Buying a property and renting it out is one of the best ways of securing future wealth. However, it is important to ensure that the property in question is going to make money in both the short and the long term.
It stands to reason that buying any property, for whatever reason, should not be a rushed decision. While there are a number of factors that need to be considered before buying a home in which to live, there are also a number of important considerations that need to be taken into account before buying a property with a view to renting it out on a permanent basis.
Those in the buy-to-let market need to think like a tenant and purchase a home that will not only appeal, but will guarantee a good income for years to come.
Here are a few tips on how to choose the right property, with the right appeal, that can be leased out at the right price.
1. Choose the neighbourhood according to your expectations
Property that is situated close to universities, for example, may always be in high demand but the landlord is going to have to deal with a relatively high turnover of tenants. The occupiers could also prove to be more problematic that older, perhaps more stable, tenants.
2. Consider all your costs
Generally speaking, buy-to-let properties (particularly those that are encumbered by a bond do not make money during the first couple of years of ownership. For this reason, it is advised that those buying property in this sector review all additional costs. Municipal rates are not standard and vary from area to area. While this is not necessarily a bad thing if the area concerned is well maintained, it can become a problem if a suburb is plagued by service delivery problems. Rental properties need to be maintained and these costs must also be taken into account
3. Invest in property near a school
Investing in a property near a school has always been regarded as a wise decision, although these days, it’s not always a guaranteed money spinner. Check out the school before you invest. The quality of a school can – and often does – affect the value of the investment. Although investors may be able to generate a healthy cash flow when leasing the property, getting a good return when the property is eventually sold should be a major consideration.
4. Investigate out the levels of crime in the area.
As South Africans, we are naturally security conscious but no one wants to live near to or next door to a hot spot for criminal activity, regardless of how reasonable the rent. Chat to the locals and visit the local police station to gauge the levels of crime in any given area.
5. Check out the competition
Do a little research on other listings in the area. If there are an unusually high number of rental properties available, this could well mean that demand in the area is low. Competition, while healthy in business, is not necessarily a good thing when it comes to property. High vacancy levels ensure that tenants have a wider choice available and this could affect the rental sums that landlords charge.
6. Research rental rates in the area
Check out Private Property and ascertain the average rental charged before investing. This is particularly important if buying an out of town property where the investor is unfamiliar with local conditions.
7. Speak to the locals
If possible, speak to people who rent in the area. Tenants tend to be far more honest about the negative aspects of an area as they have no financial interest and therefore nothing to lose by telling it as it is.
Remember, buying the ‘right’ property takes a great deal of time and legwork. It is important to keep expectations realistic and to ensure that your own financial affairs are in a healthy enough state so that you can wait for the property to start generating a profit, rather than having to live hand to mouth.
As one expert correctly pointed out, investing in the buy-to-let sector doesn’t start with buying a rental property – it starts with creating the financial situation where you can afford to do so.