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