Rent vs Buy
- Rental yield: 5%
Erwin Rode - July 2007 main metropolitan area rental yields 4%-6% range. 
- Cash cost of bond for first 20 years: 13.21%
Monthly cash payment on bond for 240 months, 12% interest rate, 0% residual
- Rates, levies, maintenance: 3.03%
Apartment examined, R1,100 p.m. levies, est R500 p.m. maintenance, on cost price R650,000
- General inflation rate: 4.5%
Reserve bank target range 3%-6%
- Nominal house price growth: 6.0%
Residential property price real returns negative to 1997. 
Subsequent rapid increase assumed due to lowering of interest rates and reduction in discount rates, 20 year long-term real growth expected of 1.5% p.a.
- Nominal rental cost escalation: 7%
1% p.a. real 20 year average catch up to account for dramatically different growth rates between nominal and rental.
- Real GDP growth: 5%
Target is 6%, should be able to achieve 5%
- Equity market dividend yield: 3.0%
This creates an expected equity market total return average of 12.5% p.a. Historically, the JSE has returned +-18% pa, but in a higher inflationary environment.
Assume cap rates stay constant, nominal share values should increase at least at inflation + real GDP growth.
Property value examined: R650,000 Additional initial costs: R23,000  Total initial bond amount: R673,000
- Year 1 cash outflows associated with ownership: R108,623.72
Bond: R88,923.72 Rates, levies, maintenance: R19,700.00
- Year 1 residual to invest: R76,123.72
Rental cost taken out: R32,500.00
- Year 21 ownership position:
Cash outflows: rates, levies, maintenance: R47,510.77
Asset value: R2,209,716 After exit cost of 5% (agents comm): R1,980,406
- Year 21 rental & investment
Rental: R125,764.75 Cash dividends: R133,843.73 Net inflow: R8,078.98
Asset value: R4,673,428.78 After 1% exit fee: R4,626,694.49
File is here