- Tip #1 - Assess the Property and Area First
- Tip #2 - Calculate and Manage Your Expenses
- Tip #3 - Deal with All the Legal Issues
- Tip #4 - Start Small
Following reports of the continued strength of the Western Cape housing market and statistics that show that housing price inflation has risen over 10.35%, investors and smart-minded homeowners are flocking to the Mother City to see about investment properties.
“Buying to let” is becoming more and more popular all over the country, and considering it requires a relatively low initial investment, it’s not a bad business decision.
There are, however, a few things you should consider first before purchasing a home to rent out to tenants:
Tip #1 – Assess the Property and Area First
As with any decision to purchase a property, it’s smart to first assess the area in which the property is found first, as well as the general structure and quality of the home in order to see if it’s going to appreciate in value over time.
Some areas of South Africa see more growth than others and identifying the areas expected to grow in 10 to 15 years is smart.
Experts at Personal Finance reported that Western Cape is currently hot in terms of investment properties. Their statistics show that properties on Cape Town’s Atlantic seaboard are growing at 29.9%, while properties in the City Bowl at 21.1%.
It’s also worth mentioning that even though you’re looking to “buy to let”, try to search for properties in owner-occupied areas as they tend to care for their properties a bit better and will help increase the lifetime value of your investment.
Tip #2 – Calculate and Manage Your Expenses
Once you’ve figured out where you want to purchase your rental property, you’ll want to ensure you’re accurately calculating all of the costs.
Weigh the amount of potential income against the future growth possible and be sure you’ve got a good idea of the price of rent in the area.
Not only should you factor in your mortgage costs if you’ve taken out a bond to purchase the property, but you’ll also want to ensure you’ve calculated a budget that includes homeowner’s insurance, the cost of maintenance and repairs and even possibly any fees you might have to pay to agents or third-party companies in order to keep it renter-occupied in the long-term.
Tip #3 – Deal with All the Legal Issues
In South Africa, you can legally own a rental property of this type as a personal entity or under the name of the company. While the decision is ultimately up to you, it makes a difference on the type of income tax you’ll pay.
If you decide to own the property as an individual, you can pay up to 45% in income tax per year, but if you own it as a company, you only have to pay tax on the profits at a fixed rate of 28% per year.
If you plan on purchasing more homes in a “buy to let” fashion, it’s smart to own them under a company name as losses on one can be offset by gains on another at the end of the year and help you minimise your risks across the board.
Tip #4 – Start Small
If it’s your first time venturing into investment properties, it’s a smart idea to start out small and grow from there.
Investing in a small one-bedroom apartment in an up-and-coming area of Western Cape is a great way to test the market as well as your ability to turn a profit.
If you see that it’s for you, you can turn it into a full-time side business that can help you earn a passive stream of income and enjoy the perks that buying to let offers investors.