Your life changing unexpectedly? Becoming a landlord may help
Although it may not have been a homeowner’s original intention to become a landlord and let out his or her property, there are certain situations in life where the need may arise; be it the need to relocate for work or dealing with short-term financial difficulty that needs to be addressed. If the end goal is to hold onto the property, letting it out could be a feasible option.
“Looking at both the advantages and disadvantages will help determine whether letting out your property is the best decision in your current situation,” says Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett.
“The local market conditions of the given suburb will also need to be considered. While becoming a landlord can be beneficial in many instances, the success of this decision will depend on rental demand in the area and the unique circumstances of the homeowner.”
Money math
Many homeowners may choose to let out their homes when they suddenly need an extra source of income. But, this is only a financially viable option if the homeowners can either afford to rent or buy somewhere else for less than their current bond repayments, or if they have a spare room in the home that can be rented out. In an ideal scenario, the rental income can then be used to pay the bond on the property, as well as other expenses related to the home, such as rates and levies.
Even in the instance where the money received in rent is not enough to cover all the associated costs, it will still provide the owner with some financial relief.
“However, if the homeowners intend to purchase another home, they may need to use the equity generated from the sale of their previous home as the deposit on their new home, as this will help lower their monthly instalments on the new home. If this is the case, then letting out the home may not be the best financial option,” he cautions.
Pros and cons of tenants
Homeowners may also need to let out their homes if they have to temporarily relocate for work. “While there is a certain amount of manageable risk to having a tenant in the home, leaving the home unoccupied can come at a greater cost. If the home is vacant, it can become a target for thieves, vandals or squatters. This is especially true if the owner has relocated to another city or province and cannot keep an eye on the property on a regular basis. The right tenant can provide protection for the property and assist in maintaining it,” Goslett suggests.
As a bonus, if the homeowner decides to relocate permanently and needs to sell the property, there is always the possibility that the tenant may purchase it. The tenant may have been renting while they are saving for a deposit or to cover other costs associated with a property transaction and could be the ideal buyer. The rental deposit could also be used as part of the purchase deposit.
However, if the tenant does not want to purchase the home, Goslett warns that they may not be very cooperative during the sales process and could make it difficult for buyers to view the property. “There is also the risk that the tenant has done little to ensure the upkeep of the property or has caused damage. There is always a chance that landlords may deal with a delinquent tenant who is costing them money to evict and/or possibly causing damage to the property. Incurring additional expenses such as lawyer’s fees eliminates any benefits of renting the property out. Luckily, this risk can be mitigated to a degree by proper vetting and background checks on all possible tenants,” says Goslett.
Agents
Managing a rental property could prove to be rather difficult, especially if the homeowner is living in another city. To maximise the benefits of becoming a landlord while minimising the associated risks, Goslett recommends that all landlords hire a property management agent who has the expertise to effectively vet tenants, collect rent and ensure the property is looked after.
“Life continues to be unpredictable as we battle against the spread of Covid-19. My advice to homeowners who find themselves in unexpected situations during these unprecedented times is to reach out to a local real estate advisor and find out what their options are. Up to date on the latest trends within their suburbs, real estate professionals can advise whether it is better to rent, buy or sell in response to any unexpected changes in the homeowner’s living and working situation,” Goslett concludes.