Please note that you are using an outdated version of Internet Explorer which is not compatible with some elements of the site. We strongly urge you to update to a newer version for optimal browsing experience.

Do you own a home? You can make money

30 Jan 2015

Many working people do not have access to finance for big buy-to-rent investments, but smaller investments in the form of extensions to their existing home may be both realistic and lucrative.

With the rising number of students and young professionals seeking rooms to rent, homeowners can easily boost their income by converting a garage into a rentable room.

This is according to Liezl Hesketh of TheRoomLink, who says one great way of increasing revenue this year would be to convert an existing garage and renting the space out to a student or young professional.

The idea of renovating a property may seem cost prohibitive and difficult at best, but Hesketh says the reality is quite different.

TheRoomLink is an online portal dedicated to matching students and young professionals seeking a room to rent with landlords, homeowners and student accommodation providers, she says.

According to Hesketh there is a great demand for this kind of accommodation, which will just continue to grow.

“Converting a garage is not as difficult or as expensive as most people think. In fact, it might be one of the best and easiest property investments you can make,” she says.

Hesketh gives a breakdown of the economics below, assuming a mid-range conversion. She says a property owner can spend half or double this amount, depending on the quality of finish planned:

- Construction cost to convert:  R100 000

- Mortgage Bond interest: 10% x R100 000 = R10 000 per year

- Rent received annually:  R3 500 x 12 = R42 000 per year

- Gross profit per year:  R32 000

- Return on investment:  32%

Clearly, she says, this is a worthwhile investment.

“In addition, the legal fees, transfer duties, rates and taxes, and levies which are normally incurred when investing in a property do not apply when developing an existing property,” says Hesketh.

Regulations vary between cities, but as a general rule of thumb, she says permission for a garage conversion in South Africa is not required if: 

- There are no external structural changes.

- Plumbing is already connected to the building.

- You have not converted a garage or outbuilding before.

However, it is best to check with the local municipality before undertaking any modifications.

Hesketh offers a few additional tips before building:

1. Find a reliable builder

It is very important to find a builder that you can trust. Contact a few builders and ask them to provide you with a detailed quote. Ensure that everything you're asking for has been quoted for so you can compare quotes like-for-like.

Phone at least three references for each builder you're considering. Personal recommendations from friends and family may have a higher rate of reliability, but don't rely on this. Do your homework!

2. Prepare yourself mentally

A construction project can be difficult process, so be prepared for disruption, dust, and dirt.

3. Have a written agreement

Always ensure that you have a written agreement in place with the builder. 

4. Plan a contingency fund

Most construction projects unearth something unexpected, so set aside an extra 10% to 20% to cover these costs. 

5. Plan ahead

Ensure doors, windows, electrical sockets, plumbing, lights, cupboards and wardrobes are planned ahead of time.

6. Financial advice

The value of the property may increase as a result of this additional investment. Keep details of the costs and invoices as they may be required to calculate Capital Gains Tax.

It is the homeowner’s responsibility to declare any profits from rental properties for tax purposes, so is suggested that a homeowner seek additional financial advice.

Once the renovations are complete, the owner will be free to list the property as available to rent. Not only will these upgrades ensure an additional income, they will also add to the value of the home, as well as provide a potential income stream for future owners, says Hesketh.
Print Print
Top Articles
For wealthy South Africans an investment from $500k is often less than the cost of a second property, and with this minimum amount set to rise, the rush is on...

Those hoping to sell in the current market should be patient, but pricing your property right and working with a good agent can speed things up. Here's what to expect...

With rentals so high in Cape Town’s prime coastal strip, buying property often makes more financial sense than renting, with good buy-to-let opportunities for investors...

Loading

Your browser is out of date!

It looks like you are using an outdated version of Internet Explorer.

If you are using Internet Explorer 8 or higher, please verify that your Internet Explorer compatibility view settings are not enabled.

For the best browsing experience, update to the latest Version of Internet Explorer or try out Google Chrome or Mozilla Firefox.


Please contact our Property24 Support Team for further assistance. Tel. +27 (0)861 111 724