Learn about the Pro’s and Con’s
If you are in the fortunate position of having enough capital to invest in property, then you might be thinking about buying to let. It’s an attractive idea – simply buy a property, lease it out and watch the money come in every month.
However, it doesn’t always work out like that. In fact, while investing in the right property can pay off handsomely, the wrong decision can cost you dearly.
Let’s take a closer look…
Ground rules
Screen your tenant.
A good tenant is one that pays on time without ever defaulting. That way, your high returns are assured. It’s important to check up on a prospective tenant’s track record, credit history, and how much they can afford.
A managing agent can help you with the screening process as well as all the legal papers that have to be signed before anyone can occupy the property.
Regular maintenance.
Much as an unserviced car will cease to perform at its best, your investment property needs to be maintained regularly. Taking the trouble to renew the paint and keep up with wear and tear on fixtures and fittings will pay off in the long run, as you won’t be forced to foot the bill when problems accumulate over time.
Don’t leave it for when things are falling apart, or your rental money will be diverted
into repairs, and you won’t make any profit at all. Furthermore, a well maintained property will be attractive to new tenants.
One way to judge the quality of your investment is whether you have to make shortfall payments: in other words, money that you, as the owner,
have to pay in to make up the difference for the monthly bond repayment or levies.
It goes without saying that shortfall payments should be as low as possible, and you should have a plan to eliminate them entirely within two to three years, so that you start seeing a surplus.
Incorporating an annual rental increase in your lease contract will help reduce the shortfall.
Capital gains
Real estate investment has such a good international reputation because property values tend to increase in value over time. This is where the property investor needs to be guided by location, price and the market to make a sound investment. It’s a long-term game that is unsuitable as a get-rich-quick scheme, but rewards the patient investor who takes the trouble to understand the business.
