What makes a buy-to-let a good property investment
Avoid costly mistakes by following these 5 basic property rules, writes Lesiba Mooka
Does simply buying a property to lease out and collect rent every month make for a good investment; unfortunately not all the time. If done correctly, investing in a rent producing property can yield outstanding returns. However if done wrong this investment will prove very costly, with the investor losing a lot of money.
By following these five basic rules of property investment can save an investor from making a gaffe of their investment and make great returns.
1. Good tenants
Having a good tenant in your rental property that pays on time every month and never defaults on their payments is the key to high returns on a rental property.
By screening tenants before they take occupation of the property will help an investor choose the best tenant with a good track record, credit history and can afford. With the help of a managing agent good suitable tenants can be screened beforehand and all legal paper work completed before the tenants can take occupancy of the property.
2. Less maintenance
Regular maintenance of your investment property such as renewing the paint on the walls and fixing wear and tears on taps and doors will reduce the high costs of maintenance.
Many an investor tends to neglect their rental properties and only conduct maintenance when things in the property are falling apart. This leads to most of the rental money collected from the tenant being used on fixing the property rather than used towards paying for the bond or as an extra income to the investor. Maintenance should be done regularly to keep the property in a good condition and attractive to new tenants.
3. High returns on rental income
A property that is in a good area with high demand for rental properties will yield excellent returns on rent every month. This does not necessarily mean the rental price must be astronomical but the rate of vacancy should be low and the rent realistic to the area.
A rental property should always be competitive in price and must be well maintained. If a good tenant is placed in the property and the property is well looked after, then the owner will get the best out of the property and tenants will be willing to pay the asking rental charge.
4. Low monthly shortfall
The lesser an investor has to pay money from their pocket to make up for the difference in either monthly bond repayments or levies the better the investment.
A shortfall payment which is the difference that an investor has to pay monthly to make up the total amount required by the property should be as low as possible. This does not have to be archived by charging high rentals but by doing your homework on the property before purchasing it. On a good investment, an investor should start seeing a surplus from the rental income collected after 24 to 36 months if all due diligences were made prior to investing in the property.
Annual rental escalations which should be incorporated into lease contracts will also assist in reducing the overall shortfall that an investor has to pay out of their pocket monthly.
5. Capital gains
What makes investing in real estate one of the best investments worldwide, is its ability to yield good capital gains over a period of time. Property values have shown great positive nominal increases over the past 40 or so years, with statistics only showing 3 declines during this period.
Therefore as an investor it is important to invest in properties which have potential to increase in value over time. And by using property investment factors such as location, price, and market as guide, an investor will be able to purchase property which will give great capital gains.
As the old saying goes, property investment is not for a short term but long term investing but to see excellent outcomes an investor must invest time and attention to their properties.
About Lesiba Mooka: Lesiba Mooka is the founder and CEO of Cobalt Blue Properties an all-inclusive property services firm. Mooka is a real estate entrepreneur from Mahwelereng, Mokopane in Limpopo, with an undying love for investing in different kinds of properties and helping others build a solid property portfolio of their own. You can also find him on Twitter at @CobaltBlueProps.