7 questions you need to answer before purchasing a buy-to-let
If a decision is made to buy a residential unit to rent out, it is advisable to first assess what the expectations are in terms of income or tenancy, says Nelio Mendes, marketing manager of property company SAProperty.com.
“If you’re considering buying a property as an investment, it pays to do quite a bit of research as to what rental will be achieved, which affects your return, as well as whether the price band will be a difficult one in terms of finding suitable tenants who are reliable payers,” he says.
The most recent TPN report, the Vacancy Survey Q4 of 2018, says, “The lowest vacancy rate in 2018 Q4 of 6.1% was recorded for the R7,000 to R12,000 segment, but the largest improvement in vacancies was recorded for the less-than R3,000 segment which reduced from 12.3% in 2018 Q3 to 7.5% in 2018 Q4.”
It goes on to say, “In 2018 Q4 the less-than R3,000 market had the lowest good standing ratio of 73.21% with the more-than R12,000 segment recording the highest vacancy rate of 11.2%. In contrast, the R7,000 to R12,000 segment offered the lowest risk in terms of vacancies at 6.1% as well as the best payment performance with a good standing ratio of 86.36%.”
If one is to evaluate whether a property is a suitable investment to rent out, the investor needs to go through a simple checklist, to indicate whether he is making a good investment, which should be to:
- Check the zoning of the property. Particularly if the investor buys with an idea of using it as a short-term let, rather than long-term let.
- Check the management rules in the case of a body corporate, that these do not prohibit short-term letting (if this is what the intention is) as well as the conduct rules for whether pets are allowed or whether there are any other special conditions imposed. Management rules of sectional title schemes are more difficult to change than conduct rules, and it needs to be weighed up whether these will affect the way the unit is used.
Check the last four trustee minutes if the property is in a sectional title scheme or member meetings minutes in the case of an HOA.
- Ask for a copy of the AGM minutes to assess what decisions have been made in the scheme with regards to management as well as what the financial state is.
- Ask for a copy of financial records, if the unit is in a community scheme.
- Check the required rental against what certain tenant reports are saying – is this in a reliable or achievable price bracket?
- Ensure that the price paid for the unit is not too high, that the required repayments each month will be covered in large part by the rental achieved.
“Buying a property to rent can be a good long-term investment, as long as everything is taken into consideration beforehand and a plan is formulated as to what type of rental you’re looking to get,” says Mendes. “There can be tough times but if the proper planning has been done, it is possible to maximise the long-term investment potential of your property.”