If you want to find a sound investment property, the first step is to thoroughly research the market to determine what tenants are looking for in a rental property.
To ensure your property will produce a steady income stream, it’s essential to understand the legalities and running costs of owning a rental property.
WATCH : Tips to ensure that your property investment succeeds at short-term letting.
Location
As with any property, location is probably the most important factor in buying an investment property.
Popular areas with tenants are usually close to amenities like schools and shops and sports and recreation facilities. Other attractions include easy access to public transport and major transport routes and areas with work opportunities.
Finances
When you buy an investment property to earn an income from it, the banks will probably approve the mortgage loan you need at a higher interest rate than you qualified for on your primary residence.
They may also require 20% or 25% of the purchase price as a deposit before they consider financing the deal. Banks generally view investment properties as a higher risk than a primary residence. This is because borrowers who get into financial difficulties are far more likely to default on loans on investment properties than risk losing their homes.
You also need to be confident that you can continue to cover your bond payments if your rental property stands vacant for a few months. Putting down the highest deposit you can afford will mean lower repayments, so you will be less at risk if interest rates rise as they are doing at present or if a tenant defaults.
Ship shape
Before advertising, spruce up your rental property inside and out. As a landlord, you are obliged to ensure that the property is fit for occupation. Although you aren’t obliged to provide luxury features, it makes financial sense to sort out problems that may put desirable tenants off.
Be sure to take care of maintenance issues such as dripping taps, dirty carpets and walls that could do with paint or a good wash. Also, ensure that appliances like ovens and hobs are clean and in good working order.
Pets
Many tenants have pets, so you will enlarge your potential tenant market if you allow pets on your property. If your rental property is a sectional title unit, you need to adhere to the body corporate ruling on pets.
Rent
The maximum rent you can charge is determined by:
- The supply of homes to let in your neighbourhood.
- The demand for rental properties.
- The quality of your property and how it compares to others in the area.
If your property is similar to most rental properties in the area, you should be charging a similar rent to theirs. An experienced letting agent will be able to guide you here.
Generally, you can expect enquiries in the first week of advertising your rental property. You can arrange group viewings in the first 10 to 14 days. If you haven’t had any offers within two weeks, you might want to reconsider whether the rental amount is too high or if your property needs a facelift.
Inspections
Before your tenants move in, you must conduct an ingoing inspection to establish the condition of the rental property. You or your letting agent must attend the inspection along with the tenants. The written inspection report should be supported with photographs and must be signed by all parties.
If you are letting the property fully-furnished, you should only take the inventory once the property is completely fitted out. It must then be checked and agreed upon by you and your tenants before being signed and dated. For furnished properties, be sure to provide robust and durable furniture and appliances.
At the end of the lease period, you need to conduct an outgoing inspection to establish the extent of any damage to the property.
Deposits
Rental deposit amounts vary from one area to another, but a deposit of twice the monthly rent is generally the norm.
The deposit remains the tenant's property and must be deposited in an interest-bearing account for the duration of the tenancy. At the end of the tenancy, the deposit must be refunded to the tenant within seven days of the property being vacated.
You may deduct money from the deposit to cover damaged or missing items. However, deductions are subject to strict rules laid down by the Rental Housing Act. For example, you may not deduct money to replace old and worn items such as carpets where damage is due to fair wear and tear. You may also not use tenants’ deposits to improve your property.
This is why ingoing and outgoing inspections are essential. It would be impossible to assess whether the property had been damaged during the lease period or previously without both inspections.
Management
Letting agencies have the legal and accounting resources and the experience to manage tenants effectively. You will almost certainly find that appointing a reputable letting agent and property manager to manage your investment property can save you money – and headaches - in the long term.
- Many landlords find it difficult to view a property as an investment instead of their personal home.
- Keeping abreast of matters relating to the rental property and your tenants is time-consuming.
Even if you decide to manage the property yourself, it’s best to appoint an agent to evaluate tenant applications, check references and verify incomes before signing a lease agreement.
Property investment is financially rewarding, especially if it's properly done. The insights provided above will assist you in this regard.
Writer : Sarah-Jane Meyer
