Buy-to-let still viable on lower capital properties

Despite the fact that an average yield an investor can expect from a buy-to-let residential property over the first year is currently between four and seven percent, lower priced properties are still viable in the buy-to-let market.

Herschel Jawitz, CE Jawitz Properties, advises those looking to the residential property market as an investment opportunity to focus on the lower-priced properties.

“While the rental departments in our Cape Town’s Southern Suburbs and City Bowl offices in the Western Cape report rental returns averaging far-below five percent, our Goodwood office where average prices are lower, still report yields as high as seven percent,” says Jawitz

Linda Segal, a rental agent at the Jawitz Properties Sea Point office echoes this sentiment. “The percentage return one can expect from a property in the current market is largely determined by the capital investment. The smaller the capital the higher the rental returns. A R4-million apartment in the waterfront, struggles to achieve a rental of R12 000 per month, barely a three percent yield, while a R21million flat can command a R10 000.00 rental, a five percent yield, says Segal.”

The Jawitz Properties Goodwood office reports an average flat price in the Parow area of approximately R300 000. These same flats are often recording a monthly rental of approximately R2 000, a seven percent purchase to rental ratio.

“Investors looking to service their bonds through rental income should definitely focus on properties in the lower prices ranges,” says Herschel Jawitz. “But that’s not to say that higher priced properties are not good investments, often giving better capital growth,” says Jawitz.

“Joining the buy-to-let market should be seen as a very viable, but long-term investment. Property buyers who can afford to absorb the bond/rental income deficit, at last at the outset, should start to derive an income, over and above the capital growth of the property, in about the third year of ownership, as the holding costs decrease, and rentals increase.” concludes Jawitz
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