But people always need a place to live, so investing in buy-to-let property remains a rock solid investment.
It’s not difficult to see why:
- Interest rates are rising, so home ownership becomes more difficult. This leads to an increased demand for rental properties.
According to bond originators ooba, demand for buy-to-let financing has grown significantly over the past year, and property management software experts, WeconnectU, report that the number of residential leases has grown by 23% over the past 12 months, and rentals have increased from R8,581 to R8,852 per month on average.
- Vacancy rates are improving averaging 6.8% in Q4 2022, down from 7.8% in Q3 2022, according to property consultants Rode and Associates. The Western Cape has the lowest vacancy rate of 3.3%, and Gauteng a vacancy rate of 8,2%, still high, but an improvement on previous quarters.
- The number of tenants in good standing is improving. According to credit bureau TPN, tenants in good standing improved overall during 2022. Of those paying rent of between R12,000 to R25,000 per month, 87% paid on time, and in the R7,000 and R12,000 per month bracket, 88% paid on time. This exceeds pre pandemic levels, indicating that the rental segment has fully recovered from the pandemic.
- The best property acquisition deals are in slow markets when everyone is being cautious.
- If you are in a position to buy right now, residential buy to let properties are a great investment in slow markets. Slow market conditions are typically caused by high mortgage rates. High mortgage rates limit the buyers pool meaning less competition when you are offering on a property. This is the time to be very aggressive with your offers. Start as low as possible and only make incremental increases to offer price if seller counters your offer.
- Limited buyers means bigger rental pool which in turn drives down vacancy rates and pushes up monthly rent.
- Make sure you run your numbers on any acquisition to include the possibility of future rate hikes. As much as I like to limit the deposit I pay on property purchasers, this is the time to put down as big a deposit as possible to assist with your cashflow.
- Make sure you apply for financing with as many financing institutions as possible. If you only apply with one bank only the bank wins. If you make them bid against each other, you win. And remember, interest rate offers are negotiable. Banks will always offer you a rate that is higher than what they may finally accept, so negotiate, negotiate, negotiate.
Members of my website can go to the “Managing your Portfolio” tab to find some great information on running a property portfolio.
You can also find useful precedent agreements. The “Closing the Deal” tab also has some tried and tested techniques for negotiating agreements of sale.
Article by Sylvia Walker