When buying new developments, many people forget the difference between Sectional Title and Own Title properties.
Let me clarify. When you buy in a block of flats where there are a number of flats on top and next to each other, it is sectional title. When you buy an erf in a new development and they build your own house on that erf, it is own title.
The end result is the same, but the cashflow is totally different!
When you buy a sectional title flat, the flat is transferred to your name on registration, and registration only takes place once the building is completed. You only start paying bonds once the property has been registered. So, in essence, your cash outflow more or less co-incides with cash inflow from rental.
In the own title situation it works differently. The moment you buy the plot, it gets registered in your name and you start repaying the bond. Then when building starts, the builder will make regular withdrawals from the bond, which increases your repayments. Only when the building is completed will you be able to rent it to somebody. So you must be able to carry the bond repayments for a couple of months.
It is a very important thing to keep in mind when buying. Nobody will tell you this, because it is assumed that you know. But it can have a serious effect on your cashflow.
Tags: Property