Many South Africans consider buying property to rent as an investment. However, Business Day reports that residential rental performance across the board has worsened since last year. This is due to people not being able to manage their credit agreements once an increase in the interest rate takes its toll. Renters and property owners experience this issue, and in many cases, those who consider buying will opt to wait until the interest rate starts to fall again.
Once people are ready to look at purchasing property to rent, there are several comparisons to make. Does one choose a location closest to businesses where people would work or the cosiest suburb; what are the crime rates in a particular area; would it be better to purchase a townhouse or freestanding home; what developments and amenities are in the area?
Derek Wilson, Head of the online quote and benefits comparison website, Hippo.co.za, comments on the following considerations when buying property to rent:
Location is an important consideration as it could be more, or less costly in the long run. Business Day advises that Johannesburg traditionally gives you a better yield in rental income than the Western Cape. So whilst you may wish to buy a beach house that you plan on living in at a later stage, it may take longer to pay off than when buying property in Johannesburg.
People may consider compromising on safety in certain areas, in order to save on property costs. Areas with higher crime rates may be less costly, but it will not only deter potential renters, it also places you at a higher risk and therefore results in higher property insurance. You could therefore end up paying more in the long run.
Type of property
The type of buy-to-rent property depends on your financial position as well as tenant expectation. If you wish to purchase a free standing or full sectional home, you will need to have the necessary funds or obtain clearance from the bank for a sufficient homeloan or bond account. This type of property will attract renters such as families. If you are only able to afford a bachelor’s flat or two bedroom apartment, this will likely attract younger tenants such as newlywed couples or students. Whichever your position, it is advisable to get an estate agent to assist you in managing the process from selecting the best type of property to screening and contracting suitable tenants.*
One important factor that tenants consider when looking for a place to rent, is amenities such as schools, supermarkets, shopping malls and restaurants. Being close to these amenities may be ideal if you are renting out a family home, but the traffic caused around these may cause frustration to younger working tenants. The younger tenants may rather be interested in being close to amenities such as clubs and pubs, which is not ideal for older people with children. You should therefore consider the types of amenities in relation to the type of property and the type of tenants it will attract.**
If you are considering buying property to rent out, buildings or property insurance will always be your responsibility. Just as you compare certain aspects when purchasing property, you should also compare from different building insurers to ensure you get the best deal suited to your specific needs. Hippo.co.za is an easy, free to use online platform where you can compare buildings insurance prices and benefits form a range of leading South African providers.
“You’ll never know whether you are paying too much for insurance, unless you compare before you buy or switch to a new provider,” states Wilson.
Established in 2007, hippo.co.za is South Africa’s leading comparison website that helps consumers save money by comparing a range of SA providers across financial products such as car insurance, home insurance, life insurance, medical and more. Hippo is free to use and saves consumers the time and hassle of shopping around for the best deal since the Hippo.co.za website instantly retrieves real-time quotes from the different providers using the latest Internet technology. At least 8 out of 10 people could save an average of R427*** per month on their car insurance.
Hippo.co.za makes money by simply charging its partners a fee when a customer chooses to find out more about their products. The results consumers see, and the order in which they are presented, is in no way influenced by the fee hippo.co.za charges its partners or any other factors other than the price of the product being compared.
For more information, visit us on www.hippo.co.za, connect with Hippo on LinkedIn, http://www.linkedin.com/company/hippo-comparative-services-pty-ltd/, like us on Facebook, www.facebook.com/HippoSA, and follow us on Twitter @Hippo_co_za and YouTube, http://www.youtube.com/user/hippocompare.
Hippo Comparative Services (Pty) Ltd is an authorized financial services provider (FSP number: 16357).
***Based on a representative market research survey conducted by Kaufman Levin Associates, on behalf of Hippo.co.za in May 2014. Risk Profile Dependent.