Investing in the buy-to-let market is a rising trend and there has been a notable uptick in this sector over the last few years, but many newbie landlords are beginning to feel the pinch, especially those who have invested in properties for the Airbnb and holiday market.
The slower tourism numbers and seasonality has meant that many now have to resort to placing their properties into the residential letting market according to Ms Natalie Muller, sales manager for Seeff Atlantic Seaboard, Waterfront and City Bowl. We see this especially in the high demand holiday areas, but it is actually common across many areas, she says.
The challenge for a novice buy-to-let investor, is that it is easy to overlook the complexities and pitfalls. So, while investing in a rental could be a great way to build wealth and create a residual return, there are many complexities to be aware of. She highlights a few important aspects:
Is there demand for your rental property?
Probably the most important consideration before committing to a substantial financial investment, is to find out whether such a property is in fact in demand for rental accommodation. All too often, buyers and investors think they can get high rentals by investing in an expensive unit, when in fact, it is the more moderately priced, mid-market properties which attract sustainable demand. Many also think that just because there is a substantial holiday market in Cape Town, more units are needed, but there is now somewhat of an oversupply of holiday accommodation.
How much rent can I charge?
The next important aspect is to understand that thinking that you can pass on your bond and other costs to the tenant will be fine. It is not. Each area has a range in terms of the rentals which can be charged to attract tenant interest and there are always price ceilings. Just because your property is the biggest in the neighbourhood does not mean that it can get a higher rate. Bear in mind too that the more expensive the property, the longer it takes to fill. When it comes to holiday rentals, supply and seasonality are two big factors to consider.
Are there laws and regulations which apply?
The rental sector is regulated by a number of laws, most notably the Rental Housing Act and its amendments. If government has its way, more regulation may well be on its way for the Airbnb market. Stricter compliance issues include that the property must be fit for habitation and investing your tenant's deposit in an interest-bearing account for the benefit of the tenant. You also cannot just deduct anything off the deposit without following due process, and you must refund the deposit within a prescribed timeframe.
Do I need a lease agreement for my property?
In terms of the amendment to the Rental Housing Act, you will now have to provide your tenant with a written agreement. Ensure that the contract is watertight because there are many protections for tenants. The CPA (Consumer Protection Act) for example allows the tenant the right to terminate for no reason whatsoever, subject to agreed penalties, which should preferably be defined in the lease agreement.
Why should I use a rental agent?
The rental business is complex and challenging and unless you are in the business of rentals, it can be time consuming and costly if you do not know how to manage the challenges. The point of using an agent, is that they provide the skills and expertise that you lack.
A rental agent must be registered with the EAAB (Estate Agency Affairs Board) and in possession of the relevant qualification and a valid Fidelity Fund Certificate. That means that they will possess a certain skill level and must operate within the framework of the Code of Conduct for Estate Agents.
A professional EAAB registered property expert will save you time and frustration, having confirmed that the stranger you are placing in your home meets your requirements, considering the potential risk. Comprehensive checks are conducted to ensure that the tenant has a good credit and rental record and adequate income to afford the rental.
Rental agents have been trained and are qualified to be able to assist with proper rental valuations, provide expert advice, and to step in to assist when there is a discrepancy between landlord and tenant.