The Complete Guide for Buying-To-Rent

Investing in property to rent is still considered a solid investment in the local market, and with the most recent reports indicating that luxury rentals are on the rise again, Cape Town continues to be a fantastic opportunity for a savvy investor to garner positive returns and generate a stable passive income.

"We have seen a tremendous resurgence in the long-term rental market since December last year," says The Agency's Managing Director Kyle Leigh.

"This big bounce back is partly due to semigration, while the consistent popularity of the Atlantic Seaboard and Southern Suburbs means that properties don't sit on the market for long."

"Rentals are getting prices that we last saw pre-covid, if not better, showing us that long-term rentals are incredibly strong right now."

But investing in a rental property needs to be done with a considered approach with several factors to consider before diving into the market.

Understand the area you're looking to invest in

Before buying a property to rent, you need to know the current market value of the area it's located in to ensure you will be able to make a return on your investment. Just like you would consider the price of neighbouring houses when buying a property to live in yourself, you need to know what other properties are making in rent and price yours accordingly. Pushing the rental costs too high may lead to an empty property. There are a number of sources for this information, including property rental websites, while a credible agent can also help you navigate this. 

Understand the costs involved

Any investor knows that they need to be secure when investing in a rental property, but apart from the long-term costs associated with any property purchased - and up-front costs such as transfer duties, bond registration and deposit - you will also need to consider maintenance of the property, while an increase in rates and taxes may also cut into your perceived bottom line. And remember, not all that rental is yours, with landlords having to pay tax on money received from tenants.   

Will the rent cover the costs?

Speaking of rent, make sure what you bring in monthly will help cover the bond repayments on your investment property. Make sure you do the right sums and that your costs are considered and offset by what you are asking in rent. Remember, it's not just the bond repayments, but also maintenance, income tax, and if you go that route, the payment to the agency handling all the admin for you.

Hands on or hands off?

Another important factor to consider before buying your rental property is whether you will be managing it yourself or hiring an agency to do it for you. Do it yourself and you will be obliged to handle all the admin and heavy-lifting yourself, while an agency may cost you further, it relieves you of the stress and time-constraints that come with being a hands-on landlord.

Short-term rentals

Companies like Airbnb and booking.com have opened up a new stream of income for many property owners in South Africa, whether they look to manage the process themselves or place it in the hands of rental agencies.

But while it is an attractive option to enter the short-term rental market, there are some things to bear in mind before leaping into it.

Currently, there are no laws prohibiting the use of your property on Airbnb, but in cities such as Cape Town, there are by-laws in place and zoning regulations that may come into play.

You would also do well to check the rules and Constitution of your Body Corporate or Home Owners Association before listing your property on Airbnb. In most cases, you will have to receive consent from the Home Owners Association or Body Corporate in order to avoid future complications.

For more on what to consider when investing in a short-term rental: https://www.theagencygroup.co.za/news/things-to-consider-when-investing-in-short-term-rentals/

"Short-term rentals are also seeing a nice bounce-back post-Covid," says Leigh, pointing to the return of tourism as one driver of this resurgence in the market, with AirBnB enjoying a healthy bump.

"Landlords are seeing nice returns in this market and no doubt this will continue to build over season later this year."

It's understandable why investing in a rental property in Cape Town is an attractive option, with the city's property market always a solid investment, but before making the move, make sure you speak to the experts.

"Sale prices have remained fairly steady for a while now," says Leigh of the current market.

"And it is actually a great time to look at investment properties, despite the recent interest rate hike.

"We are still very much in a buyer's market and savvy investors will definitely look to take advantage of the current climate."