Looking for Land – Part 2

In Looking for Land – Part 1, our journey to living off grid in South Africa began with us deciding what we are looking for in a property. In part 2, we find out about financial constraints to buying off grid land in South Africa that we weren’t aware of.

Budget Revision 2

In the previous post, we discovered the budget we’d assumed we could achieve was woefully incorrect. At the time, we thought our friends were A) Keen to buy land quite soon, and B) Would be able to match a similar budget to us.

Our own budget has been based on various factors, but included creating income channels through the property from the get-go. This is of course very risky, since it’s a new venture and so much could go wrong or be delayed.

After more thinking and discussions, Russ & I decided to lower our budget to what we thought (hoped) we could do on our own – bank willing.

How Much Can We Afford to Spend?

We plan to finance the property purchase by applying for a homeloan with the bank. When deciding how much we can afford to buy for, this is the main factor we have in mind. It all comes down to what we think we’ll be able to afford in monthly repayments back to the bank on the homeloan. Of course, the bank will need to agree with our assessment.

We will have to prove that we either have an existing and reliable stream of income matching that monthly repaymet figure, or be able to show that we will have it when we aquire the property. For example, a cottage on the property that has an existing tenant paying monthly rent, or anything along those lines.

TIP: As a rough rule of thumb, you can get an idea of what your monthly installments will be on a homeloan by working out 10% of the property/homeloan amount.

A homeloan repayment amount is affected by three main factors:

1. The length of the homeloan repayment period, called the loan term. In South Africa, it is usually 20 to 30 years. The longer the term, the lower the installments – but the more interest you pay in over the long haul.
2. A cash deposit you put down to secure the loan. The bank usually likes to see a 5-10% cash deposit to approve a homeloan, as it shows that you are responsible enough to save (and have the funds to do so) and are thus more likely not to default on the homeloan repayments.
3. And finally, the interest rate the bank offers you. You can get a fixed interest rate that never changes, or one that fluctuates with inflation. Depending on whether you’re buying at a time when inflation is low or high will affect which is better. The interest rate is also affected by your credit score (risk assessment).

So, while there are lots of different factors affecting how much you pay back on your loan, it’s still very helpful to have some sort of figure in mind, and that’s where the 10% rule of thumb is useful.

For example, a one million rand loan on a standard 20 year term will have you paying roughly around R10,000 per month installments.

New Plan!

Our new plan is to get a property on our own, and get things going. Then, when our friends are able to come on board, they can join us.

We are hoping to find something big enough to accommodate our friends at a later stage, so they can buy into the property when they are ready. That would also serve to reduce the homeloan by a big chunk when they do. Essentially we are hoping to float the loan for every-one so we can get off grid sooner, and they can come in their own time.

Shaz Wants A Llama

We connected with an estate agent who lives in Hermanus but comes to Tesselaarsdal to show properties when needed. We were curious as to why there seemed to be so many properties on the market for such a small area.

The answer, as it seemed to us by the end of our first day of exploring, was water – or lack thereof.

Tesselaarsdal is another town suffering from the dropping water table.

Our host who rented us the stone cottage for our stay said he had neighbours regularly coming by to fill up water bottles from his borehole once a week, since their borehole ran dry. We could really see it in some places, but others seemed to be luckier and weren’t as hard hit.

We still saw some really interesting properties, including a luxury tented accommodation getaway…with llamas. I mean, they also had buck and zebra, but who cares when LLAMAS!

I immediately saw the potential of this property, as it is on the market as a going concern. It runs as a self-catering luxury tented getaway. The land is large, the accommodation has been done well to suit the theme and all the infrastructure is in place. With some rebranding (hello Llamaste’ Spiritual Retreat) and marketing it could be amazing!

• 

• 

• 

• 

• 

• 

• 

About That Smaller Budget…

So as I mentioned, we’d worked out a lower budget now that we knew our friends wouldn’t be joining us immediately.

Out of all the properties we saw, I really liked the tented accommodation one, although water was a major concern.

Buying Agricultural Land In South Africa

While reading up, I came across information that put a big, fat roadblock right in front of us. It turns out that in South Africa, any land that is zoned agricultural has a different requirement from the bank. Agricultural land is basically farmland, land used for farming (growing crops, pastures or raising animals). We are looking for land to live on self sustainably, which means the kind of properties that will appeal to us are most likely going to be zoned agricultural.

LESSON TWO:
“When applying for a bank loan for any land or property zoned “agricultural”, the bank will request between 30-50% of the purchase price UPFRONT as deposit.”

And as our agent informed us – the whole of Tesselaarsdal is zoned agricultural. Drat.

There is a very big difference between a 10% deposit and a 30% – 50% deposit when you’re looking at big figures.

Sigh.

• 

• 

•