The favourable interest rate has induced many to invest in a second, or even a third, property in order to capitalise on the current market conditions. While property is always going to be a good investment, being a landlord involves much more than simply finding the right tenant and collecting the rent every month.
Renting out a property is generally financially rewarding, but there are a number of factors that need to be taken into consideration before the decision to invest in other properties can be taken.
The first aspect that needs to be determined is whether or not to use a rental agent to manage the property. Being a landlord takes a fair amount of time and effort. Tenants can be incredibly demanding, and dealing with the nitty-gritty of keeping the property up to their standards may not only be stressful but could eventually lead to a breakdown in the relationship.
Keeping a good tenant happy is obviously important and having a third party to listen to and possibly deal with the complaints could be the answer.
Rental insurance is another area that should be factored in to any rental deal. While there are those who can afford to pay the bond on a rental property should the tenant default, most landlords cannot. Insurance companies offer insurance that covers bond payments in the event of tenants failing to pay up.
Adrian Goslett, CEO of RE/MAX of Southern Africa, says that potential landlords should also consider the following before entering the property rental business:
Have a clear timeline set in place:
While there may be some investors who are able to find a rental property that can generate an income that covers all the costs, this is generally not the norm. A rental property may pay for itself in the long run, perhaps once the bond is paid off or the market booms, but initially there will be a cost involved. This could be the remainder of the bond repayment or maintenance costs – but there will be a cost.
Goslett says it is always important to remember that property should be viewed as a long-term investment, regardless of whether the buyer has bought the property to live in or to rent out. “Property is a solid, appreciating asset that can be used as a cornerstone for wealth creation, but it is not a get-rich-quick purchase. Turning a rental portfolio into a profitable business is more like a marathon than a sprint.”
Run the numbers:
It is important to remember that the bond repayment is not the only expense when it comes to a rental property. “Landlords will need to factor in expenses such as general maintenance, insurance, rates and taxes and possibly the services of an attorney or a professional rental agent. An attorney will be very useful when it comes to lease agreements, defaulting tenants and advice on the landlord’s legal rights and responsibilities. A rental agent will also be useful for screening possible tenants, collecting rent and managing the property,” he says.
He notes that ideally, a landlord should be setting money aside in a contingency account for the general upkeep of the rental property or in case anything requires fixing. By doing the maths and budgeting for this kind of expenditure, the landlord will be able to allocate money in the correct manner.
Have a checklist:
A checklist needs to include all the items that should be checked before a new tenant moves into a property. Having a list will save time and ensure that everything that needs to be checked is gone over carefully with the tenant. It is also far easier to check a property for any potential hazards or things that need to be fixed before a tenant moves in.
Having all stipulations clearly stated upfront in a detailed contract will help avoid any future misunderstandings or complications with tenants. The more detail and possible issues that are covered in the contract, the smoother the rental will run. It is important that all elements are included in the document so that there are no areas left open for interpretation. Aspects such as acceptable tenant behaviour, breakage costs, preferred method of payment and date that the rental is payable should be included.
Choose the right tenants:
Goslett says that while it might be tempting to rent to a friend or family member, if anything goes wrong it could have a huge negative impact on the relationship. An acquaintance or work colleague could be the perfect tenant, as the landlord will have some background information and an idea of what they are like. When renting to a stranger, landlords should enquire about details of their previous rental history, their reasons for moving, their place of employment and their income. It is essential that landlords contact the references given and try to verify as much of the information as possible. While it is not legal to discriminate against any prospective tenant, it is also not wise to simply accept tenants at face value. A rental agent will be a valuable asset in the search for the right tenant, as will a screening service such as Tenant Profile Network.