- 1 - Consider affordability and financial risk
- 2 - Different types of properties, different types of markets
- 3 - Who will manage the property?
- 4 - Rental pricing is crucial
- 5 - Seek the advice of professionals
The demand for rental units is ever-growing and many opportunities have presented itself for property investors to become landlords.
Whether you are a serious investor with a fully developed portfolio or a first-time buyer testing the waters, now is the best time to buy.
Although many rental units are delivering a profit, there are a few things that landlords need to know. As with all investment, buying property does not come without the risks and you want to be as prepared as you can be before taking the leap.
1 – Consider affordability and financial risk
The first step that the landlord should take is to determine whether they will be able to afford a property, bearing in mind that the property might be empty for the first few months.
It is important that the tenant is not reliant on rental payments in order to pay bond instalments.
Landlords will also have to pay rates and taxes, levies, and the maintenance of the property. With sectional titles, it is true that the body corporate is mostly responsible for the unit, but certain aspects will also be accounted for by the landlord.
The landlord should have a saving account for any unexpected emergencies.
2 – Different types of properties, different types of markets
The demand for certain types of properties will differ from area to area.
If a landlord wants to purchase a property in a specific area, thorough research needs to be done in order to achieve the best returns.
Location plays a vital role. Properties that are situated close to malls, public transport routes and schools will be in higher demand. Tenants generally want the shortest commute to work as possible and many students have to rely on walking or public transport instead of their own car.
3 – Who will manage the property?
A landlord will need to decide whether they want to manage the property or if they would like to appoint a management agent.
Hiring the agent will mean additional expense, but they take care of the daily administration tasks. Their services are valuable if the house is in another city or province.
For a percentage of the rental income, a professional real estate agent will be able to advertise the property to rent and they will take it upon themselves to do the necessary screenings and credit checks. They will also draw up an adequate rental agreement.
4 – Rental pricing is crucial
A rental agent will also be able to assist in determining a fair rental price.
The rental price per month will be dependent on the average rental prices of units within the area. This figure will give the landlord an idea of how much cash flow he will see per month.
Rental pricing is crucial and should be done properly. If it is overpriced it will chase tenants away and it will increase the chances of an empty rental unit. A competitive rental price will ensure that the property is rented out within a reasonable amount of time and attract tenants.
5 – Seek the advice of professionals
If a landlord chooses to manage the property themselves, it is important to seek the advice of an attorney to ensure that the legalities are taken care of.
Lease agreements that are incorrectly drawn up can cause serious trouble. It is important that all details are spelt out in the agreement so that there is no room for interpretation.
An attorney or rental agent can also be appointed to assist in collecting money or drawing up a letter of demand should the tenant default on the agreement.
Purchasing and letting units can be very profitable if it is managed correctly.