Buy-to-let 101: What you need to know before taking the plunge

Correctly managed, buy-to-let properties can be one of the most attractive investment opportunities out there. For a relatively low up-front cost, they can generate good long and short term returns in the form of capital growth and rental income, and their gearing potential – something unique to property investments – can be leveraged for continued expansion within the market.

It sounds like the ideal starter investment – and it can be – but, managed poorly, buy-to-let can also be a huge financial drain. So how do you go about positioning yourself for success as a first-time buy-to-let purchaser? According to Tony Clarke, Managing Director of the Rawson Property Group, it’s not difficult as long as you’re willing to do your research, crunch the numbers, and keep your expectations realistic.

“The first step,” Clarke begins, “is to take a good look at your own finances. Visit a bond originator and find out what kind of mortgage you qualify for, and then consider how comfortable you’d be with those repayments should the interest rates rise or your personal monthly expenses climb. Don’t forget about bond, transfer and conveyancing fees either – they can add a significant amount to the bottom line.”

Clarke advises being conservative when considering affordability, especially as a first-time investment buyer. “Being forced into an early sale because of financial distress is a sure-fire way to lose money on a buy-to-let investment,” he says, “so it’s better to start small and be absolutely sure that you can weather any surprises that come your way.”

Once you’ve worked out how much you can afford to spend, you’ll need to start looking for a property that fits the bill – quite literally. “It’s not just about purchase price,” says Clarke. “It’s about finding a balance between all the associated costs, the potential rental income and any future growth.”

According to Clarke, finding this balance can be a complicated endeavour, and is best approached with the help of a property professional who is active in the area you are considering. “You’ll need to be able to estimate not just your monthly bond repayments,” he explains, “but also rates or levies, insurance, and the cost of maintaining your property in good condition. You also need to be able to accurately predict the rental potential of the property, and understand the local area trends in order to assess the likelihood of future growth. It’s a process that requires a lot of in-depth knowledge, and experienced agents will generally be able to give you a far better idea of the situation than you could determine for yourself.”

Clarke does warn buyers not to expect to be able to cover 100% of their bond repayments with rent to begin with – let alone 100% of their overall costs. “Depending on which area you’re investing in, your rental yield is likely to cover between 50% to 80% of your monthly costs at the beginning,” he says. “This percentage increases over time as rent goes up, but it does mean your investment might take a few years to start paying off. It’s a good idea to keep this in mind when you begin investigating potential neighbourhoods, as some suburbs will offer more immediate returns than others.”

High rental yields don’t always signify the better investment, however, and Clarke reminds buyers not to discount the value of capital growth. “Over the long term, a property with a lower rental yield but high capital growth may well outperform a property with higher rental yield and low capital growth,” he points out. “You have to look at both the long and short term benefits of an investment property, and choose one that will suit your specific priorities and cash flow.”

To find out more about investing in buy-to-let property, get in touch the nearest Rawson Property Group franchise and get all the insights you need to make an informed – and profitable – decision.

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 22 Nov 2017
      Most people know of the Community Schemes Ombud Service (CSOS) and that levies must to paid to fund its operations. In this article the experts at Paddocks will address some of the issues that are causing confusion.
    • 22 Nov 2017
      While sales have noticeably slowed in most sectors in most Cape town suburbs, the security estate sector in Constantiaberg has bucked the trend by remaining buoyant, with sales by August this year already surpassing total sales in 2016.
    • 22 Nov 2017
      The end of the year is fast approaching, and so are all the travellers, tourists and holidaymakers. For those who live near or own a property in a holiday-hotspot, the festive season also brings with it an abundance of short-term rental opportunities. Its a great way for property owners to make a few extra rand for their own holidays or to put towards their savings.
    • 21 Nov 2017
      The buying process is over, and the moving truck has delivered your household goods to your new property. Now it’s time to unpack and turn your new house into a home.
    • 21 Nov 2017
      When an offer to purchase a property is signed by both buyer and seller, this constitutes a binding agreement or “Deed of Sale” between the two parties. However, in most cases the “standard contract” might not be enough to cover all the specifics pertaining to the sale. The agreement may require some additions or alterations to clauses, which needs an expert hand in the drafting of such
    • 21 Nov 2017
      As more and more South Africans look to invest in property abroad, Spain is offering them one of the best deals in global real estate.
    • 20 Nov 2017
      Since 2012, sectional title complexes have been leading the South African property market, not only in terms of price growth, but sales volumes as well. Remaining relatively strong, even in the face of 2017’s political and economic turmoil, experts say this market segment could offer valuable insight into South Africans’ property purchase priorities.
    • 20 Nov 2017
      Regardless of whether you are purchasing your first start-up home, downsizing or moving in with roommates, finding ways to maximise small spaces can be a big advantage, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us