If you are in the fortunate position of having enough capital to invest in property, then you might be thinking about buying to let. It’s an attractive idea – simply buy a property, lease it out and watch the money come in every month. However, it doesn’t always work out like that. In fact, while investing in the right property can pay off handsomely, the wrong decision can cost you very dearly.
Let’s take a closer look.
It’s an attractive idea – simply buy a property, lease it out and watch the money come in every month.
Screen your tenant. A good tenant is one that pays on time without ever defaulting. That way, your high returns are assured. It’s important to check up on a prospective tenant’s track record, credit history, and how much they can afford. A managing agent can help you with the screening process as well as all the legal papers that have to be signed before anyone can occupy the property.
Regular maintenance. Much as an unserviced car will cease to perform at its best, your investment property needs to be maintained regularly. Taking the trouble to renew the paint and keep up with wear and tear on fixtures and fittings will pay off in the long run, as you won’t be forced to foot the bill when problems accumulate over time. Don’t leave it for when things are falling apart, or your rental money will be diverted into repairs, and you won’t make any profit at all. Furthermore, a well maintained property will be attractive to new tenants.
The right location. You know your property is well placed if there is a high demand for rentals in that area. This doesn’t mean the area needs to have the most expensive properties – many factors account for demand, including proximity to schools, infrastructure and security. One way to judge that is the rate of vacancy: a good area won’t have empty rentals for long. Of course, it’s necessary to charge a realistic, competitive rent. The combination of a good tenant and regular maintenance on your part is the best of both worlds.
Low monthly shortfall. One way to judge the quality of your investment is whether you have to make shortfall payments: in other words, money that you as owner have to pay in to make up the difference for the monthly bond repayment or levies. It goes without saying that shortfall payments should be as low as possible, and you should have a plan to eliminate them entirely within two to three years, so that you start seeing a surplus. Incorporating an annual rental increase in your lease contract will help reduce the shortfall.
Capital gains. Real estate investment has such a good international reputation because property values tend to increase in value over time. This is where the property investor needs to be guided by location, price and the market to make a sound investment. It’s a long-term game that is unsuitable as a get-rich-quick scheme, but rewards the patient investor who takes the trouble to understand the business.
Township properties are booming
Thinking about where to buy? Soweto is one of the best locations for property investment, with prices rising steadily.
For example, the average price of a property in Dube was R60,000 in 2005. Now Dube properties are averaging R450,000. Similarly, a house that would have gone for R305,000 in Diepkloof ten years ago is likely to set you back around R790,000 today. The average property price for Soweto overall is in the region of R620,000. Two-bedroomed homes with garden are fetching R750,000 in Meadowlands, and of course there are some locations where the prices have shot into the millions.
One reason behind this trend is that Soweto simply has more of a community vibe than Johannesburg’s other suburbs.
Another lucrative market is affordable housing, thanks to the huge demand. Developers such as the Johannesburg Social Housing Company (Joshco) are starting to offer unique housing solutions, making it possible for people who make between R3,500 and R7,000 per month to rent.
There is no reason why entrepreneurial property investors cannot join forces to become developers as well.
Setting a record
The former home of well-known Soweto resident Dr Johnny Mosendane sold for R2.5 million last year.
Designed by architects Michael Sutton and David Walker in 1979, the five-bedroomed property features split-level reception rooms‚ five garages‚ unusual barrel-vaulted ceiling‚ sky roofs‚ swimming pool and expansive gardens. The property is situated on a 1375sqm stand in Moroka, Soweto.