Buy-to-let investment property is the purchase of a property with the intention of renting it out to tenants. It is a popular investment strategy in South Africa, as it can provide a regular income and has the potential for capital growth.
If you are considering investing in buy-to-let property in South Africa, there are a few things you need to know. First, it is important to understand the risks involved. Just like any investment, there is the potential to lose money. However, if you do your research and choose the right property, you can minimise the risks and maximise your chances of success.
Another important thing to consider is your budget and investment goals. How much money can you afford to invest? How long are you willing to hold the investment for? Once you have a good understanding of your financial situation and goals, you can start to look for the right property.
Why invest in buy-to-let property in South Africa?
There are many reasons why people choose to invest in Buy-to-Let property in South Africa: Everything you need to know - Some of the key benefits include:
Regular income: Buy-to-let property can provide a regular income stream, which can be used to cover your bond repayments, other expenses, or and provide an ever increasing income for the future.
Capital growth: Over time, the value of your property is likely to increase, providing you with a capital gain if you eventually sell it.
Tax benefits: There are a number of tax benefits available to buy-to-let investors, such as the ability to offset rental income against all your property related expenses. One thing to note is that you can also deduct the interest on your bond from your rental income, which will reduce your tax liability.
Potential to build a property portfolio: Once you have purchased your first buy-to-let property, you can start to build a portfolio of properties over time. This can be a great way to generate a significant income and build your wealth to provide a secure financial future for you and your family.
How to find the best buy-to-let investment property in South Africa
When choosing a buy-to-let investment property, there are a number of factors to consider, such as:
Location: The location of your property is one of the most important factors to consider. Choose an area that is in high demand from tenants and that has good rental yields. Be careful not to choose an area simply because the location is fashionable.
An expert property coach with local area knowledge is indispensable in this regard and can save you a lot of money by directing you to the locations that provide the best return on your investment.
Type of property: The type of property you choose will also depend on your budget and investment goals. For example, apartments are often popular with tenants, and investors alike. In this article I outline 7 reasons why townhouses (apartments) are great investments
Pricing: you need to do your research to establish the correct price for an investment property and not get carried away in the excitement. Always do your monthly cashflows based on expert local area subject rental before signing that offer !
Condition of the property: It is important to choose a property that is in good condition and that does not require any major repairs. This will make it easier to find tenants and will reduce the need for unexpected maintenance costs.
Rental potential: It is important to choose a property that has good rental potential. This means that it should be located in an area where there is high demand for rental properties and that it should be priced competitively.
How to finance your buy-to-let investment property in South Africa
There are a number of ways to finance your buy-to-let investment property in South Africa. The most common way is to get a buy-to-let bond from a bank. An expert bond originator who knows the local property market and has experience with all the major banks is a huge asset to any investor.
The bond originator will them shop around for you to all the major banks and get you the best deal possible - and the kicker here is that it costs you nothing. Your bond is an asset to the bank as they make money out of bonds while providing you the opportunity to invest with other people’s money. The banks pay the bond originator for securing them the business. This definitive guide to buying property in is a good resource for any first time buyer to see the process
However, you may also be able to use other sources of finance, such as personal savings, family loans, or private investors. However, it is important to carefully consider the risks involved before using these sources of finance
Managing your buy-to-let investment property in South Africa
Once you have purchased your buy-to-let investment property, you will need to manage it. This involves:
Finding tenants: Once you have purchased your property, you will need to find tenants to rent it out to. You can advertise your property yourself or you can use a letting agent.
Screening tenants: It is important to screen tenants carefully before you let your property to them. This will help to reduce the risk of getting bad tenants.
Collecting rent: You will need to collect rent from your tenants on a regular basis. This can be done yourself or you can use a letting agent.
Maintaining the property: You will be responsible for maintaining the property and ensuring that it is in good condition. This includes carrying out any necessary repairs.
Dealing with tenant issues: If you have any problems with your tenants, you will need to deal with them promptly. This may involve eviction if necessary.
Tips for successful buy-to-let investing
Here are a few tips for successful buy-to-let investing in South Africa:
Do your research: Before you buy any property, it is important to do your research and understand the market. This will help you to choose the right property and to get a good price.
Get a good letting agent: If you are not sure how to manage your property yourself, you can hire a letting agent. A good letting agent can help you to find tenants, screen tenants, collect rent, and maintain the property. We recomend Targer Properties as expert property managers in the Johannesburg area.
Be prepared for unexpected costs: Things can go wrong with properties, so it is important to have a contingency fund in place to cover unexpected costs.
Have a long-term investment plan: Buy-to-let investing is a long-term investment. Don't expect to make a quick profit. Organic Growth provide property investment coaching to assist you in developing your Property Investment Blueprint. [Click here for more information]
Uncommon terminology – terms you will come across and need to understand
Here are a few uncommon terms that are used in the buy-to-let property market in South Africa:
Gross rental yield: This is the total amount of rent that you can expect to receive from your property each year, divided by the purchase price of the property.
Net rental yield: This is the gross rental yield minus all of the expenses associated with owning and renting out the property, such as bond repayments, insurance, and maintenance costs.
Vacancies: This is a period of time when your property is vacant and you are not receiving any rental income.
Lease: This is a legally binding agreement between you and your tenant that outlines the terms and conditions of the tenancy.
Tenant deposit: This is a sum of money that your tenant pays to you when they move into the property. The deposit is held as security against any damage that the tenant may cause to the property.
Utility costs: The monthly water, sewerage, electricity, waste disposal costs that apply to every property.
Equity: the difference between the value of the property and how much you owe. As a property grows in value, so does its equity. An astute investor knows how to leverage his equity to grow his portfolio though refinancing of a property
Additional Property Investment Tips
Here are a few additional tips for successful buy-to-let investing in South Africa:
Consider buying in a high-demand area: This will help you to find tenants quickly and easily.
