Investing in a rental, need to know

The opportunity to earn rental income might sound attractive, but there are many pitfalls to investing in rental property.

Seeff’s agents give advice.

Can you afford it? It is vital to ensure that you are financially able to afford a second property and that you can withstand the financial impact of tenants who don’t pay or periods when your property is vacant. Aside from the risk of a non-paying tenants or vacant periods, you must ensure that you are able to fund ongoing maintenance and other related property costs.

How much rent can you earn? Different areas achieve different rates and with the exception of a few high end areas, most have a price ceiling of what can be achieved. That means that even if you have a mansion, it can only achieve a particular rental. Check out the rates for the particular area and consider seasonality as well as the economic risks which may mean that you have to lower you rates at times.

Is the property in the right area? Not all areas attract high rental rates and not all areas are suitable to Airbnb or holiday rentals. Coastal areas and golf and lifestyle estates might be popular for holiday rentals while areas close to business nodes and sporting facilities are suited to business or short lets. Access to schools, business nodes and transport networks are ideal for residential rentals.

Furnished or unfurnished? If you are looking at the Airbnb, holiday or short-term rental market, then it would need to be furnished. Holiday accommodation generally also needs a few extras such as a TV with satellite stations and basics in the kitchen and bathroom. For long-term residential letting, it is generally best to keep the property unfurnished.

Keep it maintained and insured. A rental investment is a hands-on commitment. Unless you can keep a close eye, rather appoint a rental agent to manage it on your behalf. You will need to invest in maintenance to keep the property in a good condition. High numbers of guests coming and going mean more wear and tear and more maintenance. Be sure to also keep your investment insured.

Be careful about who you let in. Delinquent guests and tenants are every landlord and property owner’s worst nightmare. As if it is not enough that they behave badly, they may also damage your property. It is for this reason that you should not equip your rental with anything that is too fancy, but rather stick to durable finishes and only what is needed.

Know about the impact of earnings on taxes. The income that you earn on a rental property will be subject to tax and you will need to add it to your taxable income, but you can also claim any costs incurred for aspects such as maintenance against the income. Speak to a tax consultant about your options.

Are you aware of the legalities? Aside from Rental Laws, there are also local bylaws relating to whether you may operate holiday or Airbnb rentals in a particular type of property or area. Sectional property for example may need additional permission. While relatively unregulated currently, there are plans to introduce legislation around Airbnb, so be aware of that.

Generally, the advice is always that you should take great care before leaping into a rental investment, especially if you are a first timer. Rental agents play a vital role in the industry, assisting property owners and landlords to ensure their assets are protected and they can maximise their earnings. Be sure to contact your nearest Seeff office for the right advice and assistance.

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