By Neil Vorster
Is owning an investment property a good idea? Just how good is the buy to let market? What if my tenant wrecks my property investment?
I hear these questions all the time.
Underlying these questions is fear of the unknown. People are saying, “what are the traps? If it is so good why isn’t everyone doing it?”
For the man in the street, investing in property involves overcoming a myriad of fears and misconceptions. Research has shown people to exclude themselves from massive opportunities through belief in ungrounded fears.
So, yes, a tenant can wreck your investment property! While this is possible, with proper management and a good lease agreement this problem can be mostly mitigated. Primarily, one has to view the “potential problem” in the light of the truth.
The truth is, despite your best attentions you may experience the fabled “bad tenant”. How bad can it be? Let us have a look at the damage he can cause and quantify it in relation to the rental and the capital growth of the property.
Assume we are talking about a 2 bedroom townhouse in a good area of Johannesburg where property values are growing at about 8% per annum (in 2013). That is, your R600 000 townhouse with a rental of R5 000 per month will grow in value by R48 000 over next twelve months.
|Your “bad tenant” can…||Repair costs.||Relative cost|
|wreck your carpets||R5 000 to replace||1 month’s rental|
|trash your stove||R5 000 to replace||1 month’s rental|
|trash your kitchen||R10 000 to replace kitchen units||2 month’s rental|
|mess up your walls||R2 500 to repaint||Half a month’s rental|
The damage might be shocking when you see it, but look at the numbers. Should it stop you from investing in the first place? Especially when you realise that your unit will grow in value by R48 000 per annum—which is nearly 10 months rental?
My “aha” moment occurred when I realised that even if my tenant trashes my investment property, I still win. Investing in townhouses is a great idea and the investment returns are awesome.
In addition to that, good property management mitigates against most of these abovementioned eventualities, thus making excessive property damage a rare thing indeed.
…and as they say in the cheap midnight TV ads, that’s not all!
A good managing agent has direct links with the respective credit agencies which becomes a powerful weapon in the landlord’s arsenal. The total cost of damages are totalled and the ex tenant is billed accordingly. Failure to pay will result of a default or judgement on his credit record.
In our experience the defaulting ex tenant hastens to pay when he next tries to get credit. Gone are the days when a tenant can trash your property and move on to do the same to the next one.
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That leaves me with a question or two. Please answer and comment freely below and share on the social media buttons provided.
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