The lack of certainty and the volatility of the global economy are resulting in High Net Worth Individuals (HNWI’s) looking at buy-to-rent properties with a great deal more enthusiasm.

“Although buy-to-let sales overall have declined among HNWI, we are seeing a slow but steady return to this investment, with the middle category properties benefiting the most,” said Greeff Properties’ CEO, Mike Greeff.

“This makes sense to me because, although in certain areas and in certain categories rents stagnated over the last year, there was seldom any real shortage of rental applicants.”

Greeff Properties, he added, have established a reputation for screening and checking potential tenants – with the result that they have had minimal serious cases of defaulting payers – below 4% over the last year.

“What still surprises me is the confusion over rental returns.”

“An investor will, rightly, take his monthly rent, multiply it by 12 and then calculate that he is receiving a return on the purchase price of, say, 6%. What he forgets is, firstly, that his property is probably only partially paid off, so on the actual capital invested his return is far higher.

“Secondly, what is often forgotten is that while rent will escalate annually, bond payments could remain fairly constant. Although one would like to see clients pay back their bonds above the going rate where possible – the real return improves annually if you stick to the prescribed payment rate.”

Greeff said that in investing in property it pays to realise that the land value can appreciate even faster than the home value.

“If you select a good area with a small home there is a reasonable chance that in time the home will be bought for upgrading or for demolition. Land in areas like Upper Claremont or Upper Kenilworth, for example, has very high values, irrespective of the quality of the home.”

In general, said Greeff, while it is true that sectional title property is the fastest growing sector in the SA property field and gives the best returns on investment, schemes with too many tenants tend to be less well cared for than those with a high percentage of owner occupiers.

“In the long run, the viability of a property portfolio will depend to a large degree on the area in which it is sited and on the managing agents. If they are good, this will be a satisfactory form of investment. If they are inefficient, the investor could find himself owning properties where for several months no rents are paid – and he might even be obliged to go for an eviction, which can be costly and time-consuming.”

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