# Rent2buy – How to do your own Rent2buy calculations

July 6, 2015
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July 16, 2015

I have been asked many times – how does the financial side of a rent2buy transaction work?

Herewith a simple example – remember each rent2buy or ALA transaction is calculated on it’s own merits.

RENT2BUY EXAMPLE:

The parties agree on a purchase price of R1 million for the property.

They agree on a peer to peer transaction and the proposal is as follows:

The current market related rental is R 7500.00 per month.

• a home loan of R1 mil, the purchaser will pay back in monthly instalments as follows:
• R1 mil x 10 % x 20 years = R9 650.00 pm
• As a home owner – would also pay rates, taxes, levies and insurance – of +/- R 1 200 per month.

If the landlord is to continue with an ordinary rental – he would collect R7 500.00 per month, less rates taxes etc that he usually pays (less R 1 200.00) = R 7 500 – R 1 200 = R 6 300.00

The Rent2buy purchase would offer the landlord/seller the following:

• Rent2buy rent of R 10 850 per month ( rent of R 9 650 and rates taxes etc of R1 200)
• Negotiate that R 2 150 per month to be credited towards a savings account for the benefit of the purchaser – as a savings towards a deposit
• After 12 months:
• the Rent2buy buyer has saved R25 800 towards a deposit (12 x R2150)
• The landlord – seller – improved his cash flow with R10 850 – R 6 300 = R4 550 x 12 = R54 600)
• Note – if the rent2buy buyer:
• Takes up the option – he deducts his savings deposit from the purchase price
• fails to exercise the option – the landlord retains all money paid as rent.

HOME LOAN

The rent2buy buyer applies for a home loan after 12 – 24 – 36 months.

KEEPING TRACK WITH INFLATION

Each year the purchase price increases with inflation – percentage agreed upfront – say 8 %

INSTALMENT SALE – Alienation of land Act

The parties agree on a purchase price of R1 mil.

Interest to be paid at 10 %

Capital and interest paid back over a 5 year period (Note – the purchaser can accelerate the payments and apply for a home loan during the term of the agreement and take transfer, register a bond and settle the full purchase price in cash.

Due to that fact that the purchase price is “crammed” into a 5 year repayment period – the monthly instalment is very high – this can be negotiated between the parties and reduced if a large deposit is put down.

 PRINCIPAL 1 000000 RATE 10.00 YEARS 5.000 YEAR O/BAL REPAY CAPITAL INTEREST 1 1000000 254965 162268 92696 2 837732 254965 179260 75705 3 658472 254965 198031 56934 4 460442 254965 218767 36198 5 241675 254965 241675 13290 6 0 254965 266981 -12017

Contact me for a full calculator.

Meyer de Waal

meyer@irent2buy.co.za

021- 461 0065

www.irent2buy.co.za

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