Buying an investment property to let | Here's what you need to know
For those looking to purchase an investment property, buying-to-let is still one of the most attractive options. It offers both securities in terms of real estate and an option to craft a lucrative side business as a landlord. Yet, despite the relative resilience of the property market, there's more to real estate investment than meets the eye.
Hamiltons Property Portfolio takes a closer look at some crucial questions you must consider before making that final Offer To Purchase.
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Leveraging property over stock
There seems to be this strange recurrence of people straying away from buying to let due to several factors, chief among them being the attraction of investing in the stock market instead. And while a 10-year stock market cycle shows a general increase of 10% in return, the property market generally supersedes this, with many homes (based on location) yielding a much higher return over the same time period in price since 2008. With significant investments comes risk; while this concern has merit, it is as old as time. Whether it be the lack of capital or the sizeable risk factor governing their decision-making.
READ: What you need to know before investing in buy-to-let residential property
Regardless of the situation, the first question you must ask yourself is...
Does it make financial sense?
Location, Location, Location. The age-old adage seemingly holds regardless of the time. To get a realistic idea of the type of returns you can expect, doing a survey of rentals of similar properties within the area should always be your first priority. The more market related your rent, the more likely you attract tenants. This, however, goes hand in hand with the amenities on offer and the location. You should also consider the state of the economy should finding a tenant be difficult; low-interest rates help cover the bond during a time of no occupancy.
Considering your potential return
Often referred to by investors as the "Rental Yield", this figure is your golden sum and is relatively simple to calculate. Rental yield is the annual income generated by the property divided by its value and expressed as a percentage. Take, for example, the yield of R4 million home on which annual rent is R480 000 (or R40 000 a month). The yield on this would be 12% per annum.
READ: The benefits of investing in property for your financial future
Receiving independent advice
Whether you're looking to extend your bond or get a different sort of loan, the options you have are relatively similar. The question to ask is whether or not you need to go for a fixed or variable rate. Both options have pros and cons, but we are often limited by inexperience, so speaking to an expert property practitioner or bond originator is critical.
03 Feb 2023
Author Property24