Know the costs before you buy-to-let

According to the US National Association of Realtors (NAR), investment and holiday-home purchasing accounted for 24% of all home sales last year, as buyers sought to make the most of low interest rates and a surplus of discounted repossessed properties that could quickly be turned into rental units.
In SA, buyers have been more cautious, despite extremely low rates, and according to the First National Bank (FNB) Property Barometer, investment or buy-to-let purchasing currently accounts for less than 10% of total purchases.
However, the trend does appear to be picking up, and those who are new to this type of investment do need to be sure that they are familiar with all the costs involved, says Shaun Rademeyer, CEO of BetterBond Home loans, SA’s biggest mortgage origination group.
The main ones, as identified by the NAR, are the following:
*Bond repayments. Investment properties are considered riskier because the home is not your primary residence, so be prepared to put down a bigger deposit and possibly also for a higher rate of interest on any home loans needed to finance such properties.
*Rates and taxes. These can add significantly to the property cost, so you should contact the local municipality yourself to find out what they are before you buy.
*Levies. These will be payable to the body corporate in a sectional title development and the home owners’ association in an estate and again, you need to establish what they are before you buy an investment property. At the same time, you need to check whether rentals are allowed in the development you intend buying into.
*Home insurance. This is the cover you will need in case the property is damaged or destroyed by fire, flood or other disaster, and it is essential because it means that you won’t end up having to make bond repayments on a property that no longer exists, or having to pay to repair it if it is damaged. If you are buying into a sectional title complex, you need to check that this type of insurance for the whole complex is adequate and paid up to to date, and also whether your portion of it is covered by your levy.
*Maintenance. You should budget 10 to 15% of the annual rent for regular maintenance and upkeep of the property, in addition to any tenant-caused damage that should be covered by the security deposit.
*Finding good tenants. It is really worth hiring a good managing agent who can check out and control tenants for you, but there is of course a fee involved and you need to budget for this as well.
*Vacancy allowance. For safety’s sake, you should assume that your property will not be rented 12 months of the year, and budget for two months of vacancy when setting your rent. If you are buying into a very high demand area, you may be able to lower this to one month.
“If you've tallied up all these expenses and found you would still be in the black each month, a rental property might be a great investment. But you will still need to stay on top of rent collections to ensure your property pays off,” says Rademeyer.

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 19 Jan 2018
      Extending from Randfontein in the west to Roodepoort in the east and including the towns of Krugersdorp and Magaliesburg, the West Rand has a plethora of property available to residents who choose to make this unique area their home.
    • 19 Jan 2018
      When it comes to financial planning, doing the work to ensure you’re prepared for unexpected emergencies is just as important as ticking off your other goals and New Year’s resolutions. The beginning of the year is also the perfect time to review your various insurance policies.
    • 19 Jan 2018
      No surprises at the first Monetary Policy Committee of 2018, as Reserve Bank Governor, Lesetja Kganyago, announced that the interest rates would stay at their current levels.
    • 18 Jan 2018
      The Southern Suburbs make up some of the most popular residential areas in Cape Town, comprising charming groups of suburbs which lie to the south-east of the slopes of Table Mountain. It is seen as the city's most expensive residential neighbourhoods with a choice of various private schools, upmarket eateries, wine estates, beautiful homes and trendy apartments.
    • 18 Jan 2018
      New year, new goals! If you’ve resolved to purchase your first property in 2018, then this 6-step guide from the Rawson Property Group is a must-read. It will help you navigate and simplify what is often be seen as a confusing process of buying your first home – right from the house-hunt to the house-warming.
    • 17 Jan 2018
      While the current property market may still favour buyers, it doesn’t mean that they shouldn’t be well prepared before putting in an offer to purchase.
    • 17 Jan 2018
      Lightstone lists Blair Atholl as the most expensive suburb with an average house price of R11.2 million, followed by Westcliff (R10.5 million), Dunkeld (R9.3 million), Sandhurst (R9.1 million) and Inanda (R7.2 million).
    • 17 Jan 2018
      As it currently stands, there are four main ways in which a home can be bought in South Africa, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who adds that deciding in which legal entity to purchase the property is not a decision that should be entered into lightly, as each has its pros and cons.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us