Should you sell or become a landlord?

If you’re a homeowner whose job suddenly demands that you transfer to another town – or country – for a while, you could have a tough time deciding what to do with your property.

“Many work-related moves these days are only for the duration of a specific project or contract, so it is not surprising that those who have already acquired a property often decide not to sell their ‘home base’, but to let it out while they’re away and rent a temporary home themselves in the new location,” says Berry Everitt, MD of the Chas Everitt International property group.

“Their decisions are usually influenced by the degree of difficulty they have had in acquiring the property – saving for a deposit, qualifying for a loan and so on – and their willingness or unwillingness to through that process again. The length of time they have owned the property can also play a role, because high property transaction costs could see them lose money if they sell too soon after buying.”

However, he says, the decision to become a “landlord” is definitely not one to be taken lightly. It can carry considerable risks, and it entails additional responsibilities and obligations, so a critical factor in the success of such a plan is the choice of a managing agent you really trust to act in your interests.

Writing in the Property Signposts newsletter, Everitt says the costs of maintaining a rental property - many of them “hidden” - can seriously erode the rental received. “And if there is a sudden downturn in the property market, or a tenant absconds, the financial consequences can be serious for the owner who is also paying rent or another home loan instalment elsewhere.”

The costs that must be considered by the prospective landlord are municipal rates, regular maintenance costs (which may be higher than if the owner was living in the property), comprehensive insurance, property management (usually 10 to 15% of the monthly rent) and the "turn" costs (cleaning, repairs, painting and advertising when there is a change of tenant).

“Most experienced landlords also build in a vacancy rate contingency of about 5% for safety, depending on the current market, and all of this can absorb up to 40% of the total rental, so if you then account for a monthly home loan instalment on the property, there is unlikely to be much, if any, profit.”

On the other hand, he notes, the property itself will usually keep growing in value, especially if it’s in a sought-after area, and if you already have a lot of equity and a reasonably low home loan balance, it could really be worth your while to keep it and let it out.

“But before you decide either way, you really should consult a qualified property professional who knows the area well and can advise knowledgably and realistically about rental levels and property price prospects. If you do then opt to become a landlord, an experienced agent will also have a much better record of selecting properly-qualified tenants, will see to it that the property is properly maintained and will be able to handle evictions promptly and tidily if these should become necessary.”

Article by: www.chaseveritt.co.za

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