While the opportunity to earn rental income by renting out your home, or part of it, or investing in a second property for the rental market is enticing, there are essentials and pitfalls to be aware of.
These include:
Location and potential
Not all areas or property types are in demand when it comes to rentals. Before you undertake an expensive investment in a property to rent out, it is vital that you first research the area to determine whether there is a demand for rentals in the suburb, what type of properties are popular for rentals and importantly, how much rent you can charge.
Short-term vs long-term
There is a big difference between short-term and long-term rentals. Long-term rentals tend to be for periods of around one year and the rental rates are usually lower than for short-term rentals, but you have more security as you know that your property will be occupied. While short-term rentals tend to deliver higher rental returns, they require high maintenance and management. Long-term is also often preferred as tenants look after the property better since they have to continue living there.
Pitfalls of short-term rentals
People are often swayed by how much money they think they can make on short-term rentals but forget that it is a competitive market and requires a lot of time and effort. It might also work out costly from a maintenance perspective as you will have people constantly coming and going in your property. You may also have to provide extras including furniture, furnishings, bedding and the like, which would come at an additional cost.
Time and effort required
Managing a rental property takes a lot of time and effort, from sourcing and screening potential tenants to ongoing management to ensure the rent is paid on time and the property is well maintained. A rental property is not a passive investment, but one that requires active and ongoing involvement.
Financial buffer
You will need to manage the finances of your rental property and ensure that you have the financial resources and funds on hand in the event that something goes wrong at the premises. If you have a tenant in occupancy, you need to be able to respond quickly and adequately to any maintenance and emergencies.
Insurance and security
It is vital that you ensure that you have adequate insurance on your property to cover not just the basics, but for any eventuality including for example SASRIA cover for special risks in high risk areas. Be sure to also install good security to protect your property.
Tax affairs
Rental income earned is subject to personal tax although you will be able to deduct expenses in connection with your rental property from the tax due.
Choose your rental agent carefully
These days most rental property owners prefer to make use of a rental agent. In such event, it is important to choose carefully so that you can be sure that your property is taken care of properly and that you have good tenants in place who pay their rent on time and look after your asset.
Investing in a rental property can be an excellent decision, but it requires thorough investigation and ongoing supervision and administration to ensure that you do not end up with delinquent tenants who have to be evicted as this can be a lengthy and costly process.