Property investors with access to finance will find many good opportunities to build their rental property portfolio in the current market. However, while there are value-for-money properties to be bought, there are still a few guidelines investors will need to follow to ensure that they get the most out of their investment, says Adrian Goslett, CEO of RE/MAX of Southern Africa.
Don’t – Be too hasty and forget the research
According to Goslett, regardless of whether buying a property as a primary residence or as a rental investment, buyers need to do the necessary homework and start the exercise with the goal of gaining as much information as they can get their hands on. With a vast mass of information at their fingertips, buyers can complete a large majority of their groundwork while sitting behind their computer. Internet property search portals are a great way to compare pricing and what different areas offer.
Do – Choose the type of rental market that suits you
Once the research has been concluded, an investor should consider the type of rental market they want to get into, as this will have a large impact on the return of investment. This decision will mostly be based on the location of the rental unit. The off-campus student accommodations are always in high demand and with the constant influx of students each year, it is likely that finding a tenant will be fairly easy. Units within walking distance of the campus that are in a secure complex are always popular among students and parents alike, and have shown consist healthy return on investment over the years. Another type of market is rental units in proximity to financial business hubs. These also generate a good return of investment with the high demand for properties within an easy distance for those who work in the business hub. Given that these units generally cater to business executives, a higher rental price can sometimes be asked.
Don’t – Charge over-priced rentals
Determining the rental price that can be charged for any rental property will be based on the area and average rental for units with similar offerings. Over-priced rentals will make the competition look better and make it a lot more difficult to find a tenant. A comparative analysis of the rental market in the particular area the rental unit is situated in, will give a good indication whether the rental amount is fair and market related. This comparison will also give the investor an idea what they can expect to earn and whether the investment is worth it.
Do – Consider other costs
Buying a rental property won’t just cost the investor the bond repayment, there are also levies, transfer costs, legal costs and of course the cost of maintaining the property. Unless covered by insurance, any defect that the property has will be for the owner’s pocket and even if nothing goes wrong, the property will still need to be painted and kept in good working order. It is vital for landlords to have an emergency fund that they can use for large unexpected expenses that may occur. Another cost for investors to weigh-up is their time and effort. If they are going to manage the property themselves then it will take time, alternatively if they decide to employ a management agent, it will be an additional expense.
Don’t – Forget to read the fine print
Make sure that the legalities of all agreements with tenants are correct. Goslett says that it is important for landlords to have a lawyer or property professional check their lease agreement to make sure that they are within the requirements of the law. It is also advisable for landlords to research and know the law and what it prescribes. There is no point in making a return on the rental investment, only to use the money to pay for legal disputes with tenants.
Do – Consider the following
Apply risk management principles and have an agreement with regards to what is acceptable tenant behaviour, sign a legally valid lease agreement, secure a deposit and agree on breakage costs.
Inspect the property on a regular basis at a time that suits the tenant. The timeous collection of rentals, levies, rates and taxes each month is also important.
Consider appointing a professional rental management agent, which can be a cost-effective and efficient solution to managing a rental property. For a percentage of the rental income, the agent will screen potential tenants and conduct full credit check as well as tenant history and they will collect the rent each month.
“If the guidelines to buying a rental property are adhered to, a rental property investment can be an exciting way to realise returns on your property investments, but be warned it is not everyone’s cup of tea,” Goslett concludes.
Author: RE/MAX*|14 February 2012