28 Jan 2013
With the ever growing demand for rental properties in the current market, many opportunities have presented themselves for property investors with rental portfolios or those wanting to purchase their first buy-to-let property.
This is according to Adrian Goslett, CEO of RE/MAX of Southern Africa, who says although many rental properties are yielding good returns on investment, it is important that potential landlords consider a few aspects before venturing into the property rental game because as with most investments, purchasing a buy-to-let property is not without its risks.
Affordability and the financial risk
According to Goslett, the first step for an aspiring landlord is to consider what they can afford financially, bearing in mind that there may be some months that the rental property stands vacant.
He says it is important that the financial implications are measured and that the landlord is not reliant on a tenant occupying the property at all times.
“It is not just the bond repayments that the landlord will have to pay, but also levies, rates and taxes and maintenance of the property. While in the case of a sectional title unit, the body corporate will have some responsibility of maintaining the property, certain aspects will be for the landlord’s account.”
He says the landlord will also need to have a savings account for unexpected repairs that may not be covered by insurance.
“The savings will also need to cover general upkeep of the property such as painting. There may also be the cost of marketing and advertising the property to potential tenants.”
Different types of properties cater to different markets
Goslett says the demand for certain types of properties will vary from area to area. He notes that if a landlord wants to purchase a rental property in a particular area, they will need to research which types of properties are in demand and will achieve the best rental returns.
“Location will also play a vital role, in that rental properties that are situated within easy access to public transport and closer to amenities such as shops, schools, universities and business districts will be in far higher demand.”
This, he says, is because generally tenants will want a shorter commute to their place of business and many students may have to walk or use public transport to get to their campus if they don’t have their own car.
Who will manage the property?
A landlord will need to consider whether they have the time to manage the property themselves or if they need to hire a management agent.
Goslett says although hiring a management agent may be an additional cost, the service they provide will allow the landlord to reap the benefits of owning a rental property without having to deal with the day-to-day administration issues.
In cases where the rental property is located in another region or province, a rental agent can provide a valuable service that saves the landlord in travel costs. For a percentage of the rental income, a reputable rental agent will assist the landlord with advertising the property to rent, screening potential tenants and undertaking full credit checks as well as drawing up the necessary lease agreements among other services.
Rental pricing is crucial
Another aspect that a rental agent can assist with is ascertaining a fair rental price. The achievable rental potential of any property will largely be determined by the average rental prices of properties with the same or similar offering in that area.
Determining this figure will give the landlord an indication of the rent they can expect to earn, which in turn will help to establish whether the investment is worthwhile. A rental agent who has a solid working knowledge of a specific area will be able to accurately determine a rental figure that is market related.
Goslett says rental pricing is crucial because if the rent is over-priced it will chase away possible tenants and increase the chance of the property sitting vacant. A competitive rental will ensure that the property is rented out within a reasonable time period and that it continues to attract tenants, he says.
Seek the advice of a professional
If a landlord chooses to manage the property themselves it is advisable that they seek the advice of an attorney or property professional to ensure that the legalities of all the documents or agreements with the tenants are within the scope of the law.
Lease agreements or legal documents that are incorrectly drawn up can result in costly disputes that will erode the possible return on a rental property. It is important that all elements are included in the document, so that there are no areas left open for interpretation.
Aspects such as acceptable tenant behaviour, breakage costs and the date that the rental is payable should be included. An attorney or rental agent can also assist with collection of rent and a letter of demand should the tenant default on the agreement.
Goslett says purchasing and letting property continues to be a sound investment option provided the principles of buying a property are adhered to.
A rental property portfolio can be a profitable way of realising returns on your property investments, however, he says, it is imperative that potential landlords carry out as much research as possible to allow them to make the most informed decision.
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