Owning a home can be a great opportunity to generate funds, whether this takes the shape of downsizing and enjoying the profit from the sale or renting out the home and enjoying a passive income stream. Particularly in these tough economic times, many homeowners are turning to their largest asset, their homes, in search of extra income to get them through the month.
“My advice to homeowners over this period, whether they are selling or simply looking to attract tenants, is to listen to the suggestions of a reliable real estate professional who knows what features are winning buyers and tenants over within their given suburb. Real estate professionals will also know what homeowners are up against within a particular area and price range. This information can prove invaluable when it comes to the marketing of a property to generate income,” explains Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
While each suburb might have slightly different drawcards for buyers and tenants, some universal truths apply. For example, in Cape Town CBD and Atlantic Seaboard, Susan Watts (Broker/Owner of RE/MAX Living) explains that big draw cards include a well-maintained or newly renovated kitchen and bathroom.
Similarly, Caron Leslie, Broker/Owner of RE/MAX Property Associates that operates in the Northern suburbs of Cape Town, explains that homes with modern finishes, upgraded bathrooms and kitchens, also seem to be favourable among buyers. Leslie therefore suggests that the safest and most affordable renovation option for homeowners who are hoping to attract buyers or tenants is to update the home with modern finishes.
Apart from the traditional rental arrangements, short-term holiday rentals have also been promoted as a great source of additional income. However, for homeowners who are considering this option, Goslett cautions them to factor in the tax calculations.
“Short-term letting is still classified as rental income and will need to be declared to SARS within that tax year. The rental income you receive should be added to any other income you may have, but will also be reduced by certain permissible expenses incurred including rates, bond interest, and property levies. With short-term rentals, homeowners can only deduct these expenses in proportion to the amount of days the property was rented out, which can in some cases lead to a homeowner paying more in tax for the year than what the short-term rental amount earned him/her in profit,” he cautions.
If selling or renting is not an option, then homeowners are can look at cutting back on certain household expenses to make their money stretch a little further. “While insurance is a necessity for homeowners, it does not have to be a financially draining burden. Shop around and see what options are available from the various insurance providers. Competition in the market forces insurance companies to launch new products regularly and consistently try to find ways to undercut their competitors. So, while your policy might have been the most competitive when you first shopped around, it might no longer be the best policy a year later,” he advises.
Another trick homeowners could try is to request that their bank reduce the interest rate on their home loan. However, only a few banks would be willing to provide this service and will only grant it provided that the debtor has shown an impeccable payment record.
“It is a bit of a long shot but, if you are successful, you stand the chance to save thousands. You would need to submit a formal request to your bank stating how well you have kept up with your payments and requesting that they re-evaluate the interest rate based on the fact that you’ve proven to be a low-risk client. If this does not work, it might be worth exploring which rates you could receive at other financial institutions to use as leverage for your negotiations. Unfortunately, originators such as BetterBond do not assist with switching home loans, so you would have to do this research yourself.”
If cutting back on household expenses is not enough for homeowners who are struggling to make ends meet, then meeting with a reliable real estate professional might prove helpful. “Equipped with the knowledge of the market and the know-how of operating in the industry, real estate professionals can help homeowners identify a home’s potential to generate income and can advise on the best option to follow in order to turn this potential into reality,” Goslett concludes.
