Real Estate Investor Magazine South Africa March 2014 | Page 18

COVER STORY
• The buyer pays a deposit, takes over bond
repayments, and makes additional monthly
payments to the seller to cover the balance of
the purchase price.
• If the property is not bonded, the buyer could
even negotiate an interest rate on the purchase
price to be paid off, say 6%. This way the seller,
instead of the bank, will receive interest on
the purchase price which paid in monthly
installments, turning the ALA agreement into
a solid investment that produces a good return,
paid monthly. Bear in mind, however, that the
interest – if any - is negotiated between the
seller and the buyer.
• The buyer and seller can negotiate on points
such as who will be responsible for maintenance,
payments of rates and taxes etc. Many sellers
simply want to free themselves from the cost
and hassle of maintaining a property or relocate
as quickly as possible, and a buyer willing to
take over these responsibilities may well be able
to negotiate a reduced purchase price.
Here is an example of an offer accepted by a
seller, who needed to relocate, on a R1.4 million
property with a main house and two flats.

The bond on the property was just under 10
years old and the repayments were R8 000
per month. About half of the bond repayment
amount was interest repayment and the other
half capital repayment. (On a new bond around
80% of the bond repayment is interest and less
than 20% is capital repayment.)
Given this reality, paying R1 000 a month
extra into the bond (raising the capital
repayment portion to R5 000 each month) for
the next five years or 60 months will not only
decimate the outstanding balance, but will
also drastically reduce the interest payable each
month, and this saving in interest is then also
allocated to the capital repayment portion. The
compounding, snowballing effect of an extra
R1 000 a month on the repayment will bring
the buyer very close to paying off the bond in
the five year period of the ALA contract.
The buyer is also paying the seller the balance
of R225 000 plus 6.5% interest per annum in
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March 2014 SA Real Estate Investor

monthly installments of R4402.40, which gives
the seller an additional R39 143 in interest
earned over the five years.

generating property is held. And this for
easily affordable installments of R1 750 per
month, over just five years.

So, the buyer is paying R13 402.40 a month for
the property, including a R1 000 a month extra
payment into