And his team are responsible for all residential-property lending. Here is his advice on how to build your property portfolio
nvesting in rental property is a great option. Your return is twofold – capital appreciation of your investment (value of your property) and the monthly rental income.
The property will eventually pay itself off as rental-income appreciation will help with your bond repayments. Once the property is paid off, this rental income becomes an additional cash flow.
Your rental income will depend on a number of factors. These include location, demand versus supply, general maintenance, and the look and feel of your property (modern versus dated).
When talking rental portfolios as an investment, you will need to consider the following:
In whose name will the property be registered – your personal name, your 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.
The costs associated with rentalproperty portfolios must also be considered. This will incorporate all the costs of buying a property:
Bond costs – attorneys’ fees and bank initiation fees.
Transfer duty (tax paid on the property to the SA Revenue Service).
Ongoing costs like sectional-title levies, rates and taxes, insurance.
Maintenance and upkeep of the property.
Another important factor to consider is whether you want to place the tenants yourself and manage the rental income and tenant liaison, or if you want to use rental agencies to do this for you at a cost. If you do this yourself, you will need to:
Find your own tenant and do background checks yourself, and draft your own rental agreement/lease. Collect your monthly rental. Manage any tenant issues around property maintenance like plumbing and electrical problems.
In a worst-case scenario, you will need to manage all legalities and evictions.
The advantage of doing this is that you always know what is happening with your property and you can manage your costs effectively. If you use an agent, the agency will do the following:
Place a tenant and do the background checks, and make sure that a signed rental agreement/lease is in place.
They will collect your rental and pay this to you net of any costs.
They will manage tenant issues like plumbing and electricity.
They will manage any evictions in the worst-case scenario.
However, the latter will come at a cost to you. This will include: A once-off placement fee. Monthly management fees, which are about 8% to 10% of your rental income.
If structured correctly, agent’s fees may be taxdeductible.
Do note that your obligations as a property owner do not disappear once a tenant has been placed. You will still be liable for paying all your monthly repayments to the bank and any of the costs mentioned above.
Praven Subbramoney EXTRA INCOME Residential properties within the vast Steyn City mixed-use development in the north of Johannesburg.In terms of land surface area,Steyn City which is approximately six times the size of the Sandton city centre,is the largest single residential development ever undertaken in South Africa.