Buying to rent out – safe as houses?
Category Property market overview
Thinking of investing in residential property with the aim of renting it out? “Position yourself for success by doing your homework and consulting a trusted property advisor to guide and advise you,” says Bruce Swain, CEO of Leapfrog Property Group.
As with any investment, success isn’t guaranteed but it certainly helps to actively manage it and be wary of potential pitfalls.
CRUNCH THE NUMBERS
A sensible property investment is based on solid research, a keen understanding of the legalities, and realistic financial projections.
Firstly, the investor must consider the difference between rental yield and capital growth, says Swain. “It’s rare that a property delivers both a high rental yield and above-average capital growth, but the choice of which one to opt for depends on your financial goals.”
Furthermore, the affordability of the rent for potential tenants must be considered, as well as the demand and supply of rental property in the area.
When it comes to the numbers it is not just about the purchase price of a rental property, but also about the associated costs, including legal and maintenance, as well as potential rental income and future growth. “There’s the cost of rates and levies, and insurance, which must be accounted for in calculating the rental income potential of a property,” Swain adds.
LOCATION LOCATION LOCATION
Good property investments have a mantra and “location location location” is it, and the same certainly applies to rental properties.
For the best returns opt for a property in a location where there is a high demand for rental places, but also consider the types of tenants you’re likely to get in specific location. “For example, a flat near a university is sure to attract students, who may not be reliable payers and often reply on the assistance of their parents. A medium-sized home near a school, on the other hand, will likely attract families, who may be more stable
payers, but a medium-sized home will also require more maintenance, which needs to be budgeted for,” Swain explains.
Other location factors to consider include the general reputation and upkeep of the area, historical capital growth of properties in the area and future development plans for the neighbourhood. A reputable property agent that specialises in a particular area will be able to assist with this and provide more information.
MAINTENANCE IS A MUST
As the owner of the property you are responsible for the majority of the maintenance costs. The owner (or their appointed landlord or agent) is obliged to look after the structural maintenance of the property, which typically includes electrical wiring, plumbing, roof leaks, alarms systems and more.
General wear and tear also needs to be accounted for, which would also be for the owner’s account. “A well-maintained property can often demand marginally higher rent, compared to similar properties in the same area and price bracket,” Swain notes.
EVICTION AINT EASY
Know this before you buy to rent; it is not easy to evict a tenant, no matter how delinquent a payer they are. Unfortunately the owner has fewer legal rights than the tenant, and eviction invariably needs to follow the legal process, which can take up to four months and could cost the owner in the region R30 000.
Add the legal cost to your loss in rent, and possible repair costs to your property, and it becomes an expensive exercise.
This is one of the reasons why it is essential to do the necessary background, criminal and credit checks on tenants. A reputable agent can professionally manage this on your behalf. Similarly, when you run into problems with tenants, the letting agent will know which legal channels to follow to manage and resolve matters as amicably and cost effectively as possible.
FUTURE FORWARD
It’s safe to say that as long as people seek shelter, there will be a market for rental properties. What’s important, as with any long-term investment, is to keep your expectations for that investment real and in tune with market trends.
Author: Leapfrog Property Group
