Thinking of buying your first rental property? 6 things to check before you sign
· The South African
Buying a property to rent out can be an attractive way to generate an income while building wealth over the long term.
But for first-time investors, simply finding a property with a good rental price isn’t enough. Investors need to understand the costs, rental demand and potential returns before committing to a purchase.
Visit rouesnews.click for more information.
Here are six things to check before signing on the dotted line.
1. Look beyond the rental yield
A property with a high gross rental yield can look like an obvious winner, but the headline figure doesn’t tell the whole story.
According to property experts at Pam Golding Properties, investors should focus on net yield: the income left after operating costs have been deducted.
Gross rental yields of around 16% can be achieved in parts of the Sandton market, depending on the property, purchase price and rental income.
However, investors still need to work out what they will actually keep.
2. Calculate all the costs
Before buying, work out the property’s full operating costs.
These can include:
- Levies
- Rates and taxes
- Maintenance
- Insurance
- Property management costs
- Other property-related expenses
For example, a property earning R12 000 in monthly rent could have operating costs accounting for around 35% of that income.
That could leave approximately R8 000 to R8 500 a month before other individual circumstances are considered.
3. Check the rental demand
A property is only useful as a rental investment if people actually want to rent it.
Look at the local rental market and find out what similar properties are achieving. Understanding tenant demand can help determine whether your expected rental income is realistic.
4. Don’t ignore vacancy rates
Even a property in a strong rental market can sit empty between tenants.
Prime areas of Johannesburg, including Sandton and the Northern Suburbs, have vacancy rates of approximately 4.5% to 6%.
At those levels, a property could potentially be vacant for around 18 to 22 days a year if the annual rate is spread consistently.
Your calculations should account for the possibility of periods without rental income.
5. Budget for maintenance
Maintenance is inevitable, so it should form part of your investment calculations from the beginning.
Property experts recommend setting aside around 5% of monthly rental income as a maintenance reserve.
Painting, repairs and general wear and tear can become expensive if you haven’t planned for them.
6. Think long term
Property investment isn’t necessarily the quick, passive-income opportunity it is sometimes made out to be.
Successful landlords need to manage the property, understand the market and be prepared to hold the asset over time.
Before buying, landlords should have both sales and rental market insights, which can help you determine whether the property actually fits your investment goals.