Top buy-to-let tips

The faltering South African property market has pushed up the demand for rental property as potential buyers sit on the sidelines.

Saul Geffen, chief executive of mortgage originator ooba, said that rental yields are rapidly improving, underlining the investment case for buy-to-let.

"The price boom of the last decade pumped up the capital values of property, outstripping the rises in rents which is typical of a bull market in house prices.

"But now that house prices are stagnant and falling in some areas and the rentals are on the rise, the rental yields have picked up making buy to let an attractive proposition once again."

According to residential letting agents Trafalgar, rents are moving upwards with the Trafalgar rental index for December 2007 up nine percent on December 2006.

Tips for investing in a buy-to-let property:

Choose a promising area

Promising does not mean most expensive or cheapest. Promising means a place where people would like to live and this can be for a variety of reasons. Which areas in your town has special appeal? Where are the good schools for young families? Where do the students want to live?

Have a look at the homes to buy nationwide at

Do the maths

Before you think about looking around for properties sit down with a pen and paper and write down the cost of houses you are looking at and the rent you are likely to get.

Shop around

Do not just walk into your bank and ask for a mortgage. It sounds obvious, but people who do this when they need a financial product typically end up with a lower rate concession on their mortgage.

Use a credible originator who can negotiate with all the banks on your behalf to get the best deal.

Think about your target tenant

Instead of imagining whether you would like to live in your investment property, put yourself in the shoes of your target tenant. Who are they and what do they want? If they are students, it needs to be easy to clean and comfortable but not luxurious. If they are young professionals it should be modern and stylish but not overbearing. If it is a family they will have plenty of their own belongings and need a blank canvas.

Don't be over ambitious

The days of double digit house price rises are gone for now, so you should invest for income not short-term capital growth. Over time capital gains will kick in, but you'll need to be patient.

Consider looking further afield

Most buy-to-let investors look for properties near where they live. But your town may not be the best investment. The advantage of a property close by is being able to keep an eye on it, but if you employ an agent they should do that for you.

Cast your net wider and look at areas that are popular with families and have good commuting links or other advantages like a sizeable university.

Haggle over price

As a buy-to-let investor in a soft property market, you should haggle to get a good price. If you are not reliant on selling a property to buy another, then you are not part of a chain and represent less of a risk of a sale falling through. This can be useful when negotiating the price.

Know the pitfalls

Before you make any investment you should always investigate the negative aspects as well as the positive. The general consensus is that house prices are relatively stable, but they may drop slightly or even considerably.

If that is the case will you be able to continue your investment? Even in popular areas properties can sit empty. One rule of thumb many buy-to-let investors apply is to factor in the property sitting empty for two months of the year — this gives a substantial buffer. Homes often need repairing and things can go wrong. Do not invest yet if you do not have enough in the bank to cover a major repair to your property.

Consider how hands-on you want to be

Buying a property is only the first step. Then you need to decide if you'll rent it out yourself or get an agent to do so. Agents will charge you a management fee, but will deal with any problems and have a good network of plumbers, electricians and other workers if things go wrong. You can make more money by renting the property out yourself, but be prepared to give up weekends and evenings for viewings, advertising and repairs.

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