Your different investment property options

by | Apr 8, 2016 | Financial, Mafadi, Property, Property Management |

Your different investment property options

Buying the correct investment property can be a tricky decision, simply because with property there is no one size fits all approach.  Each investment property will have its own advantages and disadvantage.  By understanding your different investment property options you will be able to make a better informed investment for your lifestyle.

Let’s have a look at your different investment property options…

1. Student Investment Property

Students Investment property is always a good idea, simply because of the ample amount of tenants.  Another advantage is that many student will co-sign their accommodation lease with their parents. This should eliminate some chance of students falling behind on rent.

The downfall with student investment properties are that they tend to take far more work to manage and maintain correctly, and if not managed correctly they can become a small nightmare.

I say this because students don’t tend to be the most responsible renters.  They are easy going in simply they don’t care too much.  The important part of student investment properties are that you have to be picky with the quality of tenant you choose.  As a landlord you have the right to simple say no to a potential tenant and say yes to another.  Please don’t take this as any form of discrimination, but you find good and bad tenants in all cultures and income groups.  

Be selective of the person that you want to rent your property, not their background.

Advantages:

  • Ample amount of tenants.

Disadvantages:

  • The quality of tenants may not always be first class. Making noisy tenants and maintenance issues a concern.

Mafadi student rentals has many existing options for students.  We also specialise in property management specifically for students investment properties.

2. Holiday Investment Properties

Holiday Investment Properties are a risky business.  Simply because location is key, and location can change very easily from holiday season to the next.  I remembered there was a time when Margate was the holiday destination, but at some point Margate become old news and the northern beaches of Durban became the new holiday hot-spot.

Holiday homes are great if you can truly afford them, meaning can you cover the monthly cost + mortgage without having to be reliable on rental returns – on and off peak.  The rental returns on holiday homes needs to be an added benefit and nothing more.  Many landlords have been extremely disappointed with the amount they can ask during off peak season and the difficulties that arrive during peak season.

Maintenance can also be a major problem with holiday homes, especially if your primary residence is far away.  For these owners I would recommend to get well acquainted with the local service providers.  Ask the entire community on which gardeners, plumbers, electricians, pool and general handymen are reliable and trustworthy.  

Advantages:

  • It’s great to be in the privileged situation to be able to afford a second home, not necessarily a second investment property.

Disadvantages:

  • Rental returns can be few and slim.
  • Maintenance always stays a concern and a costly expense.

3. Upmarket Investment Properties

Buying too big and expecting too much rent can be financial suicide.  It is for this reason that you should always first do all the necessary research in knowing exactly what your return on investment will be with any investment property.  You should know the amount of months your property will be standing empty, the prep cost between tenants and the amount of bad debt you will gain with defaulting tenants.

“A recent report released by FNB and TPN indicated that only 77.5 percent of those paying rent of R25 000 original more per month were regarded as being in good standing. While 22% (the percentage of tenants who defaulted on payments in this sector) may not seem like a big deal, it needs to be remembered that 88.4% of those who were paying between R7 000 and R12 000 were found to be in good standing.”  Meaning you will have a 10.9% less chance of defaulting payments with a cheaper investment property compare to Upmarket properties.

10% Seems like a percentage to be taken into consideration, it is for this reason that I would recommend investing in property that has the potential benefit of:

  1. Capital growth and return, even with a property crash
  2. The average tenant can manage the rental rate.  This opens up the market for potential tenants as there will be far more options to choose from.  Many couples can afford between R7000 – R12000 a month, but few can afford R25 000.
  3. An investment property that can functions for more than one type of tenant.  Not just a holiday home or student res, but something that gives potential to all rental types.

Advantages:

  • Return on investment can be profitable.  

Disadvantage:

  • Your investment property has to be kept in pristine condition, making maintenance a regular expense.
  • A big mortgage and a few empty months can result into bad debt on your side.
  • Property crashes tends to hit this financial market of properties the hardest.  Something to always keep in mind.

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Written by Lizl Brink, Lizl is copywriter and designer based in Johannesburg, she is also a frequent contributor to the Mafadi blog, and as an Urban investor and rejuvenation shares a passion for urban regeneration, go check out her personal portfolio here
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