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How to invest in residential property like a pro

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Despite the rollercoaster ride that South Africa’s economy has endured over the past decade, one asset class that consistently outperforms the stock markets is property. But is this still the case in 2020?

Ben Shaw, CEO of digital long-term letting platform HouseME, believes that opportunities still exist for savvy investors, particularly in the buy-to-let market.

“Investing in property is a decision made with long-term focus, so potential investors need to consider the future as well as the current state of the country,” says Shaw.

“HouseME’s research indicates that 2020 will see the property market bottoming out, with prices stabilising before a slow recovery in the last quarter, which implies that now is a better time to buy based on pricing dynamics. Despite the impact of the Land Expropriation Bill, which was quietly published in the National Gazette in November, South Africa’s population growth and continued urbanisation bodes well for investment.” 

What’s hot right now?

Shaw says that certain nodes are showing surprising resilience in the current economic climate, particularly KZN’s coastline and ultra-luxury rentals.

“We’re also finding that new residential hubs that facilitate freelance work – for example Rosebank in Johannesburg and Claremont in Cape Town – are beginning to grow outside of CBDs, and these areas may continue to see significant rental increases over time as jobs accommodate a shift to this lifestyle.” 

Add to this the millennial trend of opting to rent rather than buy, and investing in buy-to-let properties looks like a sure-fire way to ensure passive income into the future. Young working professionals are also keen to establish good credit records which means that, in general, younger renters are becoming better payers.

HouseME’s pro tips

With access to the wealth of data that a digital letting platform provides, Shaw offers advice to potential investors on how to further enhance their investment property’s rental income returns and reduce vacancy levels. 

“While there is currently an oversupply of rentals in major cities, with some vacancy rates upward of 8.0%, HouseME’s data indicates that pet-friendliness, secure parking, renovated kitchens and bathrooms, and access to pre-installed fibre internet access are all significant factors in finding and securing quality tenants. We’ve also noticed that short response times for viewings are an advantage as tenants are spoilt for choice, and simply look at the most-easily accessible viewings before making a decision.”

Shaw recommends taking advantage of current low interest rates to secure refinancing options for renovations or overdue maintenance. “This is especially valid if your unit is vacant as it has the dual-benefit of increasing the property’s capital value, while making it more attractive to prospective tenants. Better-equipped units command higher rental, which improves returns. We also suggest updating the photographs of your unit to be reflective of reality and to showcase the property’s best features. The best option is to use professional photographers, as we we’ve learnt at HouseME,” he says. 

Decisions, decisions

When it comes to renting properties furnished or unfurnished, Shaw says that demand depends on area and price-point. “Interestingly, we see that at the higher price-points (R20,000+) furnished is more appealing, as the tenant typically travels city-to-city, or is involved in international business. In lower rental brackets, unfurnished is the norm, although this trend is bucked in shared property communes.”

“Our advice is to identify which type of tenant you are seeking, and then to offer the experience they most want specifically, as opposed to applying a general rule of thumb. For example, young professionals seek different amenities and benefits to senior citizens.”

What about the short-term versus long-term rental markets? Shaw says that while short-term rentals provide a higher yield per week, more management is required and higher vacancy levels are experienced.

“Conversely, while the long-term rental market offers lower weekly yields, vacancies are lower and the administrative burden is reduced. The cyclicality of return is such that over the course of a full year, the returns are very similar, when factoring in vacancy rates and cost of administration. In fact, our data indicates that HouseME’s landlords out-earn many managed landlords simply because of our 2.5% fee.”

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