When looking to purchase a rental property, it is important to take your time and do your research to ensure you buy a property that suits your needs perfectly.
It is also imperative to gather as much information as possible, because when it comes to buying or renting property, ignorance is certainly not bliss. This is according to Adrian Goslett, CEO of RE/MAX of Southern Africa, who says that a rental property is a tangible asset that should appreciate in value. Although this is not always guaranteed, there are certain aspects to consider that would help you to maximise your returns.
LEVERAGE LIES IN LOCATION
Goslett notes that one of the most important factors to consider would be the area in which the property is located and what type of property it is. “The area in which the property is located will have an influence on the rental income it can generate,” he explains. For example, neighbourhoods that are close to amenities such as schools and shopping centres will generally fetch a higher price. When it comes to the type of property, security developments, for example, are also a popular choice. If you are unfamiliar with a development or neighbourhood, it would help to speak to tenants that are currently renting and living there, as they will be invaluable in providing you with important information on the area.
COUNTING THE COST
Goslett recommends that before determining a rental price for the property, you find out the average rental paid by tenants in the area. “This will help you to estimate what you can expect to earn from your rental property each month and whether or not it is a viable option,” he says, “and weigh up whether or not it would be a good investment option.”The ability to make the most of your rental property will be determined by the first decisions you make when buying the property. Goslett advises that you evaluate all aspects of the property as well as the costs involved, as the bond repayments will not be the only expense. “Consider what possible improvements and maintenance the property may need before you buy it, as well as what the ongoing maintenance cost and levies will be.”With the Consumer Protection Act in effect, sellers will have to list any known defects in the property, which will help weigh up the costs that could be involved in undertaking renovations or maintenance. If you are not sure of anything, rather have a professional inspect the property before you buy to avoid unexpected expenses.
PROPERTY MANAGEMENT
When buying a rental property, you will need to decide whether you will manage the property yourself or hire the services of a rental management agent. Should you decide to go it alone, you should think of your rental property as a business venture and therefore manage it as you would a business. This includes keeping a close track of expenses and income. Should you decide to employ the services of a rental management company, they would, for a percentage of the rental income depending on your agreement, take care of all matters related to the property, which would include screening prospective tenants and collecting the rent each month. Management agents will have a number of systems in place to conduct a full credit check and tenant history.
LEGALITIES
“Make sure your lease agreements are legal. Landlords and prospective rental property buyers need to know the law and what it prescribes. It is important that the lease agreements are in line with the Consumer Protection Act and that the terms are clear, understandable and that they protect both parties in the event of a dispute,” says Goslett.In addition, as a landlord you will need to know what property law and Consumer Protection Act outlines as your responsibility to your tenants, as well as your liability. “Once you have bought a rental property you will need to buy insurance to cover your liability, this can be done by speaking to a broker that will advise you on the correct insurance you would need for your type of rental property. “When the phone rings at three in the morning and you answer it in a dazed, semi-conscience state to be met by your tenant’s panicked voice telling you that a water-pipe has burst and flooded half the property, you will be glad to have the assurance of being insured. However, there will be certain liability that insurance will not cover and for this you will need to have an emergency fund earmarked for these expenses,” says Goslett.“Buying a rental property and becoming a landlord is definitely not for the faint hearted but it can be an exciting and interesting way to realise returns on your property investments,” Goslett concludes.