How to be a suc­cess­ful land­lord

Lesotho Times - - Property -

SO you’re in­ter­ested in in­vest­ing in a rental prop­erty? This is a great way to di­ver­sify a prop­erty port­fo­lio and can be lu­cra­tive - if done cor­rectly.

This is ac­cord­ing to Praven Sub­bra­money, CEO FNB Pri­vate Bank Lend­ing, who says rental prop­er­ties have long at­tracted investors be­cause the re­turn is twofold: firstly, investors ben­e­fit from cap­i­tal ap­pre­ci­a­tion and se­condly, there is the ben­e­fit of the monthly rental in­come.

Struc­tured cor­rectly, the prop­erty should even­tu­ally pay for the bulk of the monthly bond re­pay­ments in line with rental-in­come ap­pre­ci­a­tion. “What’s more is that once the prop­erty is paid off, the rental in­come trans­lates into an ad­di­tional rev­enue stream,” he says.

Of course it is vi­tally im­por­tant to thor­oughly con­sider the costs re­lat­ing to a rental prop­erty be­fore pur­chas­ing it. “Ini­tial costs in­clude bond costs, at­tor­neys’ fees, bank ini­ti­a­tion fees and trans­fer duty. On­go­ing costs in­clude sec­tional-ti­tle levies (if ap­pli­ca­ble) rates and taxes, in­sur­ance and main­te­nance.”

He says it’s also im­por­tant to con­sider the le­gal­i­ties in­volved with rental prop­er­ties. “For in­stance, in whose name will the prop­erty be reg­is­tered? Will it be reg­is­tered in your own name, a fam­ily trust or a prop­erty hold­ing com­pany? In whose name will the loan/ debt be taken out? It is im­por­tant to know this for tax pur­poses and for es­tate plan­ning.

“And then of course there is the is­sue of the rent. The rent you charge will de­pend on sev­eral fac­tors. These in­clude prop­erty type, lo­ca­tion and prox­im­ity to ameni­ties as well as sup­ply and de­mand.”

In terms of prop­erty type, there’s no real ‘limit’ as to what con­sti­tutes a rental prop­erty, says Sub­bra­money. “A rental prop­erty can take the form of an apart­ment, a house, a re­tire­ment home or a lodge for that mat­ter. That said, the mar­ket for each dif­fers greatly.”

If for ex­am­ple you buy a flat, it would prob­a­bly ap­peal mainly to bach­e­lors, young, small fam­i­lies or stu­dents, he says. In other words, it will ap­peal to a fairly broad cross-sec­tion of ten­ants. Houses on the other hand tend to ap­peal mainly to large fam­i­lies seek­ing space to spread their wings.

Sub­bra­money says flats are gen­er­ally cheaper to pur­chase than houses. “At the end of the day, the type of prop­erty you pur­chase will de­pend en­tirely on your af­ford­abil­ity and long-term goals.

“Ob­vi­ously the prop­erty’s lo­ca­tion will also play an im­por­tant role in how much rent you can charge. The na­ture of the area as well as the prop­erty’s prox­im­ity to shop­ping malls, schools and trans­port routes are all key points ten­ants con­sider when look­ing at rental prop­er­ties.”

He says gen­eral sup­ply and de­mand in the area will also dic­tate what you can charge. “If there are a lot of sim­i­lar prop­er­ties avail­able for rent in the area, chances are you will have to of­fer a com­pet­i­tive rate to at­tract ten­ants. If there is a short­age of rental stock and the area is in high de­mand, you should be able to charge a pre­mium.”

An­other im­por­tant fac­tor to con­sider when weigh­ing up whether or not to buy a rental prop­erty is whether you want to man­age the rental your­self or if you want to use a rental agency to do this for you, says Sub­bra­money. “If you do han­dle the rental your­self, you will need to un­der­take all the rental du­ties re­lat­ing to the prop­erty which can be stress­ful and time-con­sum­ing. An agency will es­sen­tially carry out the same du­ties but at a cost.”

Lastly, should you choose to in­vest in a rental prop­erty, he ad­vises you do ev­ery­thing you can to en­sure that your fi­nan­cial af­fairs are in or­der be­fore ap­ply­ing for a bond. “Qual­i­fi­ca­tion for a bond will de­pend en­tirely on your unique fi­nan­cial cir­cum­stances and your abil­ity to re­li­ably ser­vice a loan.”

Struc­tured cor­rectly, the prop­erty should even­tu­ally pay for the bulk of the monthly bond re­pay­ments in line with rental-in­come ap­pre­ci­a­tion.

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