Property is often considered one of the most attractive and popular investment opportunities available. This might owe something to the fact that we all need somewhere to live and having your home double up as an investment seems like a logical choice. The major factor that makes property so appealing, however, is the fact that, done right, if can offer extremely high returns compared to other investments over a similar term.
Buying a property for the purpose of renting it out is an excellent way to take advantage of the potential capital growth of a property, while minimising your costs and, therefore, your risk. Opportunities vary from city to city, and suburb to suburb, so it’s important to assess not only the potential capital growth of your investment purchase, but also the amount of rent you can charge and what portion of your costs it will cover.
According to Nancy Todd, the Rawson Property Group’s Constantia franchisee, when it comes to capital appreciation, Cape Town’s southern suburb of Rondebosch is a goldmine. “Capital appreciation in Rondebosch usually outstrips the average in the rest of Cape Town, and quite possibly the rest of the country,” she says, pointing out the fact that consistently high demand for rental properties in the area also makes it a fairly safe bet.
“Virtually any property in Rondebosch is lettable,” says Todd, “such is the demand and scarcity of supply. The best options, however, tend to be for student use, because of the easy access to UCT and the other tertiary institutions in the area.”
“The most important factor when it comes to choosing a buy-to-let investment to rent to students is the number of bedrooms,” says Todd. “Great money has been made on large, freehold properties with five or more bedrooms,” she reveals, “but smaller sectional title properties also do very well, and they tend to be more affordable investments. Generally speaking, the less expensive the property, the higher the monthly returns – although that does depend on what you can charge in rental.”
Todd estimates that rental on an average property in Rondebosch should be able to cover up to 70% of your monthly bond repayments. “With reasonable rental escalations, you should be able to cover all your costs within five years,” she says.
The buy-to-let environment in the nearby suburb of Claremont is also thriving, according to Irwin Heinrich, the Rawson Property Group’s Cape Metro M4 franchisee. “Buyers are seeing capital appreciation of between 15 to 20% a year,” he reveals. “UCT does play a pivotal role in the area’s growth, and we’re seeing a huge demand for rentals in secure blocks and complexes. Freehold properties also do well, but they cost more to buy and to maintain, so the immediate returns may not be as high as on sectional title properties.”
When choosing an investment property in Claremont, Heinrich advises paying close attention to security, as it’s a common concern for rental clients and can affect the desirability of your property. “To get the best rental returns, look for something with secure parking and neat, modern finishes,” he says. “Demand is highest for properties renting at between R5k to R12k per month, and you can expect between 8 to 10% escalation, year on year.”
“Buyers can expect to cover upwards of 60% of their bond repayments with their rental,” Heinrich continues, “but property prices in the area are rising, so buy sooner rather than later.”
Southern Suburbs student accommodation isn’t the only thriving buy-to-let sector, and Adrian Viljoen, from the Rawson Property Group’s Brackenfell Rentals franchise, reveals the extraordinary potential within his own suburb.
“Because of the relatively affordable prices of properties in Brackenfell, we’re seeing landlords covering up to – and sometimes over – 80% of their bond repayments with their rental,” he says. “There is a high demand for freehold property rentals from families who can’t afford to buy, but generally speaking the income-to-cost ratio is better on sectional title properties.”
“Freehold properties might rent for higher amounts,” he continues, “but they require constant maintenance to achieve the standards that tenants expect for the price they pay. Sectional title is easier, since you only need to maintain the inside of your unit, but you do need to make sure you buy into a development with a good record for spending your levies wisely.”
Viljoen’s advice to people looking for buy-to-let investment properties in Brackenfell is to avoid being seduced into overpaying. “It doesn’t matter if it’s pretty - if the price is not right, walk away and go to the next one. You’re looking for the best return with the least amount of outlay.” He also warns against overcapitalising when upgrading your property, but stresses the importance of basic maintenance on things like paintwork, carpets and gardens.
Whichever suburb or property type you choose to invest in, the experts all agree that a thorough knowledge of the local market is vital for success. Compare purchase prices carefully, ask about capital appreciation trends in the area, and always have a professional rental evaluation done prior to making a purchase.
For further information please visit the Rawson Property Group’s website at www.rawson.co.za.
