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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.



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