Buying property is an ideal way of saving for your old age. Over time you are paying off your bond and rentals tend to rise year on year. The first couple of years are always tough especially with your first couple of properties, but time is a great healer. After the first two or three years your income grows to meet your expenses and in no time at all not only have you paid off most of your loan but the capital value of your property has grown.
I have personally bought a number of letting properties over the years and have always regretted selling the ones that I did. As I grow into retirement I am comforted by the fact that at any time that I need money I can sell one of my properties and keep the others and that almost without fail their value increases year by year while giving me a very nice amount to live on.
There are however a few rules to stick by if you want to be successful as a landlord.
- Understand what you are trying to achieve. Are you trying to speculate in property buy low – sell high or are you really looking for a growing source of income into the future. A spec buyer will buy what to him is going to give the quickest growth in capital “in the short term”. So they often buy new buildings right at the beginning if they believe that the last units will be selling for 20% more and they can then off load them. The problem with new buildings is that their price compared to the rental that you can charge and the costs that you will have could be very large – you will have to pay in a substantial amount each month. Landlords are looking for value for money properties and these are often found in run of the mill older properties where they get a good income to expense ratio. I certainly would never buy a new property to let out. I am very happy to buy a standard letting flat built 50 years ago. Not only do I get a good return but I can see if there are any problems.
- Use a really good estate agent. Bad tenants cost you a lot of money. Not only do they pay late (or never) but they tend to do the most damage. I would far rather have a long term tenant who pays just a little less that I could have got but who never needs any repairs and pays on time, that to get the last cent out of my investment but have a constant stream of bad debts and damage. It is simply not worth the candle. Good agents will credit check you tenants, take and keep up to date a proper deposit, do period inspections, pay all your accounts, (rates taxes, levy, bond etc) out of you income and transfer the surplus to your bank account. With a good estate agent you will know when your tenant is going to move out and the agent will recommend the rental for the new tenant. In fact a good letting agent will leave you with very little to do at all – what a pleasure
- Be interested in the Body Corporate that controls the building that your unit is in. It really does pay to go at least to the AGM. Listen to how your building is being run and make sure that you are comfortable that things are being done properly. Are the accounts up to date, is the Auditors report clean. Are the managing agents taking action against defaulters. A well run body corporate will give you a higher rental than one that isn’t.
- Do repairs when they are needed. If you have a good tenant don’t fret the small things. It is much cheaper to replace a faulty light for R150 than to have your tenant move out and have to find a new one. There are bound to be other things that need to be done when the go.
- Try to buy a number of units in the same building. It is surprising how quickly this gives you real control over what happens in it. For example if you own 4 units in a building of 30 units you only own 13% but because most owners do not take very much interest in the running of a body corporate (especially when it is running well) that they seldom attend the meetings. In a building with 30 units only 11 people form a quorum. Often many of the people simply send in their proxies. If you have 4 votes out of 11 you actually have almost 50% power. Interesting isn’t it!
Buying flats to rent is both fun and profitable. If you become close to an agent that specialises in this field they will let you know what they think are good buys. The rest is up to youl.
Source Mike Spencer, Platinum Global, Professional Associated Valuer