The demand for rental properties are at what could be at an all-time high. Higher interest rates and the recent economic slowdown has meant that fewer individuals are willing to buy property – however, owners find themselves in an extremely favorable position.
In some areas of Johannesburg, demand for rental properties are outweighing supply. A recent poll has shown that 66.6% of those surveyed believed that it was better to own property than rent, while 26,6% said they couldn’t afford either renting or buying property.
“Currently 3.6 million South Africans are renting property, and there may be more in the informal market,” says Claire Cobbledick, Head of Gumtree Marketing.
“Areas of rapid economic growth – such as Durban, where large tech incubators have sprung up – are drawing people to the city and subsequently, the demand for accommodation is on the increase.”
However, becoming a landlord can be risky and it’s extremely important to do one’s homework.
“Before buying a property to rent out, consider all the factors,” warns Cobbledick
Determine the average rental income of the area
“Before deciding to buy a property, do a little research into the average rental income you can expect by using an online property price checker that maps the rental prices in an area,” says Cobbledick. “Despite the high demand, pricing too high might mean your property remains empty for some time.”
Do your math carefully
“It’s think that if the rental income from tenants is equal to the monthly cost of your bond you are breaking even, but there are many other costs to consider, including the costs of drawing up a lease, rates, interest rate hikes, municipal bills, property gains tax, etcetera. But property will pay off as it appreciates over time and you can recover a significant amount of your investment through smart rentals.”
Pick the right tenants
“Vet all tenants very carefully – a tenant’s salary should be three times larger than the rental amount, have a clear credit record, references and proof of income. There is always the risk that a tenant might damage your property or neglect to pay, so ensure that you have a solid contract to cover those risk factors.”
Choose the right area
“There are tools that can provide an instant snapshot of rental areas and there are a number of factors you want to consider. (Even browsing the ‘Rental Properties Wanted’ section on a classified site will give you insight into the demand.) Research by the Tenant Profile Network showed that 87% of tenants rent for below R7 000 per month, with 24% renting below R3 000 a month. The majority of South Africans say they are looking for something that is affordable and safe. TPN also said that in the upper income brackets, rental performance tends to deteriorate (with only 58% of tenants in the R25,000 bracket paying on time), providing an ‘ongoing struggle for landlords in the upper end of the market’).
Decide what you want to do with the property
“Your decision to buy and rent a property will also depend on the end goal. Do you want to sell the property in a few years, renovate, or perhaps retire there? All of these factors will determine the area you consider. If you notice renewed interest and investment in a suburb, you want to strike while the iron is hot – it’s a clear indicator that property prices will go up.”