7 Reasons why townhouses are great buy to let property investments in South Africa
By Neil Vorster
You have many options open to you when deciding on a buy to let property investment in South Africa. How do you decide which is the best one? I could analyse the list of all the types of residential properties open to you, such as houses, clusters, duets, flats, timeshare units, shareblock, farms and vacant land.
But, why not just cut to the chase and tell you why I believe townhouses are best?
1. You have dozens of other owners looking out for your interests
A sectional title townhouse complex is governed by a body corporate, which is run by a group of trustees voted in by the owners. In most townhouse complexes, there is a mix of tenanted and owner-occupiers. Not all the units in complexes in South Africa are buy to let property investments, as more than half are generally owned by the occupants who remain very involved in the management of the body corporate.
The owner-occupiers are the investors friends, because;
- they make sure order and maintenance is kept
- they are generally price sensitive and so bring pressure on the Body Corporate to keep levies down
- they live on site and have a vested interest to ensure the complex is well run
This leaves you the investor to play golf and sleep well knowing that your investment is well looked after.
2. The caretaker
Many of the larger townhouse complexes have a live-in caretaker. Buy to let investors please listen up - this relationship is worth cultivating! A caretaker is a veritable mine of useful information. Tenants who cause a nuisance in a complex and don’t abide by the rules generally are bad rental payers too. It seems to go with the territory. If the caretaker contacts you with regard to your tenant’s behaviour, watch out, you are going to have to keep a tight rein on your tenant.
The caretaker is also the one likely to tip off the police when drug or other illegal activities are evident.
Many years ago I bought a townhouse in a run-down complex that was crawling with Nigerian drug dealers. Meeting the new caretaker helped me make the decision to buy the bargain. One of the first things she did was tip off the police who raided at 4 am. After one or two of those 4 am SAP visits, the drug dealers all vanished to safer territory to ply their trade. I love caretakers!
3. The Body Corporate ( BC)
The owners are all members of the sectional title body corporate and elect a board of trustees to run the affairs of the complex. They are entrusted with the maintenance, management and general order of the complex. They are generally empowered to dish out fines to offending occupants, be they tenants or owners. As a landlord, make sure your lease requires that your tenants abide by the BC rules and are responsible for any fines that may be imposed.
Security is a major concern in South Africa and one of the primary attractions of townhouse living, is the secure gated environment they provide. In addition to the 24 hour security, the guards are a wonderful source of new tenants for landlords. Although they are seen mainly as access control, no obvious crime or loud drunken party is going to unnoticed. A well run complex with good security guards is a real asset to investors.
5. The gardens
Again the body corporate and caretaker take full responsibility for the upkeep of the gardens. I know of investors who own houses (and the same applies to duets, clusters) whose tenants have neglected the garden terribly. By going on holiday for 3 weeks in summer and leaving your garden un-watered your tenants could carelessly wreck your garden.
Townhouse complexes are generally found grouped together, resulting in hundreds of similar townhouses in a concentrated geographical area. This enables one to very easily establish the market-related purchase prices and market-related rentals before you buy. Knowledge is power, and having the foreknowledge of achievable rentals is essential to successful investing.
7. Funding of buy to let property investments
Townhouses are generally cheaper than houses which make the purchase prices, and hence barrier to entry, lower. Various benefits unique to townhouse complexes like security and communal entertainment facilities ensure that the rental returns for the investor are generally a higher than for houses and clusters.
Townhouses are great buy to let property investments and remain my favourite investments for entry level and seasoned investors alike.
If you have found this article on townhouse buy to let property investments interesting or informative, please like it on the Facebook share button below and thereby show it to your friends.
Some news is just too good to keep to one-self!
Here are answers to some frequently asked questions:
What about Student Accommodation as an investment?
I am not in favour of student accommodation as an investment as a whole;
1) Price: Because I find it too expensive as an investor. The market is governed by a captive market of buyers who have very little other options so tend to overspend.
2) Vacancy risk : What about he risks of your tenant dropping out halfway through the year? How do you find a student who only wants accommodation for half the year?
What about Body Corporate levy increases?
As an owner in a sectional title complex, you have a voting right and the authority to speak in any special general meeting or annual general meeting where levies are agreed upon.