You’ve finally decided to take on that second bond. You’re excited because you’ve needed the extra income for quite some time and finally decided to take the plunge. However before you take the plunge, beware of what to expect when becoming a landlord. If the process is not handled correctly, you may experience sleepless nights from troublesome tenants and piling unexpected expenses. We’ve detailed five things to consider when deciding to be a landlord:
- Understand the Commitment Involved
While having another person pay for your bond sounds very lucrative, do not be fooled into thinking it’s a hobby. It is a business which demands your attention and patience. Financial and time commitment is involved as you need to budget for maintenance work and also cater to the tenants’ needs. To keep tenants happy, you need to provide them with prompt service.
Rental income could serve you well since real estate has proven to be a great hedge against inflation. However, this investment is more hands on than most, so we advise doing your homework before you buy.
- Think Smart When Buying Property
We cannot stress this enough. Sometimes it’s not about finding the biggest property with the most amenities close by, but about finding the right balance between the size of the home and the amenities. Properties closer to schools and public transport are often the most sort after. Three-bedroom, two-bath single-family homes and one- or two-bedroom apartments are also often the ideal properties. It is further advisable to stay close to your property so that when needed, you can attend to issues promptly and also see what needs to be done timeously.
- Understand Property Zoning
When planning to rent out property, you need to be familiar with the local laws. Be aware of property zoning and how it applies to different areas in South Africa. There are three basic categories of zoning - residential, business and industrial – and each category is then further sub-divided into different zones. In some areas, the zoning restrictions do not allow for certain properties to be rented out.
- Screen Your Tenants
This is where the importance of estate agents comes in. They handle this process on your behalf. Firstly, they ensure that your property is listed on sites that are solely used to advertise properties, and not general listing websites. This ensures that your property is listed safely. They also screen your potential tenants by doing their FICA checks. They review their credit reports, verify employment and income, conduct background checks for any criminal or civil arrests, and check references. This helps because they are able to determine if a client will be able to pay the rent without living from paycheck to paycheck, and how likely they are to make timely payments.
On this same token, try to avoid renting out to family members. We all know the complications that this comes with because they sometimes expect you to let certain things slide. That is not good for business.
- Budget for Repairs and Maintenance
You need to ensure that you have kept money aside for major repairs, also referred to as capex – capital expenditures. They often include what you spend on large repairs like a new roof, appliances or windows. Oftentimes, landlords expect tenants to do all the repairs, but this is not correct. They only deal with wear and tear. Generally, you need to check on your property every six to twelve months.
If you don't have the time to dedicate your time to closely managing your property, or want to save yourself some stress, you may seriously want to consider hiring a real estate company to do some of it for you. In that way, half your problems are gone.
These are a few of the most crucial considerations and precautions that you need to be aware of before you decide on being a landlord. Once you've checked all the boxes, you're well on your way to reaping great profits from the venture.