5 TIPS FOR BUY-TO-RENT INVESTORS
Category Landlord Advice
When purchasing property with the intention of renting it out, there are several key factors to consider to ensure your investment pays off. Here are the golden rules suggested by Myles Wakefield, CEO of Wakefields Real Estate.
Here are the five golden rules to follow when considering buy-to-let investments:
1. Define Your Investment Goals
Start by asking yourself: what am I hoping to achieve with this investment? If you're looking for a quick profit, you'll need to be astute in your decision-making. However, if you're aiming for a long-term investment, the timing of when to sell is more crucial than the timing of when to buy.
2. Don't Let Emotions Drive Your Decisions
While it's tempting to fall in love with a property in an area you like, property investment should be approached as a business, not a personal preference. It's important to stay objective and avoid overpaying for a property.
3. Timing is Key
When to invest can be tricky. While it's easy to say "read the market," market cycles often dictate the best times to buy. Typically, property investment is a medium- to long-term endeavor, with capital appreciation coming over time. Unless you're in the midst of a market boom, you'll want to hold on for the long haul.
4. Securing the Right Tenant
This is one of the most critical steps in the process. While you can choose to manage tenant selection yourself, it requires thorough vetting which can be time-consuming and complex. A skilled rental agent can help you find a reliable tenant by using online tools to ensure they have a solid credit history and positive rental references.
5. Do Your Research
Take the time to understand the rental market in the area you're considering. What rental prices are other properties in the area achieving? What types of properties are in demand? You should also research the local industries and employment trends to assess housing needs. A well-priced property that matches the demand in the area will ensure minimal vacancies.
6. Location Matters
Always consider the demand for properties in your chosen location. For example, if investing in a lower-priced area, ensure there is easy access to public transport, schools, and shops. For higher-end properties, check if there is sufficient parking space. Also, consider how close the property is to your home or work if you plan to manage it yourself.
7. Crunch the Numbers
Ideally, the rent you receive should cover your home loan, levy, and maintenance costs. It's also wise to have some extra funds set aside to cope with potential bond rate increases or unexpected expenses. Securing the best possible interest rate on your home loan and making a sizable deposit can help keep monthly costs lower. Remember to track all expenses, both initial and ongoing, to ensure your investment remains profitable.
Understanding Rental Yields
Rhys Dyer, CEO of ooba Home Loans, explains that rental yield is a key metric for buy-to-let investors. It's calculated by dividing the annual rent by the property's value, expressed as a percentage. For example, a property worth R1 million with an annual rent of R120,000 (R10,000 per month) would yield a 12% return.
If you find the right property and secure favorable financing, a rental yield of 5-10% is achievable, depending on your location and market conditions.
Author: Myles Wakefield | CEO
