Maximise your rental property returns
PUBLISHED 17 SEP 2014
Buying a rental property and becoming a landlord is not for everyone, however, it can be an exciting and interesting way to build wealth.
A reputable, experienced estate agent can be of valuable assistance in this regard, says Adrian Goslett, CEO of RE/MAX of Southern Africa, who says it is vital to gather as much information as possible from reliable sources before venturing into the rental property market.
“The adage that ignorance is bliss may apply to certain aspects of life; however, property investment is certainly not one of them. As a tangible asset, a rental property should appreciate in value over time. While this is not always guaranteed, there are certain factors that investors should consider to assist them in maximising their rental property’s potential investment returns,” says Goslett.
There is power in positioning
A property’s position or location will have a massive impact on its potential appreciation value. “The most important aspect to consider in any property purchase is the property’s location and secondly the type of property it is. Not only will the area in which a property is located affect its investment growth, it will also have an impact on the rental income that the property will be able to generate. Generally, a property located in a neighbourhood that is close to good schools and shopping centres will fetch a higher rental income than those that are not,” says Goslett.
He says buyers also need to take into consideration the rental demand for certain types of property in particular areas. “There is no point in buying a freestanding house to use as a buy-to-let property when the demand for rental properties in that area is for sectional title apartments, for example.”
If an investor is unsure of a neighbourhood or development, they should speak to the tenants and owners that are currently living and renting there. This can assist in providing valuable information with regard to the area, amenities and other facts that could be useful.
Weighing up the cost
“It is recommended that before determining a rental price for the property, an investor should research the average rental paid by tenants in the area. This will be a good way to estimate the potential rental income that the property will provide on a monthly basis and weigh up whether or not it would be a good investment option,” advises Goslett.
The initial decisions made in the first stages of buying a rental property will largely influence that property’s potential. The bond repayments will not be the only expense, meaning that a buyer will also need to consider aspects such as renovations that are required, as well as the maintenance and levies of the property in order to discern an investment’s viability. This should be taken into account before the property is purchased,” says Goslett.
Sellers are required to list the known defects of the property, which will allow the investor to determine the possible initial outlay of buying the property and undertaking the necessary upgrades and repairing defects. This will help in assessing costs and weighing up the investment’s potential income after expenses.
He advises that if there are aspects that require further attention or anything that the investor is not sure of, they should consult with a qualified and reputable home inspector to avoid unforeseen costs.
Managing the property
When investing in a rental property it is important to decide who will manage the property. “Either the owner of the property can decide to manage the property themselves, which at times could be rather laborious or they can make use of a rental management agent. If the decision is to manage the property without professional assistance, it is important for the investor to relate to the property as a business venture and manage it accordingly. This would include keeping track of all expenses as well as the income generated,” says Goslett.
He says in the case where an owner decides to employ a management agency, all matters relating to the property would be handled by them for a percentage of the rental income or as per the agreement. A part of their service would include vetting all prospective tenants through their various methods and credit checks, along with collecting monthly rentals.
According to Goslett, a vital aspect when considering buying a rental property is researching the laws that apply to rental agreements and the responsibility that falls onto a landlord. “Legislative changes that have come into play such as the Credit Amnesty Act, along with the proposed amendment to the Rental Housing Bill could bring about some significant changes in the rental market for both tenants and landlords.
“For example, a major change that the bill proposes is that all lease agreements be reduced to writing. The onus of this will fall onto the landlord, who must ensure that a written agreement is drawn up. The written agreement will be a binding, legal document that would be enforceable in a housing tribunal or a court of law.”
He says landlords will have to ensure that their lease agreements are legal and that they adhere to all the legislative stipulations. Lease agreements must be in line with the Consumer Protection Act and have terms that are clear, understandable and that protect both parties in the event of a dispute.
Insurance and contingency
Once an investor has purchased a rental property, they will need insurance to cover their liability, which can be done by speaking to a broker who will advise on the correct insurance needed for the type of rental property. This will prevent the landlord from having to find additional money to cover unexpected contingencies such as a burst geyser. Landlords should also remember that certain liabilities will not be covered by insurance, so it is advisable to have an emergency fund to cover these circumstances.
“Buying a rental property and becoming a landlord is not for everyone, however, it can be an exciting and interesting way to build wealth and start seeing returns on your property investments,” says Goslett.