You have finally decided to do the wise thing and invest in property.
Before you start scrolling online looking for properties within your budget, consider the following expenses involved in buying and owning property.
The following costs are payable by you, the purchaser, during the purchasing process:
1. Purchase price
This is the amount that the purchaser and seller agree to in the offer to purchase (contract). The seller is responsible for the agent's commission, thus is included with the full purchase price.
2. Transfer fees
If you did not know, now you know; you have to pay lawyers to transfer the property from the seller's name into your, the buyer's, name. This amount is determined by a sliding scale. As the property price goes up so does the transfer attorney's fees. This fee will include transfer duty (tax, only payable for properties of a higher value than R1million), admin fees, deeds office fees, posting fees, etc. For a R1,2 million property an amount of R34,000 is payable and for a R2 million property an estimate of R84,000 is payable for the transfer.
3. Bond registration fees
If you have to borrow money from the bank AKA take up a bond, you have to pay a second attorney to register this bond. This fee also gets more expensive as the purchase price of your property goes up. For a R800,000 loan an estimate of R20,000 is payable to register a bond. For a R2,600,000 loan an amount of R39,000 is payable.
Just note: The day you have paid off your bond or decide to sell your property, you have to cancel the bond on the property - and yes, there are costs involved to this as well.
4. Bond initiation fee
The day you start paying back your loan you won't just owe the bank the R800,000 you borrowed from them. You will owe the bank R806,037. The bank charges you with an extra R6,037 for initiating the process of you paying them back. It is a good idea to pay this upfront as you do not want interest to run on that too.
5. Rates and taxes
Rates and taxes are the municipal fees that every property owner need to pay for basic municipal services. These services include road maintenance, storm water management, street lighting, sidewalks, firefighting, sewerage, refuse, etc.
When working with the transfer attorney you get to a stage in the transfer process where the municipality needs to be secured with your rates and taxes until the end of the upcoming financial year. You will be responsible for rates and taxes pro-rata (meaning only from the date that the property is registered onto your name until the end of your municipality's financial year). It is something you have to pay nonetheless but be informed that you will need to pay a lump sum upfront.
The following costs are payable while owning the property:
6. Municipal bill
Rates and taxes are mentioned above but this is not the only thing you will find on the municipal bill. The municipal bill also have fees that secure the availability for water and electricity to your property, refuse removal and other fees. Water and electricity usage is also on this bill - if you do not have a pre-paid meter.
These running costs together with your water and electricity consumption will be billed to you, the owner of the property, every month.
When you buy a sectional title property in a complex, levies will be payable to pay the body corporate that manages the expenses of the complex. This fee covers things like boundary security, the buildings' insurance, maintenance, gardens, etc. Levies are also payable in estates where a homeowner association runs the estate. They upkeep roads, gardens, do refuse removal and every nice aspect that made you buy there in the first place. Levies are not your enemy, they actually keep the complex or estate in the good condition it currently is thus adding to the value of your property.
When loaning money from the bank, insurance on the building is mandatory. The insurance only needs to be on the structure - even though it is a good idea to have insurance on your house's content too. The bank who is loaning you the money will give you homeowner's insurance at a fair monthly rate. Another insurance company may also be used if they comply with the bank's requirements. With sectional titles, the building's insurance is covered in the levies.
The realization that no one will fix it if you do not fix it sometimes come unexpected for new homeowners. If you are leasing out the property or living there yourself there will always be maintenance to a place and you the homeowner are responsible to get it done and to pay for it. Be it a gutter that is blocked, a tap that needs to be replaced or walls that need a paint. There will always be running costs to any asset you own.
9. Furniture, appliances and the garden
I am sure this point is a no brainer but nonetheless, if you buy a 5 bedroom house you will need the money to fill those bedrooms with furniture and decor.
The kitchen will need appliances too. When searching for a house keep in mind where those appliances will be placed - in the kitchen, scullery, laundry or garage - and what it will look like.
If you need to create a new garden from scratch in your back yard you need to know that plants are not cheap. A landscaper can be added to the costs if you do not have the time and energy to figure out where to plant what.
10. Extras and hidden costs
I am adding this point because there might be something that is not mentioned on this list. This includes moving costs, accommodation while waiting to move in and more. Make the effort to talk to successful homeowners and ask their perspective on owning property and how to save on costs. Talk to the transferring attorney as well. They can inform you on what the fees will be on the specific property you are buying. We can all learn from people with more experience than us.
Now that you have a better understanding of the different costs involved in buying and owning property you can start to accept that whether you start big, small or smaller than you thought, this is not what matters in the property market. What matters is that you start somewhere and buy property. It can even be a small apartment you rent out to someone at first. The important thing is that you start sooner than later.