Investors have become cautious but, if they do their homework and seek guidance from experienced professionals, entering the rental arena will always be a sound investment choice with rental returns in the short term and capital gains in the long term.
It is also a great way to get your foot on the property ladder as rental income will often cover a large portion of the mortgage repayments in the case of bonded purchases says Lorraine-Marie Dellbridge, Rentals Manager for Lew Geffen Sotheby’s International Realty in Cape Town’s Southern Suburbs.
“Not only is the interest rate currently lower than it has ever been, property prices in Cape Town are also more accessible than they have been in many years and buyers have a lot more options than usual”.
“However, with semigration to the Western Cape on the increase, this window opportunity will not last long, especially in the more sought-after areas with excellent amenities and schools” she says.
Although the rental market is currently overstocked, with Covid-19 vaccinations now on track in South Africa, and tourism likely to pick up again soon, many of the rental properties will once again become short-term lets.
“In other words,” says Dellbridge, “now is the perfect time to enter the market and the best way to make the right purchase is to speak to rental agents in the area as they will know exactly what prospective tenants are looking for and how much they are willing to pay”.
“It can be a costly mistake to make assumptions. For instance, if an area is popular with young families, then a two or three-bedroom flat would be a better investment than a one-bedroom apartment, even if it has better finishes”.
“And, if you are buying property in an estate or complex, it is essential to add scheme management to your list of priorities when choosing property, especially if there will be budgetary restrictions going forward”.
Sectional title levies are used to cover various expenses such as insurance, administrative fees and the maintenance costs of the common property and on-site facilities – the more amenities there are and the larger grounds, the higher the levy.
“When deciding on a property, try to look at it from a tenant’s viewpoint and ask yourself what will attract them. If it is in a suburb near a university, why would a student rent your property rather than another?” Dellbridge asks.
If it is in a family suburb, consider what a family would need from a home, including proximity to schools, parks, and convenient shopping.
Dellbridge cautions investors to carefully consider their options before making a final choice and to head advise when it come to pricing the property for rent.
“One needs to reconcile that the rental that is achieved may not cover all the expenses such as the bond, levies, and property rates for up to three years and that you may still need to dip into your own pockets to top this up, especially in the current market”.
However, it is important to remember that property is a long-term investment that will increase in value over time, and it is likely that the property will begin to pay for itself within a relatively short period.
“An empty investment is not an investment at all. While your property stands empty, you still need to service your bond and payments for municipal costs and levies. The trick is to be competitive with pricing while ensuring that you place quality tenants”.
Although it may be tempting to ‘save a buck and to go at it alone’, these days, it is advisable to use an experienced agent who not only has a thorough knowledge of the area, but who also knows all the laws and regulations governing the sector.
“The Rental Housing Act has changed considerably in recent years and most tenants are also far more aware of their rights than before. Even if landlords prefer to handle their own rental properties, they should always seek the advice of an expert when drawing up a lease to ensure that it is compliant with the rental legislation and that the lease covers all their responsibilities as well as those of the tenant”.
Co-Principal, Arnold Maritz, says it is important that both the tenant and the landlord have a clear understanding about who is responsible for which repairs, and this should be fully covered in the lease agreement.
“Landlords or their appointed agent must always conduct documented incoming and outgoing inspections to keep track of damage to the property and also to catch and repair any budding issues before they become real problems”.
“And landlords must also bear in mind that the tenant is the key factor in the upkeep of their investment and their impact is two-fold”.
Generally, the better the condition of the property, the higher the quality of tenants it will attract. This benefits the landlord in both the short and long term and averts potential problems.
Maritz adds that it is critical for property owners to take out the best insurance policy that they can afford and, if possible, to start putting money aside for maintenance and repairs.
“Emergency repairs like burst geysers are not uncommon and can wreak havoc on one’s cash flow as they require an immediate outlay that few people can spare. Landlords who have never lived in the properties they are letting, are often unaware of potential issues that may require a watchful eye and this ignorance is easily exacerbated when they have long-term tenants who pay their rent on time and only ever communicate about major problems”.
“No matter the economic climate, investors who are successful in the rental market are those who have done their homework and who have invested in an area and a property that will yield a maximum return on investment. Knowledge and professional advice will also go a long way to minimising the risk of unforeseen financial pitfalls which could not only cost them their investment but also cause untold stress down the line” he concludes.