Choose a property that is in good condition: This will reduce the need for unexpected maintenance costs.
Make sure that the property is priced competitively: This will make it more attractive to tenants.
Offer a good tenant experience: This includes being responsive to tenant inquiries and requests, and maintaining the property in good condition. An expert property management agent is indispensable in this regard.
Always be on the lookout for one of those rare deals that are there if you look for them. Check out our Rare Butterfly deals page regularly!
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Conclusion
Buy-to-let investment property can be a great way to generate a regular income and to build your wealth over time. However, it is important to understand the risks involved and to do your research before you invest. If you are considering investing in buy-to-let property in South Africa, I recommend that you speak to a local buy to let investment coach like Organic Growth to get advice on your specific circumstances.
Additional tips for young professionals
If you are a young professional who is realises that you are building to financial freedom and are considering investing in buy-to-let property, there are a few things you should keep in mind:
Start small: You don't need to buy a luxury mansion to start investing in buy-to-let property. You can start by buying a smaller property, such as a one-bedroom apartment. In this video below I present a 21 year case study of my first proeprty investment
Educate yourself: Consider how much your education cost and then consider that your formal education taught you almost nothing about property investment. It is essential to educate yourself fully before your take the leap and get expert coaching.
There are simply too many pitfalls waiting to cost the unwary or uneducated investor hundreds of thousands of Rands. Watch this short video to see how I lost more than a million Rand simply because I didn't know better.
Get help from a professional: If you are not sure how to get started with buy-to-let investing, you can get help from a property investment specialist.
Buy-to-let investment property can be a great way for young professionals to secure their financial future. By following the tips above, you can increase your chances of success in this market. Before you spend hundreds of thousands of Rand on a property, speak to us.
Check out this video below to hear how a new investor saved approximately R 100 000 on her first investment property purchase
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FAQ
Frequently Asked Questions:
There are many benefits to investing in buy-to-let property in South Africa, including:
Regular income: Buy-to-let property can provide a regular income stream, which can be used to cover your bond repayments, other expenses, and provide future financial stability
Capital growth: Over time, the value of your property is likely to increase, providing you with a capital gain should you you eventually sell it or decide to refinance it to unlock your equity..
Tax benefits: There are a number of tax benefits available to buy-to-let investors, such as the ability to offset rental income against certain expenses. You can also deduct the interest on your bond from your rental income, which can reduce your tax liability.
Potential to build a property portfolio: Once you have purchased your first buy-to-let property, you can start to build a portfolio of properties over time. This can be a great way to generate a significant income and build your wealth.
When choosing a buy-to-let investment property, there are a number of factors to consider, such as:
Location: The location of your property is one of the most important factors to consider. Choose an area that is in high demand from tenants and that has good rental yields.
Type of property: The type of property you choose will also depend on your budget and investment goals. For example, apartments are often popular with tenants, but they can be more expensive to buy.
Condition of the property: It is important to choose a property that is in good condition and that does not require any major repairs. This will make it easier to find tenants and will reduce the need for unexpected maintenance costs.
Rental potential: It is important to choose a property that has good rental potential. This means that it should be located in an area where there is high demand for rental properties and that it should be priced competitively.
You can find buy-to-let investment properties in South Africa through a number of channels, including:
Real estate agents: Real estate agents can help you to find properties that meet your specific criteria.
Online property portals: There are a number of online property portals in South Africa where you can search for buy-to-let investment properties.
Auction houses: Auction houses can be a good place to find buy-to-let investment properties at a discounted price.There are a number of ways to finance your buy-to-let investment property in South Africa. The most common way is to get a buy-to-let bond from a bank. However, you may also be able to use other sources of finance, such as personal savings, family loans, or private investors.
Buy-to-let bonds are specifically designed for people who are buying a property to rent out.
Ask an experienced bond originator to assist you to get the best deal.
Once you have purchased your buy-to-let investment property, you will need to manage it. This involves:
Finding tenants: Once you have purchased your property, you will need to find tenants to rent it out to. You can advertise your property yourself or you can use a letting agent.
Screening tenants: It is important to screen tenants carefully before you let your property to them. This will help to reduce the risk of getting bad tenants.
Collecting rent: You will need to collect rent from your tenants on a regular basis. This can be done yourself or you can use a letting agent.
Maintaining the property: You will be responsible for maintaining the property and ensuring that it is in good condition. This includes carrying out any necessary repairs.
Dealing with tenant issues: If you have any problems with your tenants, you will need to deal with them promptly. This may involve eviction if necessary.
You can manage your buy-to-let investment property yourself or you can hire an experienced letting agent to do it for you. Letting agents can help you with all aspects of property management, from finding tenants to collecting rent
As a tenant in South Africa, you have the following rights:
The right to live in a safe and habitable property.
The right to have your privacy and belongings respected.
The right to be treated fairly and not to be discriminated against.
The right to receive a written lease agreement that outlines the terms and conditions of your tenancy.
The right to have any disputes with your landlord resolved through a fair and impartial process.
If you feel that your rights as a tenant have been violated, you can contact the Rental Housing Tribunal for assistance.
As a landlord in South Africa, you have the following rights:
The right to receive rent from your tenant on a timely basis.
The right to have your tenant maintain the property in good condition.
The right to have your tenant vacate the property at the end of the lease term, or if they breach any of the terms of the lease agreement.
The right to evict a tenant if they are a nuisance to other tenants or if they damage the property.
If you have any problems with your tenant, you should first try to resolve the issue directly with them. If you are unable to resolve the issue, you may need to take legal action.
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