Thinking of investing in a rental property? Here are the five things to know before buying a rental
Category News
Property, and South African property in particular, has proven to be one of the best investments that you can make. Aside from investing in your own residential apartment or home, there is always the option of investing in an additional property or multiple properties as part of a portfolio of properties to rent out and earn rental returns or yields while your investment value grows year on year. Samuel Seeff, chairman of the Seeff property group reckons that you cannot really go wrong with local property unless you hopelessly overpay, buy a structurally unsound property or buy in the wrong area. That said, he cautions buyers to know that there are many hidden nuances that you need to be aware of, especially if you are looking to invest in a rental property and you are new to the market. While it may seem like a great idea and could be very tempting to invest your cash or finance a second property because you can off-set some of the costs against a monthly rental income, Seeff cautions novice investors to take great care. Unless, he adds, you are in the business of rentals, we would urge prospective buyers and investors to do their homework thoroughly, investigate the market carefully and think about the costs, not just financial, but also the time and hassles that can come with a rental property. Seeff says we can narrow this down to five vital considerations before committing to taking on the additional burden of a rental property:
1. Investigate the market
- make sure you get to know the area that you want to invest in, inside and out. Be sure to speak to a credible local rental agency with a history and successful track record in the area and find out just what type of property is in demand and at what rental rates. Often property owners think they can get more for their property versus the market reality. While some properties can achieve quite high rental rates, this may not be the case for all properties or at all times.
2. Furnished or unfurnished
- when it comes to the long-term rental market, unfurnished is usually preferred. For holiday and short-term rentals, basic furniture and furnishings and extras such as satellite television and Wi-Fi have become essential. Security too is essential for any rental property. We would recommend that you furnish your property with durable items and take into account the additional maintenance and insurance costs that would come into play with furnished accommodation.
3. Maintenance
- what you should bear in mind, is that tenants are just using your property for a period of time, it is not their asset and they are not going to take the extra care with it that they would with their own property or assets, if at all. You will be responsible not just for the basic maintenance of the structure and fixtures that come with ordinary wear and tear, but be prepared for additional damage repairs and maintenance.
4. Tenant sourcing and management
- it has become a necessity in this day and age to employ the services of a credible rental agent to assist with managing your property and its occupancy. This includes navigating what has become a bit of a minefield of legislative issues, vetting of the tenants, collecting monthly rentals, managing the property including any maintenance issues and more. This, would certainly assist in ensuring that you do not sit with unnecessary vacant periods, something that can quickly add up to a chunk out of the returns that you may have hoped to achieve.
5. Property costs and rental returns/yields
- over and above the costs of actually acquiring the property such as the purchase price and transaction and transfer costs, there are many hidden costs that come with a rental property. The first of these would include the basic holding or ownership costs such as home owners insurances, basic utilities and levies, any complex levies and costs and security costs. Further costs could relate to where the property is situated. Near the coast for example, you would have higher repair and maintenance costs due to the coastal erosion. We have also alluded to the additional maintenance and holding costs above, including having to sit with vacant periods. While you may be tempted to try and recover most of this by way of the monthly rental, that is highly unlikely. The rental rate would need to be set at the correct market level to attract tenants and ensure that your property is always filled. Having said this, investing in property is an excellent way to build personal wealth. Ordinary homebuyers could for example obtain a housing loan to finance this investment and then use the monthly rental to off-set some of the bond and other holding costs. At the same time, the natural lapse of time will see the asset grow in value and before you know, five years have passed and your asset starts accumulating real value. High demand middle income neighbourhoods tend to be good areas to invest in, especially for novice investors. There is generally a high demand for rental property in these areas, especially for security complexes and homes in areas with good schools and infrastructure including transport facilities and road access to business and commercial nodes. Always though take great caution and consider all aspect before investing. Part of this, is considering what the economy is doing and how this may affect your household finances in the short term. Interest rate hikes and rising basic living costs are all current realities for the economy and property market. Visit www.seeff.com, to view Seeff’s more than 30,000 property listings and be sure to speak to a Seeff agent if you are looking to invest in property or the rental market.
Author: Seeff
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