5 TIPS FOR BUY-TO-RENT INVESTORS
Category Landlord Advice
There are a few golden rules when buying property as an investment with a view to renting it out. These are the ones Myles Wakefield, CEO of Wakefields Real Estate, suggests you put top of your list.
After a few somewhat trying years for the rental market, the latest TPN credit bureau data shows a clear sign of hope as tenant demand increases. FNB's Property Barometer for April 2022, too, is also showing green shoots: "In line with expectations, a gradual recovery in the rental market is underway. Vacancy rates have descended from the peak of 13.1% in 4Q20 to 9.9% in 1Q22. On the flip side, rental escalations have gradually recovered from a trough of 0.6% y/y in 1Q21 to 1.9% in 1Q22. We expect the rental market's gradual recovery to continue as interest rates rise and employment growth gathers some traction."
The impact of a number of local and international factors on our economy and therefore property market, is reigniting the buy-to-rent market.
There are five golden rules when considering this form of investment, all equally important. Begin with the important question - what am I hoping to achieve? If you're looking for a quick profit in a year, you'll need to be pretty savvy; if you're content with a long-term investment, it's more important to judge when to sell than when to buy.
Balancing your books is crucial, but that happens if you abide by the advice from those who've made it work. Remove emotion from the equation - this is a business you are creating, so it's not about an apartment you like in an area you like. Don't overpay for the property.
- When to invest. This is a tricky one - it's easy to say, 'read the market correctly', but it's not so simple. What is a truism is that the market usually goes in cycles, so choose the right point on the curve.
A property investment is rarely a quick one, so unless there's an exceptional property boom which allows you to dip in and out, see it as a medium to long term investment to get that capital appreciation.
- The right tenant. This is critical. You can DIY it, but it needs rigorous investigation for which you may not have the skills or time. If you use an experienced rental agent to secure a tenant, they have access to specialised on-line tools that can ensure the tenant has a good credit record, as well as a good history with other rentals.
- Research. Investigate other rentals in the area you're looking at (property websites/classifieds etc) - what rentals are these homes achieving? What kinds of properties are in demand? Look at nearby industries/employment versus housing needs? Your rental must be market related, to ensure your apartment is never or rarely vacant. Are there lots of properties to rent/too many vacancies in your chosen area - if yes, hear the alarm bells.
- Location. Buy where there's a need, and make sure you fulfil that. For example, if it's in the lower price category, is there accessible public transport, schooling, shops; higher price range, is there on-site and visitor parking? If you're managing this property yourself, factor in reasonably proximity to your work or home - it makes management a great deal easier.
- Sums. Ideally, your tenant should be covering your monthly home loan cost, the levy, plus a little left over for maintenance. In a perfect world, you'd like a little 'fat' too, to cope with bond rate increases and any unexpected expenses (which always happen). You need to get the best possible rate for the home loan, and if you can, put down a good deposit to reduce your monthly costs. Lenders generally expect borrowers to put down larger deposits on buy-to-let bonds.
Don't only keep a spreadsheet of initial costs but keep a strict ongoing record of every cent spent.
Rhys Dyer, CEO of ooba Home Loans, South Africa's largest home loan comparison service, unpacks a few of the common terms around buy-to-let investments, "You'll often hear buy-to-let investors talk about the rental yield on their properties (or property portfolios). It's an important figure and it's simple to calculate. The yield is simply the annual rent you're earning on the property divided by its value, expressed as a percentage. So, a house worth R1 million, on which the annual rent is R120 000 (R10 000 a month) would be yielding 12%.
"If you can find the right property and the right home loan, it is possible to make a rental yield of as much as 5 to 10%, depending on where you're based".
Author: Myles Wakefield | CEO
