Advice and Opinion

Advice on possible pitfalls that could eat into profits

Eleven of South Africa’s 15 most expensive rental suburbs are located in Johannesburg according to recent information released by credit bureau and property research group Tenant Profile Network (TPN), making it an excellent location to be seeking investment property, says Sotheby’s International Realty Chairman Lew Geffen.

Although more centrally located, Killarney is second overall to Bakoven in Cape Town and it tops the Johannesburg list by commanding an average rental of R55 250 per month for a three-bedroom apartment. According to TPN, Killarney may not have been traditionally regarded as one of Johannesburg’s most exclusive rental areas, but its price performance has “no doubt been driven by a shortage of larger rental apartments on increased demand”.

However, Johannesburg North definitely dominates the rental arena with Hyde Park’s average monthly rental being R46 176, closely followed by R45 742 in Sandhurst. Equally sought-after suburbs to rent in Johannesburg include Dainfern, Rosebank, Sandton, Atholl, Parkwood and Inanda.

Geffen says: “The current trend bodes well for buyers looking to invest in the rental market, however, to successfully capitalise on your investment both short and long term, it’s essential to do your homework.

“To minimise risk and capitalise on investment it’s prudent for investors to research the general demographic of the areas they are considering and decide which segment of market they’ll be servicing. Families will need to be in close proximity to good schools, sports facilities and shopping amenities, while corporate or diplomatic tenants favour an upmarket suburb with easy access to freeways leading to the airport, Pretoria or to the nearest Gautrain station and typically close to business hubs.”

The second point to consider is the purchase price against the rental the property can yield,” says Geffen, adding “our experience indicates that for long term lets in the Northern Suburbs, the most active rental price band is up to R15 000, although the higher bands are also performing extremely well.”

Sherry Moldenhauer, area rental specialist for Lew Geffen Sotheby’s International Realty says that if the purchase is specifically for investment, then properties which require the least maintenance are a better option.

“Older properties require a larger maintenance fund that eats into the income derived from the rental, so low maintenance options like lock-up-and-go properties are a better choice.”
Moldenhauer says that the current trend is toward more modern homes with good security features.

“Corporates do not even look at homes that are adjacent to open spaces or properties on the boundaries of a complex as this is generally considered a high risk for break ins.

“Other big drawbacks when considering an investment property to purchase would be old kitchens and bathrooms and insufficient parking.”

According to Moldenhauer, the most popular areas in the corporate long lease market are Dainfern, Bryanston, Sandhurst, Morningside, Sandton and all of the The Parks, and tenants seeking fully equipped short term rental properties favour Rosebank, Lonehill, Melrose Arch, Morningside and Sandton.

Says Moldenhauer: “Although free-standing homes are always popular with families with older children who require more space, in the sectional title area we are finding that security complexes which offer fantastic lifestyle benefits are becoming more sought after than the conventional complex.”

“The advantage of purchasing a sectional title home for an investment property is that there will be a body corporate with trustees who are responsible for the maintenance of the common property which significantly diminishes the owner’s involvement, says Moldenhauer, “but the levies for many complexes can be significant, and thus reduce the monthly income received by the owner.”

However, Moldenhauer cautions that landlords need to be realistic when renting out their homes as they cannot always expect the rental to cover the bond and the levies – especially in the first three to five years.

“it’s also always advisable to thoroughly research sale and rental prices in your chosen suburb before investing as over-capitalising is a pitfall which can impact both immediate and future returns.”