be exposed to fraud or hacking of your account, with no recourse.

If the investment you are planning to make in Bitcoin is to be a significant portion of your retirement fund it may not be the prudent option. Rather consider a balanced/moderate fund that offers exposure to a range of asset classes and significant exposure to offshore assets, where the better returns have been realised (compared to the local market) for the past decade.

  • Johan Steyn, CFA is a lecturer in investment management, from the department of business management at Stellenbosch University. He holds a Masters in investment management and has a background in fund management. Leslie Greyling is a financial advisor at Brenthurst Wealth Management.

Have a question about share investing? Write to me at [email protected].

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