Ready, set, buy-to-let!

Investing over the long-term is always a daunting prospect – one that takes loads of forward planning, diligence and careful thought. The options are diverse too… yet with low savings rates and stock market volatility, buying property as a buy-to-let investment holds some compelling sway. In this article, we look at reasons to buy-to-let, as well as our top tips for once you’ve made your decision.

As far as long-term investments go, few can compare with buy-to-let property…

1.  Only a deposit is required

Investing in residential buy-to-let properties usually requires that you come up with 10% of the money required to invest. Banks will lend you the other 90% of the purchase price.

2.  Retirement never looked this good

The average household spends a quarter of their gross monthly income on rent or their bond repayment. So if you buy four townhouses, then wait for your tenants to pay off your bonds, you will be able to retire on the average townhouse dweller’s income.

3.  Someone else pays for your investment

When you purchase a buy-to-let property and your tenant pays a rental that covers your monthly bond and levy costs, they are the ones paying for your investment – not you!

1. Crunch the right numbers

The first step is to take a good look at your own finances. Visit a bond originator and find out what kind of mortgage you qualify for, and then consider how comfortable you’d be with those repayments should the interest rates rise or your personal monthly expenses climb. Don’t forget about bond, transfer and conveyancing fees either – they can add a significant amount to the bottom line.

Under this point, keep in mind that the amount you can borrow in relation to the value of the property tends to be lower for buy-to-let home loans (this means you’ll require a larger deposit). Instead of taking your income into account, banks will look at the rental (and resale) potential of the property when awarding loans.

We suggest being conservative when considering affordability, especially as a first-time investment buyer. Being forced into an early sale because of financial distress is a sure-fire way to lose money on a buy-to-let investment. Rather, start small and be absolutely sure that you can weather any surprises that come your way.

2. Ask the right questions

There are many factors to consider when choosing a buy-to-let property, these include:

·       What can you realistically afford?

·       What type of property do you want to buy? How many bedrooms?

.       With or without a garden? Ready to rent or in need or renovation?

·       What kind of tenants do you want – a family? A group of students?

.        Young professionals?

·       In which areas are there lots of these types of people looking to rent?

·       Is demand for rental property in the area likely to increase in the near future?

·       What is the average monthly rental in the area you’re looking to purchase?

·       What is the additional cost of rates, utilities and levies?

·       How close are transport links and other important amenities?

3. Choose the right rental yield

In our experience, high rental yields don’t always signify the better investment. Over the long term, a property with a lower rental yield but high capital growth may well outperform a property with higher rental yield and low capital growth. You have to look at both the long and short term benefits of an investment property, and choose one that will suit your specific priorities and cash flow.

So if you’re interested in buying to let, find a local real estate agent with expert, up-to-date knowledge. Contact your local Rawson Neighbourhood Experts to get the ball rolling.

For more information visit www.rawson.co.za
 

 

 

 

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